<SUBMISSION>
<ACCESSION-NUMBER>0001047469-08-004385
<TYPE>S-4
<PUBLIC-DOCUMENT-COUNT>25
<FILING-DATE>20080410
<DATE-OF-FILING-DATE-CHANGE>20080409
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>KRATOS DEFENSE & SECURITY SOLUTIONS, INC.
<CIK>0001069258
<ASSIGNED-SIC>4899
<IRS-NUMBER>133818604
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1228
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>S-4
<ACT>33
<FILE-NUMBER>333-150165
<FILM-NUMBER>08748398
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>4810 EASTGATE MALL
<STREET2>.
<CITY>SAN DIEGO
<STATE>CA
<ZIP>92121
<PHONE>858-812-7300
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>4810 EASTGATE MALL
<STREET2>.
<CITY>SAN DIEGO
<STATE>CA
<ZIP>92121
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>WIRELESS FACILITIES INC
<DATE-CHANGED>19990817
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>S-4
<SEQUENCE>1
<FILENAME>a2183215zs-4.htm
<DESCRIPTION>S-4
<TEXT>
<HTML>
<HEAD>
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<FONT SIZE=3 ><A HREF="#08ZAT42501_1">QuickLinks</A></FONT>
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 </FONT> <FONT SIZE=2><B>As filed with the Securities and Exchange Commission on April&nbsp;9, 2008  </B></FONT></P>

<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><B> Registration No.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> <hr noshade width=100% align=left size=4>
<hr noshade width=100% align=left size=1>  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=4><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION<BR>  </B></FONT><FONT SIZE=2><B>Washington, D.C. 20549  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=4><B>Form&nbsp;S-4<BR>  </B></FONT><FONT SIZE=2><B>REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF&nbsp;1933  </B></FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=5><B>KRATOS DEFENSE&nbsp;&amp; SECURITY<BR>
SOLUTIONS,&nbsp;INC.<BR>  </B></FONT><FONT SIZE=2>(Exact name of registrant as specified in its charter) </FONT></P>

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<TD WIDTH="32%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Delaware</B></FONT><FONT SIZE=2><BR>
(State or other jurisdiction of<BR>
incorporation or organization)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="32%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>4899</B></FONT><FONT SIZE=2><BR>
(Primary Standard Industrial<BR>
Classification Code Number)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="32%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>13-3818604</B></FONT><FONT SIZE=2><BR>
(I.R.S. Employer<BR>
Identification Number)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=5 ALIGN="CENTER" VALIGN="TOP" style="font-family:times;"><BR><FONT SIZE=2><B>4810 Eastgate Mall<BR>
San Diego, CA 92121<BR>
(858)&nbsp;812-7300</B></FONT><FONT SIZE=2><BR>
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)</FONT></TD>
</TR>
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<TD COLSPAN=5 ALIGN="CENTER" VALIGN="TOP" style="font-family:times;"><BR><FONT SIZE=2><B>Eric DeMarco<BR>
President and Chief Executive Officer<BR>
4810 Eastgate Mall<BR>
San Diego, CA 92121<BR>
(858)&nbsp;812-7300</B></FONT><FONT SIZE=2><BR>
(Name, address, including zip code, and telephone number, including area code, of agent for service)</FONT></TD>
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<TD COLSPAN=3 ALIGN="CENTER" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
<BR></FONT> <FONT SIZE=2><B>Copies to:</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>WITH A COPY TO</B></FONT></TD>
</TR>
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<TD WIDTH="45%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Marty B. Lorenzo<BR>
Sagar M. Brahmbhatt</B></FONT><FONT SIZE=2><BR>
DLA Piper US&nbsp;LLP<BR>
4365 Executive Drive, Suite&nbsp;1100<BR>
San Diego, CA 92121<BR>
(858)&nbsp;677-1400<BR>
(858)&nbsp;677-1401 (facsimile)</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Otto E. Sorensen</B></FONT><FONT SIZE=2><BR>
Luce, Forward, Hamilton&nbsp;&amp; Scripps LLP<BR>
600 West Broadway, Suite&nbsp;2600<BR>
San Diego, California 92101<BR>
(619)&nbsp;699-2534<BR>
(619)&nbsp;645-5324 (facsimile)</FONT></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Approximate date of commencement of proposed sale of the securities to the public:<BR>
As soon as practicable after this registration statement becomes effective and all other conditions to the proposed merger described herein have been satisfied or waived.  </B></FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General
Instruction&nbsp;G, check the following box.&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this Form is filed to register additional securities for an offering pursuant to Rule&nbsp;462(b) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this Form is a post-effective amendment filed pursuant to Rule&nbsp;462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

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<TH WIDTH="32%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Title of Each Class of<BR>
Securities to be Registered</B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amount to<BR>
be Registered</B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="18%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Proposed Maximum<BR>
Offering Price<BR>
Per Share</B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="18%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Proposed Maximum<BR>
Aggregate<BR>
Offering Price</B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amount of<BR>
Registration Fee</B></FONT><BR></TH>
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<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2>Common Stock, par value $0.001 per share</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>32,500,000(1)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>N/A</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>$69,550,000(2)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>$2,733.32</FONT></TD>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
number of shares of common stock of the registrant being registered is based upon (x)&nbsp;an estimate of the maximum number of shares of common stock, no par value, of SYS, a
California corporation ("SYS") presently outstanding or issuable or expected to be issued multiplied by (y)&nbsp;the exchange ratio of 1.2582 shares of common stock, par value $0.001 per share, of
the registrant, for each such share of common stock of SYS.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Estimated
solely for the purpose of calculating the registration fee pursuant to Rule&nbsp;457(f) under the Securities Act of 1933, as amended. The proposed maximum aggregate
offering price for the common stock is the product of (x)&nbsp;$2.14, the average of the high and low sales prices of SYS common stock, as quoted on the American Stock Exchange, on April&nbsp;7,
2008, and (y)&nbsp;32,500,000, the estimated maximum number of shares of SYS common stock that may be exchanged for the shares of common stock of the registrant being registered. </FONT></DD></DL>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall
file&nbsp;a further Amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section&nbsp;8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section&nbsp;8(a), may determine.</B></FONT></P>

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<P style="font-family:times;"><FONT COLOR="#FF4040" SIZE=2><B>The information in this joint proxy statement/prospectus is not complete and may be changed. We may not sell the securities offered by this joint
proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This joint proxy statement/prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities in any jurisdiction where an offer, solicitation or sale is not permitted.</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT COLOR="#FF4040" SIZE=2><B>PRELIMINARY&#151;SUBJECT TO COMPLETION&#151;DATED APRIL 9, 2008</B></FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> <A NAME="bc42501_proposed_merger_#151;your_vote_is_very_important"> </A>
<A NAME="toc_bc42501_1"> </A>
<BR>    PROPOSED MERGER&#151;YOUR VOTE IS VERY IMPORTANT    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the boards of directors of Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., a Delaware corporation
("</FONT><FONT SIZE=2><B><I>Kratos</I></B></FONT><FONT SIZE=2>") and SYS, a California corporation ("</FONT><FONT SIZE=2><B><I>SYS</I></B></FONT><FONT SIZE=2>"), has approved a strategic merger, combining Kratos and
SYS. We believe that the proposed merger will allow Kratos and SYS to be better positioned to compete in the rapidly evolving defense and security solutions industry. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
and SYS have entered into an Agreement and Plan of Merger and Reorganization pursuant to which SYS will merge with a newly formed, wholly-owned subsidiary of Kratos, with SYS
surviving the merger as a wholly-owned subsidiary of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the proposed merger, SYS shareholders will receive 1.2582 shares of Kratos common stock for each share of SYS common stock. This exchange ratio is fixed and will not be adjusted to
reflect stock price changes prior to the closing. The stockholders of Kratos will continue to own their existing shares, which will not be affected by the merger. Upon completion of the merger, SYS's
former shareholders will own approximately 24% of the then outstanding shares of Kratos common stock, based on the number of shares of Kratos and SYS common stock expected to be outstanding on the
closing of the merger. The value of the merger consideration to be received in exchange for each share of SYS common stock will fluctuate with the market price of Kratos common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on the closing sale price for Kratos common stock on February&nbsp;20, 2008, the last trading day before public announcement of the merger, the 1.2582 exchange ratio represented
approximately $2.65 in value for each share of SYS common stock. Based on the closing sale price for Kratos common stock
on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008, the latest practicable date before the printing of
this joint proxy statement/prospectus, which we refer to as this Proxy Statement, the 1.2582 exchange ratio represented approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;in value for each share of SYS common
stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
common stock is listed on The Nasdaq Global Select Market under the symbol "KTOS." SYS common stock is listed on the American Stock Exchange under the symbol "SYS." We urge you to
obtain current market quotations for the shares of Kratos and SYS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Your vote is very important.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The merger cannot be completed unless Kratos stockholders approve the issuance of Kratos common
stock and SYS shareholders adopt and approve the merger agreement. Each of Kratos and SYS is holding a meeting of its stockholders to vote on the proposals necessary to complete the merger, and in the
case of Kratos, to approve certain other matters described in this Proxy Statement. Information about these meetings, the merger and the other business to be considered by stockholders is contained in
this Proxy Statement. We urge you to read this Proxy Statement carefully.</FONT><FONT SIZE=2><B> You should also carefully consider the risk factors beginning on page&nbsp;24.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Whether or not you plan to attend your respective company's meeting of stockholders, please submit your proxy as soon as possible to make
sure that your shares are represented at that meeting.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>The Kratos board of directors unanimously recommends that Kratos stockholders vote FOR the proposal to approve the issuance of Kratos common stock, which is
necessary to effect the merger.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>The SYS board of directors unanimously recommends that SYS shareholders vote FOR the proposal to adopt and approve the merger agreement.</B></FONT></P>

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<IMG SRC="g257133.jpg" ALT="SIGNATURE" WIDTH="168" HEIGHT="30">
 </B></FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>
<IMG SRC="g939552.jpg" ALT="SIGNATURE" WIDTH="216" HEIGHT="82">
 </B></FONT></TD>
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<TD WIDTH="49%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Eric M. DeMarco<BR></FONT> <FONT SIZE=2><I>Chief Executive Officer and President</I></FONT><FONT SIZE=2><BR>
Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Clifton L. Cooke, Jr.<BR></FONT> <FONT SIZE=2><I>President and Chief Executive Officer</I></FONT><FONT SIZE=2><BR>
SYS</FONT></TD>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the
securities to be issued in connection with the merger or determined if this Proxy Statement is accurate or complete. Any representation to the contrary is a criminal offense.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Proxy Statement is dated&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008, and is first being mailed to stockholders of Kratos and SYS on or
about&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008.
 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="bf42501_notice_of_annual_meeting_of_st__not02139"> </A>
<A NAME="toc_bf42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008    <BR>
</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>To the Stockholders of Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
annual meeting of stockholders of Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc. will be held at&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008 at&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.m.,
local time, for the following purposes: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
elect five directors for one-year terms or until their successors are elected and duly qualified. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
ratify the selection of Grant Thornton&nbsp;LLP as Kratos' independent auditors for the fiscal year ending December&nbsp;28, 2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve an amendment to the Kratos 1999 Employee Stock Purchase Plan to increase the aggregate number of shares that may be issued under the plan by 1,500,000 shares. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve an amendment to the Kratos 2005 Equity Incentive Plan to increase the aggregate number of shares that may be issued under the plan by 3,000,000 shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve the issuance of Kratos common stock, par value $0.001 per share, pursuant to the Agreement and Plan of Merger and Reorganization, dated as of
February&nbsp;20, 2008, by and among Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., White Shadow,&nbsp;Inc., and SYS, as the same may be amended from time to time (the
"</FONT><FONT SIZE=2><B><I>Share Issuance</I></B></FONT><FONT SIZE=2>"). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve any motion to adjourn or postpone the annual meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at
the time of the annual meeting to approve the first five proposals listed above. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
transact such other business as may properly come before the annual meeting or any adjournment or postponement thereof. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying Proxy Statement further describes the matters to be considered at the meeting. A copy of the Agreement and Plan of Merger referenced above has been included as </FONT> <FONT SIZE=2><I>Annex&nbsp;A</I></FONT><FONT SIZE=2> to the Proxy
Statement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Kratos board of directors has set&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008 as the record date for the annual meeting. Only holders of record
of Kratos common stock at the close of business on
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008 will be entitled to notice of and to vote at the annual meeting and any adjournments or
postponements thereof. Any stockholder entitled to attend and vote at the meeting is
entitled to appoint a proxy to attend and vote on such stockholder's behalf. Such proxy need not be a holder of Kratos common stock. </FONT><FONT SIZE=2><B>To ensure your representation at the annual
meeting, please complete and return the enclosed proxy card or submit your proxy by telephone or through the Internet.</B></FONT><FONT SIZE=2> Please vote promptly whether or not you expect to attend
the annual meeting. Submitting a proxy now will not prevent you from being able to vote at the annual meeting by attending in person and casting a vote. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>The Kratos board of directors unanimously recommends that you vote FOR the proposal to elect five directors for one-year terms or until their
successors are elected and duly qualified; FOR the proposal to ratify the selection of Grant Thornton&nbsp;LLP as Kratos' independent auditors for the fiscal year ending December&nbsp;28, 2008;
FOR the proposal to approve an amendment to the Kratos 1999 Employee Stock Purchase Plan to increase the aggregate number of shares that may be issued under the plan by 1,500,000 shares; FOR the
proposal to approve an amendment to the Kratos 2005 Equity Incentive Plan to increase aggregate number of shares that may be issued under the plan by 3,000,000 shares; FOR the proposal to approve the
Share Issuance; and FOR the proposal to approve any motion to adjourn or postpone the annual meeting to a later date or dates if necessary to solicit additional proxies.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>By
Order of the Kratos Board of Directors, </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>
<IMG SRC="g257133.jpg" ALT="GRAPHIC" WIDTH="168" HEIGHT="30">
  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>Eric
M. DeMarco<BR></FONT> <FONT SIZE=2><I>President and Chief Executive Officer</I></FONT><FONT SIZE=2><BR>
San Diego, CA<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD. IF YOU HAVE QUESTIONS ABOUT THE PROPOSALS OR ABOUT VOTING YOUR
SHARES, PLEASE CALL KRATOS' PROXY SOLICITOR GEORGESON,&nbsp;INC. AT (800)&nbsp;561-4162 (TOLL FREE).</B></FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><I> <A NAME="bg42501_notice_of_special_meeting_of_s__not02155"> </A>
<A NAME="toc_bg42501_1"> </A>
<BR>    </I></FONT><FONT SIZE=2><B>NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008    <BR>
 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>To
the Shareholders of SYS: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
special meeting of shareholders of SYS will be held at 5050 Murphy Canyon Road, Suite&nbsp;200, San Diego, CA 92123,
on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008 at 11:00&nbsp;a.m., local time, for
the following purposes: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
adopt and approve the Agreement and Plan of Merger and Reorganization, dated as of February&nbsp;20, 2008, by and among Kratos Defense&nbsp;&amp; Security
Solutions,&nbsp;Inc., White Shadow,&nbsp;Inc., and SYS, as the same may be amended from time to time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve any motion to adjourn or postpone the special meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at
the time of the special meeting to approve the proposal to adopt the merger agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
transact such other business as may properly come before the special meeting or any adjournment or postponement thereof. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying Proxy Statement further describes the matters to be considered at the special meeting. A copy of the Agreement and Plan of Merger referenced above has been included as </FONT> <FONT SIZE=2><I>Annex&nbsp;A</I></FONT><FONT SIZE=2> to this
Proxy Statement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
SYS board of directors has set&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008 as the record date for the special meeting. Only holders of record of
shares of SYS common stock at the close of business on
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008 will be entitled to notice of and to vote at the special meeting and any adjournments or
postponements thereof. </FONT><FONT SIZE=2><B>To ensure your representation at the
special meeting, please complete and return the enclosed proxy card or submit your proxy by telephone or through the Internet.</B></FONT><FONT SIZE=2> Please vote promptly whether or not you expect to
attend the special meeting. Submitting a proxy now will not prevent you from being able to vote at the special meeting by attending in person and casting a vote. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>The board of directors of SYS recommends that you vote FOR the proposal to adopt and approve the merger agreement and FOR the proposal to approve any motion to
adjourn or postpone the special meeting to a later date or dates if necessary to solicit additional proxies.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>By
Order of the SYS Board of Directors, </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT>
<FONT SIZE=2><B>
<IMG SRC="g939552.jpg" ALT="GRAPHIC" WIDTH="216" HEIGHT="82">
  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>Clifton
L. Cooke, Jr.<BR></FONT> <FONT SIZE=2><I>President and Chief Executive Officer</I></FONT><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD. IF YOU HAVE QUESTIONS ABOUT THE PROPOSALS OR ABOUT VOTING YOUR
SHARES, PLEASE CALL MICHAEL W. FINK AT 858-244-7393 (TOLL FREE) OR VIA EMAIL AT </B></FONT><FONT SIZE=2><B><I>MFINK@SYSTECHNOLOGIES.COM.</I></B></FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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NAME="page_bk42501_1_1"> </A>


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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="bk42501_table_of_contents"> </A>
<A NAME="toc_bk42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>TABLE OF CONTENTS    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Page</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>VOTING ELECTRONICALLY OR BY TELEPHONE</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>vi</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>QUESTIONS AND ANSWERS ABOUT THE MEETINGS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>SUMMARY</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>The Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>The Parties</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>The Merger Agreement</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>What SYS Shareholders Will Receive in the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Treatment of SYS Subordinated Convertible Notes and Warrants</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Treatment of Stock Options and Other Stock-Based Awards</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Directors and Executive Management Following the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Recommendations of the Kratos Board of Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Recommendation of the SYS Board of Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Opinions of Financial Advisors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Interests of SYS Directors and Executive Officers in the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Material United States Federal Income Tax Consequences of the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Accounting Treatment of the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Dissenters' Rights and Appraisal Rights</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Conditions to Completion of the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Timing of the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>No Solicitation of Other Offers</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Termination</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Termination Fees and Expenses</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Comparison of the rights of Kratos and SYS shareholders</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Matters to be Considered at the Meetings</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Voting by Kratos and SYS Directors and Executive Officers</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>SELECTED HISTORICAL FINANCIAL DATA OF KRATOS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>SELECTED HISTORICAL FINANCIAL DATA OF SYS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>COMPARATIVE PER SHARE DATA (UNAUDITED)</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>MARKET PRICES AND DIVIDENDS AND OTHER DISTRIBUTIONS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>REFERENCES TO ADDITIONAL INFORMATION</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>RISK FACTORS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>THE MERGER</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Background of the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>The Kratos Board of Directors' Recommendations and Reasons for the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>The SYS Board of Directors' Recommendations and Reasons for the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>51</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Opinion of Financial Advisor to the Kratos Board of Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Opinion of Financial Advisor to the SYS Board of Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Composition of Kratos Board of Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>66</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Interests of SYS Directors and Executive Officers in the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>66</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Employment Agreement</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Voting Agreements</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Subordinated Convertible Notes</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>68</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Warrants</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>68</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Directors and Officers of SYS after the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>69</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Indemnification and Insurance</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>69</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Potential Change of Control or Severance Payments</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>69</FONT></TD>
</TR>
</TABLE>
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<BR>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>i</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=5,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=84146,FOLIO='i',FILE='DISK112:[08ZAT1.08ZAT42501]BK42501A.;24',USER='TOSBORNA',CD=';9-APR-2008;14:27' -->
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Certain Arrangements between SYS and its Executive Officers, Directors and Affiliates</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>70</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Accounting Treatment</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>71</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Restrictions on Sales of Shares of Kratos Common Stock Received in the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>71</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Dissenters' Rights and Appraisal Rights</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>71</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Listing of Kratos Common Stock on The Nasdaq Global Select Stock Market</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>General</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Backup Withholding</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>77</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Tax Return Reporting Requirements</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>78</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>THE MERGER AGREEMENT</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>79</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>The Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>79</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Closing and Effective Time of the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>79</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Directors and Executive Management Following the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>79</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Company Locations Following the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>79</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Consideration to be Received in the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>80</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Representations and Warranties</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>81</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Conduct of Business Pending the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>82</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Reasonable Best Efforts; Other Agreements</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>83</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Conditions to Completion of the Merger</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>84</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>No Solicitation; Changes in Recommendations</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>85</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Termination</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>86</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Termination Fees and Expenses</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>87</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Effect of Termination</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>88</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Employee Matters</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>88</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Indemnification and Insurance</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>88</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Amendment; Extension and Waiver</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>88</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Governing Law</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>89</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Voting Agreements</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>89</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>INFORMATION ABOUT THE COMPANIES</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>90</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><I>KRATOS</I></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>90</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Competitive Strengths</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>90</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Services and Solutions</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>91</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporate Strategy</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>93</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Customers</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>93</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Employees</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>93</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Properties</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>94</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Legal Proceedings</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>94</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>98</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Securities Authorized for Issuance Under Equity Compensation Plans</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>99</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Performance Graph</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Selected Financial Data</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>101</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&amp;A")</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>102</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Overview</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>103</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Results of Operations</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>109</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Liquidity and Capital Resources</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>113</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Critical Accounting Principles and Estimates</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>118</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Quantitative and Qualitative Disclosure About Market Risks</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>122</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Recently Issued Accounting Pronouncements</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>123</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>ii</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=6,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=590985,FOLIO='ii',FILE='DISK112:[08ZAT1.08ZAT42501]BK42501A.;24',USER='TOSBORNA',CD=';9-APR-2008;14:27' -->
<A NAME="page_bk42501_1_3"> </A>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><I>SYS</I></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>124</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Industry Overview/Market Opportunity</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>125</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Solutions</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>125</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Business Strategy</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>128</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Recent Acquisitions and Technology Purchases</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>128</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>U.S. Government Contracts</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>129</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Contract Backlog</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>130</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Customers</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>131</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>COMPETITIVE CONDITIONS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>131</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>SYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>134</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>KRATOS ANNUAL MEETING</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>142</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Date, Time and Place</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>142</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Purpose of the Kratos Annual Meeting</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>142</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Kratos Record Date</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>142</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Shares Outstanding and Voting Rights</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>142</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Quorum and Votes Required</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>143</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Treatment of Abstentions, Non-Voting and Incomplete Proxies</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>143</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Voting by Kratos Directors and Executive Officers</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>144</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Voting of Proxies</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>144</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Revocability of Proxies and Changes to a Kratos Stockholder's Vote</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>145</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Solicitation of Proxies</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>145</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Internet Availability of Proxy Materials and Delivery of Proxy Materials to Households Where Two or More Stockholders Reside</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>146</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Attending the Meeting</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>146</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>PROPOSAL 1: ELECTION OF DIRECTORS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>146</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Vote Required and Kratos Board of Directors Recommendation</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>146</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Nominees for Election</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>147</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporate Governance Guidelines</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>148</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Director Independence</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>148</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Nominations for Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>148</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Communications with Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>149</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Code of Ethics</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>150</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Meetings and Committees of the Kratos Board of Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>150</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Meeting Attendance</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>150</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Committees of the Kratos Board of Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>150</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>153</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Vote Required and Kratos Board of Directors' Recommendation</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>154</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Report of the Audit Committee</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>154</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>PROPOSAL 3: APPROVAL OF AN AMENDMENT TO THE KRATOS 1999 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE AGGREGATE NUMBER OF SHARES THAT MAY BE ISSUED UNDER THE PLAN BY 1,500,000&nbsp;SHARES</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>156</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Summary of the Purchase Plan</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>157</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Shares Purchased by Certain Persons</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>158</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Summary of U.S. Federal Income Tax Consequences</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>158</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Vote Required and Board of Director's Recommendation</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>159</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>PROPOSAL 4: APPROVAL OF AN AMENDMENT TO THE KRATOS 2005 EQUITY INCENTIVE PLAN TO INCREASE THE AGGREGATE NUMBER OF SHARES THAT MAY BE ISSUED UNDER THE PLAN BY 3,000,000&nbsp;SHARES</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>159</FONT></TD>
</TR>
</TABLE>
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<BR>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>iii</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=7,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=391745,FOLIO='iii',FILE='DISK112:[08ZAT1.08ZAT42501]BK42501A.;24',USER='TOSBORNA',CD=';9-APR-2008;14:27' -->
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Federal Income Tax Consequences of the 2005 Plan</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>166</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Amended 2005 Plan Benefits</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>168</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Vote Required and Board of Director's Recommendation</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>169</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>PROPOSAL 5: TO APPROVE ISSUANCE OF KRATOS COMMON STOCK IN CONNECTION WITH THE MERGER</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>169</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Vote Required and Board of Director's Recommendation</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>169</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>PROPOSAL 6: POSSIBLE ADJOURNMENT OR POSTPONEMENT OF THE KRATOS ANNUAL MEETING</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>170</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Vote Required and Board of Director's Recommendation</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>170</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>OTHER MATTERS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>170</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>KRATOS STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>171</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Principal Stockholders</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>171</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Management</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>173</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>174</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Procedures for Approval of Related Party Transactions</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>175</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>KRATOS EXECUTIVE COMPENSATION</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>176</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Compensation Discussion and Analysis</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>176</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Compensation Committee Interlocks and Insider Participation</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>182</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Director Compensation Section&nbsp;16(a) Beneficial Ownership Compliance</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>192</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>SYS SPECIAL MEETING</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Date, Time and Place</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Purpose of the SYS Special Meeting</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>SYS Record Date</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Shares Outstanding and Voting Rights</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Quorum and Votes Required</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Treatment of Abstentions, Not Voting and Incomplete Proxies</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Voting by SYS Directors and Executive Officers</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Voting of Proxies</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Revocability of Proxies and Changes to an SYS Stockholder's Vote</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Solicitation of Proxies</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>195</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Delivery of Proxy Materials to Households Where Two or More Stockholders Reside</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>195</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Attending the Meeting</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>195</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>PROPOSAL 1: APPROVAL OF MERGER</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>195</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Vote Required and Board of Director's Recommendation</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>195</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>PROPOSAL 2: POSSIBLE ADJOURNMENT OR POSTPONEMENT OF THE SYS SPECIAL MEETING</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>196</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Vote Required and Board of Director's Recommendation</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>196</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>OTHER MATTERS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>196</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Householding of Proxy Materials</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>196</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>197</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>DESCRIPTION OF KRATOS CAPITAL STOCK</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>204</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Authorized Capital Stock of Kratos</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>204</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Description of Kratos Common Stock</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>204</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Description of Kratos Preferred Stock</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>206</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>COMPARISON OF RIGHTS OF KRATOS STOCKHOLDERS AND SYS SHAREHOLDERS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>207</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Capitalization</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>207</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Voting Rights</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>207</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Stockholder Action By Written Consent</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>208</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>iv</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=8,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=27813,FOLIO='iv',FILE='DISK112:[08ZAT1.08ZAT42501]BK42501A.;24',USER='TOSBORNA',CD=';9-APR-2008;14:27' -->
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Dividends</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>208</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Number, Election, Vacancy and Removal of Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>209</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Amendments to Certificate of Incorporation</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>209</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Amendments to Bylaws</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>210</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Notice of Certain Stockholder Actions</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>210</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Special Stockholder Meetings</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>211</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Limitation of Personal Liability of Directors and Indemnification</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>211</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Mergers, Consolidations and Other Transactions</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>212</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>State Anti-Takeover Statutes</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>213</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Appraisal Rights</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>213</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="89%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Stockholder Rights Plan</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>213</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>LEGAL MATTERS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>214</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>EXPERTS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>214</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>FUTURE STOCKHOLDER PROPOSALS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>214</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>WHERE YOU CAN FIND MORE INFORMATION</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>215</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>INDEX OF KRATOS FINANCIAL STATEMENTS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>FI-1</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>INDEX OF SYS FINANCIAL STATEMENTS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>FII-1</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>INDEX OF HAVERSTICK FINANCIAL STATEMENTS</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>FIII-1</FONT></TD>
</TR>
</TABLE>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>Annex&nbsp;A</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="86%" style="font-family:times;"><FONT SIZE=2>Agreement and Plan of Merger and Reorganization, dated as of February&nbsp;20, 2008, by and among Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., White Shadow,&nbsp;Inc., and SYS</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
Annex&nbsp;B</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="86%" style="font-family:times;"><FONT SIZE=2><BR>
Kratos Voting Agreement</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
Annex&nbsp;C</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="86%" style="font-family:times;"><FONT SIZE=2><BR>
SYS Voting Agreement</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
Annex&nbsp;D</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="86%" style="font-family:times;"><FONT SIZE=2><BR>
Opinion of Wachovia Capital Markets,&nbsp;LLC</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
Annex&nbsp;E</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="86%" style="font-family:times;"><FONT SIZE=2><BR>
Opinion of Imperial Capital,&nbsp;LLC</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
Annex&nbsp;F</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="86%" style="font-family:times;"><FONT SIZE=2><BR>
Chapter 13 of the California Corporations Code: "Dissenters' Rights"</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>v</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="bl42501_voting_electronically_or_by_telephone"> </A>
<A NAME="toc_bl42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>VOTING ELECTRONICALLY OR BY TELEPHONE    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos stockholders of record on the close of business
on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008, the record date for the Kratos annual meeting, may submit their proxies by
telephone or Internet by following the instructions on their proxy card or voting form. If you have any questions regarding whether you are eligible to submit your proxy by telephone or by Internet,
please contact Kratos' Proxy Solicitor, Georgeson, Inc. by telephone at (800)&nbsp;561-4162 (toll free). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
shareholders of record on the close of business on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008, the record date for the SYS special meeting, may
submit their proxies by telephone or Internet by following
the instructions on their proxy card or voting form. If you have any questions regarding whether you are eligible to submit your proxy by telephone or by Internet, please contact Michael&nbsp;W.
Fink by telephone at 858-244-7393 or via email at </FONT><FONT SIZE=2><I>mfink@systechnologies.com</I></FONT><FONT SIZE=2>. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>vi</FONT></P>

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NAME="bm42501_questions_and_answers_about_the_meetings"> </A>
<A NAME="toc_bm42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>QUESTIONS AND ANSWERS ABOUT THE MEETINGS    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following questions and answers briefly address some commonly asked questions about the Kratos and SYS meetings. They may not include all the information that
is important to holders of stock of Kratos and SYS. We urge stockholders to read carefully this entire Proxy Statement, including the annexes and the other documents referred to herein. </FONT></P>

<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>Why am I receiving these materials?
<BR><BR> </B></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>We are sending you these materials to help you decide how to vote your shares of Kratos or SYS common stock with respect to their proposed merger. Additionally,
if you are a Kratos stockholder, we are sending these materials to you to help you decide how to vote your shares of Kratos common stock with respect to the other proposals at the Kratos annual
meeting. </FONT></DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>The
merger cannot be completed unless Kratos stockholders approve the issuance of Kratos common stock and SYS shareholders adopt and approve the merger agreement. Each of Kratos and SYS is holding its
meeting of holders of stock to vote on the proposals necessary to complete the merger. Information about these meetings, the merger and the other business to be considered by holders of stock is
contained in this Proxy Statement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>We
are delivering this document to you as both a joint proxy statement of Kratos and SYS and a prospectus of Kratos. It is a joint proxy statement because each of our boards of directors is soliciting
proxies from its stockholders. It is a prospectus because Kratos will exchange shares of its common stock for shares of SYS in the merger. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>What will stockholders receive in the merger?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>In
the proposed merger, holders of SYS common stock will receive 1.2582 shares of Kratos common stock for each share of SYS common stock. This exchange ratio is fixed and will not be
adjusted to reflect stock price changes prior to the closing. </FONT></DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>The
stockholders of Kratos will continue to own their existing shares, which will not be affected by the merger. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>When do Kratos and SYS expect to complete the merger?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos
and SYS expect to complete the merger after all conditions to the merger in the merger agreement are satisfied or waived, including after stockholder approvals are received at
the meetings of Kratos and SYS and all required regulatory approvals are received. Kratos and SYS currently expect to complete the merger during the first half of 2008. However, it is possible that
factors outside of either company's control could require Kratos and SYS to complete the merger at a later time or not to complete it at all.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>How do the boards of directors of Kratos and SYS recommend that I vote?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
Kratos board of directors unanimously recommends that holders of Kratos common stock vote FOR the proposal to approve the issuance of Kratos common stock in the merger. </FONT></DD></DL>
<UL>


<P style="font-family:times;"><FONT SIZE=2>The
SYS board of directors unanimously recommends that SYS shareholders vote FOR the proposal to adopt the merger agreement. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>What do I need to do now?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>After
carefully reading and considering the information contained in this Proxy Statement, please vote your shares as soon as possible so that your shares will be represented at your
respective company's meeting. Please follow the instructions set forth on the proxy card or on the voting instruction form provided by the record holder if your shares are held in the name of your
broker or other nominee. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>1</FONT></P>

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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>How do I vote?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>You
may vote before your company's meeting in one of the following ways:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>use
the toll-free number shown on your proxy card;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>visit
the website shown on your proxy card to vote via the Internet; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>complete,
sign, date and return the enclosed proxy card in the enclosed postage-paid envelope. </FONT></DD></DL>
</DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>You
may also cast your vote in person at your company's meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>If
your shares are held in "street name" through a broker, bank or other nominee, that institution will send you separate instructions describing the procedure for voting your shares. "Street name"
stockholders who wish to vote at the meeting will need to obtain a proxy form from the institution that holds their shares. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>When and where are the Kratos and SYS meetings of stockholders?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
annual meeting of Kratos stockholders will be held at 4810 Eastgate Mall, San Diego, CA, on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008 at&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
&nbsp;a.m., local time. Subject to space
availability, all stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come,
first-served basis. Registration and seating will begin at&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.m., local time. </FONT></DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>The
special meeting of SYS shareholders will be held at 5050 Murphy Canyon Road, Suite&nbsp;200, San Diego, CA 92123, on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008 at 11:00&nbsp;a.m., local time. Subject to space
availability, all stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come,
first-served basis. Registration and seating will begin at&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.m., local time. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>If my shares are held in "street name" by a broker or other nominee, will my broker or nominee vote my shares for me?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Your
broker or other nominee does not have authority to vote on most of the proposals described in this Proxy Statement including the proposals related to the proposed merger. Your
broker or other nominee will vote your shares held by it in "street name" with respect to these matters ONLY if you provide instructions to it on how to vote. You should follow the directions your
broker or other nominee provides.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>What constitutes a quorum?</B></FONT></DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>Stockholders
who hold a majority in voting power of the Kratos common stock issued and outstanding as of the close of business on the record date and who are entitled to vote must be present or
represented by proxy in order to constitute a quorum to conduct business at the Kratos annual meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Stockholders
who hold a majority in voting power of the SYS common stock issued and outstanding as of the close of business on the record date and who are entitled to vote must be present or
represented by proxy in order to constitute a quorum to conduct business at the SYS special meeting. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>What vote is required to approve each proposal?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>For
Kratos Stockholders: </FONT></DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>The
affirmative vote of a majority of the outstanding shares of Kratos common stock entitled to vote at the meeting is required to approve all of the Kratos proposals, including the proposal to </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2>approve
the issuance of Kratos common stock in the merger, which is referred to in this Proxy Statement as the Share Issuance. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>For
SYS Shareholders: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>The
affirmative vote of a majority of the outstanding shares of SYS common stock entitled to vote is required to approve the merger agreement, which is referred to in this Proxy Statement as the
Merger Proposal. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>What if I do not vote on the matters relating to the merger?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>If
you are a Kratos stockholder and you fail to vote or fail to instruct your broker or other nominee how to vote on the Share Issuance, it will have the same effect as a vote against
the Share Issuance. Similarly, if you respond with an "abstain" vote, your proxy will have the same effect as a vote against this proposal. If you submit a proxy but do not indicate how you want to
vote on the Share Issuance, your proxy will be counted as a vote in favor of the Share Issuance in accordance with the recommendation of the Kratos Board. </FONT></DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>If
you are an SYS shareholder and you fail to vote or fail to instruct your broker or other nominee how to vote on the Merger Proposal, it will have the same effect as a vote against the Merger
Proposal. If you respond with an "abstain" vote on the Merger Proposal, your proxy will have the same effect as a vote against the Merger Proposal. If you respond but do not indicate how you want to
vote on the Merger Proposal, your proxy will be counted as a vote in favor of the Merger Proposal. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>What if I hold shares in both Kratos and SYS?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>If
you are a stockholder of both Kratos and SYS, you will receive two separate packages of proxy materials. A vote as a Kratos stockholder approving the issuance of Kratos common stock
will not constitute a vote as an SYS shareholder for the Merger Proposal, or vice versa. Therefore, please sign, date and return all proxy cards that you receive, whether from Kratos or SYS, or vote
as both a Kratos and SYS shareholder by telephone or via the Internet.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>May I change my vote after I have delivered my proxy or voting instruction card?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Yes.
You may change your vote at any time before your proxy is voted at the applicable meeting. You may do this in one of four ways:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
sending a notice of revocation to the corporate secretary of Kratos or SYS, as applicable;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
sending a completed proxy card bearing a later date than your original proxy card;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
logging onto the Internet website specified on your proxy card in the same manner you would to submit your proxy electronically or by calling the telephone number
specified on your proxy card, in each case if you are eligible to do so and following the instructions on the proxy card; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
attending the applicable meeting and voting in person. Your attendance alone will not revoke any proxy. </FONT></DD></DL>
</DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>If
you choose any of the first three methods, you must take the described action no later than the beginning of the applicable meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>If
your shares are held in an account at a broker or other nominee, you should contact your broker or other nominee to change your vote. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>3</FONT></P>

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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>What are the material United States federal income tax consequences of the merger?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos
and SYS intend for the merger to qualify as a reorganization within the meaning of Section&nbsp;368(a) of the Internal Revenue Code of 1986, as amended, which we refer to as
the Code, for United States federal income tax purposes. Accordingly, a holder of SYS common stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon the exchange
of the holder's shares of SYS common stock for shares of Kratos common stock pursuant to the merger, except that an SYS shareholder will recognize a gain or loss with respect to any cash received in
lieu of a fractional share of Kratos common stock.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>Do I have appraisal rights?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
holders of Kratos common stock will not be entitled to exercise any appraisal rights in connection with the merger. Pursuant to Section&nbsp;1300 of the California Corporations
Code, the holders of SYS common stock are entitled to appraisal rights if they do not vote in favor of the merger and otherwise comply with the requirements of Chapter&nbsp;13 of the California
General Corporation Law.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>Should I send in my stock certificates now?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>No.
Please do not send your stock certificates with your proxy card. </FONT></DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>If
you are a holder of SYS common stock, you will receive written instructions from the exchange agent after the merger is completed on how to exchange your stock certificates for Kratos common stock.
Kratos stockholders will not be exchanging their stock certificates in connection with the merger. Accordingly, Kratos stockholders holding stock certificates should keep their stock certificates both
now and after the merger is completed. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>What if I hold SYS and Kratos stock options or other stock-based awards?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos
stock options and other equity-based awards, including restricted stock units, will remain outstanding and will not be affected by the merger. </FONT></DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>All
outstanding SYS stock options will become fully vested prior to the closing. The stock options may be exercised for SYS shares ("cashless exercise" being permissible) at or prior to closing in
accordance with the terms of the stock option plans which shares would then be exchanged for Kratos shares in accordance with the exchange ratio. Any such stock option exercises may be subject to
withholding taxes as a result. No outstanding SYS stock options will be assumed by or converted into options of Kratos. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><B>Q:</B></FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>Who should I contact if I have any questions about the merger, the proxy materials or voting power?</B></FONT><FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>A:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>If
you have any questions about the merger or if you need assistance in submitting your proxy or voting your shares or need additional copies of the Proxy Statement or the enclosed
proxy card, you should contact the company in which you hold shares. </FONT></DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>If
you are a Kratos stockholder, you should contact Georgenson, Inc., the proxy solicitation agent for Kratos at (800)&nbsp;561-4162 (toll-free). If you are an SYS shareholder, you should contact
Michael W. Fink at 858-244-7393 or via email at mfink@systechnologies.com for SYS. If your shares are held in a stock brokerage account or by a bank or other nominee, you
should call your broker or other nominee for additional information. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>4</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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<A NAME="toc_ca42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SUMMARY    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>This summary highlights selected information contained in this joint proxy statement/prospectus, referred to as this Proxy Statement, and
does not contain all the information that may be important to you. Kratos and SYS urge you to read carefully this Proxy Statement in its entirety, including the annexes. Unless stated otherwise, all
references in this Proxy Statement to Kratos refer to Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., a Delaware corporation, all references to SYS refer to SYS, a California corporation, all
references to Merger Sub refer to White Shadow,&nbsp;Inc., a California corporation, and all </I></FONT><FONT SIZE=2>references</FONT><FONT SIZE=2><I> to the merger agreement refer to the Agreement
and Plan of Merger and Reorganization, dated as of February&nbsp;20, 2008, by and among Kratos, White Shadow,&nbsp;Inc., and SYS, a copy of which is attached as Annex&nbsp;A to this Proxy
Statement.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the boards of directors of Kratos and SYS has approved a strategic merger of Kratos and SYS. Kratos and SYS have entered into an Agreement and Plan of
Merger and Reorganization pursuant to which SYS will merge with a newly formed, wholly-owned subsidiary of Kratos, with SYS surviving the merger as a wholly-owned subsidiary of Kratos. In the proposed
merger, SYS shareholders will receive 1.2582 shares of Kratos common stock for each share of SYS common stock. This exchange ratio is fixed and will not be adjusted to reflect stock price changes
prior to the closing. The stockholders of Kratos will continue to own their existing shares, which will not be affected by the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The Parties  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos Defense&nbsp;&amp; Security Solutions, Inc.<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4810 Eastgate Mall<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;San Diego, CA 92121<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(858) 812-7300  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos is an innovative provider of mission critical engineering, IT services and warfighter solutions. Kratos performs work primarily for the U.S. government and
government agencies, but also performs work for state and local agencies and commercial customers. As a result of its market focus, Kratos is organized into two primary operating segments: the Kratos
Government Solutions, or KGS, segment; and the Public Safety and Security, or PSS, segment. The principle services of Kratos include, but are not limited to, Command, Control, Communications,
Computing, Combat Systems, Intelligence, Surveillance and Reconnaissance, or C5ISR; weapon systems life cycle support and extension; military range operations and technical services; missile, rocket
and weapons systems test and evaluation; mission launch services; public safety; security and surveillance systems; advanced network engineering and IT services; and critical infrastructure design and
integration services. Kratos offers its customers a range of solutions and technical expertise to support their mission-critical needs by leveraging skills across Kratos' core service areas. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
derives a substantial portion of its revenue from contracts performed for federal government agencies. Kratos believes its diversified and stable client base, strong client
relationships, broad array of contracts, considerable employee base possessing government security clearances, extensive list of past performance qualifications, and significant management and
operational capabilities provides a sizable advantage and positions the company for continued growth. Founded in 1994, Kratos is headquartered in San Diego and has offices in California,
Washington&nbsp;D.C. and several other locations in the U.S. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>5</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
more information regarding Kratos, visit </FONT><FONT SIZE=2><I>www.kratosdefense.com</I></FONT><FONT SIZE=2>. The information on the Kratos' website is not a part of this
prospectus. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>SYS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5050 Murphy Canyon Road, Suite&nbsp;200<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;San Diego, CA 92123<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(858) 244-7393  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS and its subsidiaries provide information connectivity solutions that capture, analyze and present real-time information to customers in the
Department of Defense, Department of Homeland Security, other government agencies and commercial companies. Using interoperable communications software, sensors, digital video broadcast and
surveillance technologies, wireless networks, network management, decision-support tools and Net-Centric technologies, SYS's technical experts enhance complex decision-making. Founded in
1966, SYS is headquartered in San Diego and has principal offices in California and Virginia. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
delivers its solutions through two reportable segments, the Defense Solutions Group and the Public Safety, Security and Industrial Systems Group. The Defense Solutions Group focuses
on engineering, technical and management services to Federal Government agencies. The Public Safety, Security and Industrial Systems Group focuses on providing "right-time" situation
status and mission execution support solutions to government and commercial customers. Historically, SYS has generated revenues by providing information technology, systems integration and program and
financial management services under long term contracts for the Department of Defense and in particular the U.S. Navy. More recently, SYS has expanded and leveraged its technical engineering services
with complementary products and has broadened its customer base to include commercial enterprises and other governmental agencies beyond the Department of Defense. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
expanded products and services capabilities, together with SYS's longstanding expertise in situational awareness and systems engineering, have enabled SYS to develop a set of
information technology solutions to complement SYS's services offerings for the Information Technology services and Public Safety and Security markets. SYS's customers in these markets such as
federal, state and local governments, public safety first-responders, large corporations, schools and universities, all share a common need for decision support products and services that enhance or
enable connecting real-time data to decision makers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
also provides solution lifecycle support with program, financial, test and logistical services, including classroom and online training. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
additional information regarding SYS, visit </FONT><FONT SIZE=2><I>www.systechnologies.com</I></FONT><FONT SIZE=2>. The information on SYS's website is not a part of this
prospectus. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Merger Sub  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;White Shadow,&nbsp;Inc., or Merger Sub, a wholly-owned subsidiary of Kratos, is a California corporation formed on February&nbsp;19, 2008 for the sole purpose
of effecting the merger. Upon completion of the merger, Merger Sub will merge with and into SYS, and SYS will become a wholly-owned subsidiary of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Merger
Sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement, including the preparation of applicable
regulatory filings in connection with the merger. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>6</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>The Merger Agreement  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A copy of the merger agreement is attached as </FONT><FONT SIZE=2><I>Annex&nbsp;A</I></FONT><FONT SIZE=2> to this Proxy Statement. Kratos and SYS encourage you
to read the entire merger agreement carefully because it is the principal document governing the merger. For more information on the merger agreement, see "The Merger Agreement" beginning on
page&nbsp;79. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>What SYS shareholders Will Receive in the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the effective time of the merger, each outstanding share of SYS common stock will be converted into the right to receive 1.2582 shares of Kratos common stock
in the merger, which number we refer to as the exchange ratio. Holders of SYS common stock will not receive any fractional Kratos shares in the merger. Instead, the total number of shares that each
holder of SYS common stock will receive in the merger will be rounded down to the nearest whole number, and Kratos will pay cash for any resulting fractional share that an SYS shareholder otherwise
would be entitled to receive. The amount of cash payable for a fractional share of Kratos common stock will be determined by multiplying the fraction by the average closing price for Kratos common
stock on The Nasdaq Global Select Stock Market during the three days prior to the date the merger becomes effective. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Example: If you currently own 25 shares of SYS common stock, absent the treatment of fractional shares described above, you would be entitled to receive 31.455
(25&nbsp;&times;&nbsp;1.2582) shares of Kratos common stock. Since fractional shares will not be issued, you will be entitled to 31 shares of Kratos common stock and a check for the market
value of 0.455 shares of Kratos common stock based on the average closing price during the three days prior to date the merger becomes effective.</I></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
merger agreement provides for adjustments to the exchange ratio to reflect the effect of any stock split, stock dividend, reverse stock split, reclassification, recapitalization or
other similar transaction with respect to Kratos common stock or SYS common stock that occurs prior to the effective date of the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a more complete description of the merger consideration, see "The Merger Agreement&#151;Consideration to be Received in the Merger" beginning on page&nbsp;80. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Treatment of SYS Subordinated Convertible Notes and Warrants  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS has $3,125,000 of convertible notes payable outstanding, which we refer to as the Notes, which are unsecured, subordinate to its bank debt, bear interest at
10% per annum payable quarterly, are due February&nbsp;14, 2009 and are convertible at any time into shares of common stock at a conversion rate of $3.60 per share. These notes are being assumed by
Kratos subject to those same terms and conditions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the Notes are not converted prior to the merger, following the merger the Notes will not be convertible into SYS common stock. Instead, they will be convertible into the merger
consideration as if they had been converted into SYS common stock immediately prior to the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
has 508,401 warrants outstanding, which will be, following the merger, exercisable for merger consideration. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following
the merger, the holders of these warrants shall have the right to receive, upon exercise of the warrants, the same amount and kind of securities, cash or property, as they
would have been entitled to receive upon the occurrence of the merger if they had been, immediately prior to the merger, the holders of the number of warrant shares then issuable upon exercise in full
of these warrants. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>7</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a more complete discussion of the treatment of SYS Subordinated Convertible Notes and Warrants, see "The Merger&#151;Subordinated Convertible Notes" and "The
Merger&#151;Warrants," each beginning on page&nbsp;68. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Treatment of Stock Options and Other Stock-Based Awards  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All outstanding SYS stock options will become fully vested and exercisable into SYS shares at or prior to closing in accordance with the terms of their respective
stock option plans and may be subject to withholding taxes as a result. No SYS stock options will be assumed by or converted into options of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
February&nbsp;20, 2008, the execution date of the merger agreement, SYS terminated the then current stock purchase period for its Employee Stock Purchase Plan, and Kratos is
not assuming this plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a more complete discussion of the treatment of SYS options and other stock-based awards, see "The Merger Agreement&#151;Treatment of SYS Options" beginning on page 80. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Directors and Executive Management Following the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The directors and executive management of Kratos will remain unchanged at the effective time of the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
the effective time of the merger, the directors and officers of Merger Sub will become the directors and officers of SYS until each is replaced by his or her successor. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a more complete discussion of the directors and management of Kratos, see "The Merger&#151;Composition of Kratos Board of Directors" beginning on page&nbsp;66. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Recommendations of the Kratos Board of Directors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After careful consideration, the Kratos board of directors unanimously recommends that holders of Kratos common stock vote </FONT> <FONT SIZE=2><B>FOR</B></FONT><FONT SIZE=2> the
issuance of Kratos common stock in connection with the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a more complete description of the Kratos reasons for the merger and the recommendations of the Kratos board of directors, see "The Merger&#151;The Kratos Board of Directors
Recommendations and Reasons for the Merger" beginning on page 49. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Recommendation of the SYS Board of Directors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After careful consideration, the SYS board of directors unanimously recommends that holders of SYS common stock vote </FONT><FONT SIZE=2><B>FOR  </B></FONT><FONT SIZE=2>the Merger
Proposal. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a more complete description of SYS's reasons for the merger and the recommendation of the SYS board of directors, see "The Merger&#151;The SYS Board of Directors'
Recommendation and Reasons for the Merger" beginning on page 51. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>8</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Opinions of Financial Advisors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos Financial Advisor  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Wachovia Capital Markets, LLC, which we refer to as Wachovia, delivered an opinion to Kratos' board of directors that, subject to and based upon the assumptions
made, procedures followed, matters
considered and limitations on its review undertaken, as of February&nbsp;20, 2008, the exchange ratio in the merger agreement was fair from a financial point of view to Kratos. The full text of
Wachovia's written opinion, dated February&nbsp;20, 2008, is attached as </FONT><FONT SIZE=2><I>Annex&nbsp;D</I></FONT><FONT SIZE=2> to this Proxy Statement. Holders of shares of Kratos common
stock are urged to read the opinion carefully and in its entirety. Wachovia's opinion does not and shall not constitute a recommendation to any holders of shares of Kratos common stock as to how they
should vote in connection with the Merger. This summary of Wachovia's opinion contained in this Proxy Statement is qualified in its entirety by reference to the full text of the opinion. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a more complete description of Wachovia's opinion, see "The Merger&#151;Opinion of Financial Advisor to the Kratos Board of Directors" beginning on page 53. See also </FONT> <FONT SIZE=2><I>Annex&nbsp;D</I></FONT><FONT SIZE=2> to this Proxy
Statement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS Financial Advisor  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Imperial Capital, LLC, which is referred to as Imperial Capital, has rendered its opinion to the SYS board of directors to the effect that, as of
February&nbsp;19, 2008, and based upon and subject to the factors, assumptions, qualifications and limitations set forth therein, the exchange ratio of 1.2582&nbsp;shares of Kratos common stock to
be received for each share of SYS common stock pursuant to the merger agreement was fair from a financial point of view to the holders of such shares of SYS common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
full text of the written opinion of Imperial Capital, dated February&nbsp;19, 2008, is attached as </FONT><FONT SIZE=2><I>Annex E </I></FONT><FONT SIZE=2>to this Proxy Statement
and sets forth assumptions made, general procedures followed, factors considered and limitations and qualifications on the review undertaken by Imperial in connection with its opinion. Imperial
Capital provided its opinion for the information and assistance of the SYS board of directors in connection with its consideration of the merger. The Imperial Capital opinion is not a recommendation
as to how any holder of shares of SYS common stock should vote with respect to the merger. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a more complete description of the Imperial Capital opinion and engagement letter, see "The Merger&#151;Opinion of Financial Advisor to the SYS Board of Directors" beginning
on page 59. See also </FONT><FONT SIZE=2><I>Annex&nbsp;E</I></FONT><FONT SIZE=2> to this Proxy Statement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Interests of SYS Directors and Executive Officers in the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When you consider the unanimous recommendation of SYS's board of directors that SYS shareholders approve the merger agreement, the plan of merger and the merger,
you should be aware that some SYS officers and directors may have interests in the transaction that may be different from, or in addition, to their interests as shareholders of SYS. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a further discussion of interests of directors and executive officers in the merger, see "The Merger&#151;Interests of SYS Directors and Executive Officers in the Merger"
beginning on page&nbsp;66. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Material United States Federal Income Tax Consequences of the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos and SYS intend for the merger to qualify as a reorganization within the meaning of Section&nbsp;368(a) of the Code for U.S. federal income tax purposes.
Accordingly, SYS shareholders generally will not recognize gain or loss for U.S. federal income tax purposes upon the receipt of Kratos common stock in the merger, except that an SYS shareholder will
recognize gain or loss with respect to any cash received in lieu of a fractional share of Kratos common stock. It is a condition to </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>9</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>completion
of the merger that Kratos and SYS each receive a legal opinion from their respective counsel that the merger will constitute a reorganization within the meaning of Section&nbsp;368 of the
Code In the event that such counsel does not render this opinion, this condition shall be deemed to be satisfied if the other party's counsel delivers the opinion to both Kratos and SYS. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax
matters are very complicated and the tax consequences of the merger to you, if you are an SYS shareholder, will depend upon the facts of your situation. In addition, you may be
subject to state, local or foreign tax laws that are not addressed in this Proxy Statement. You are urged to consult with your own tax advisors for a full understanding of the tax consequences of the
merger to you. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a more complete description of the material U.S. federal income tax consequences of the merger, see "Material United States Federal Income Tax Consequences" beginning on page 76. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Accounting Treatment of the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The merger will be accounted for as an acquisition by Kratos of SYS under the purchase method of accounting according to U.S. generally accepted accounting
principles. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Dissenters' Rights and Appraisal Rights  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under applicable law: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos
stockholders have no dissenters' or appraisal rights with respect to the merger under Section&nbsp;262 of Delaware General Corporate Law; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS
shareholders are entitled to dissenters' rights under the California General Corporation Law in connection with the merger if the specific conditions set forth in the
section entitled "The Merger&#151;Dissenters' Rights and Appraisal Rights," which begins on page 71, are met. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Conditions to Completion of the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos and SYS expect to complete the merger after all the conditions to the merger in the merger agreement are satisfied or waived, including after the receipt
of stockholder approvals at the annual meeting of Kratos and at the special meetings of SYS. Kratos and SYS currently expect to complete the merger during the first half of 2008. However, it is
possible that factors outside of either company's control could cause the merger to be competed at a later time or not at all. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
party's obligation to complete the merger is subject to the satisfaction or waiver of various conditions, including the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
receipt of the required stockholder approvals;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
effectiveness of the registration statement of which this Proxy Statement is a part, and the registration statement not being subject to any stop order or threatened
stop order;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
absence of any injunctions or legal prohibitions preventing the consummation of the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
receipt of opinions of counsel relating to the U.S. federal income tax treatment of the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
accuracy of the other party's representations and warranties in the merger agreement, including the other party's representation that no material adverse effect has
occurred;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
other party's compliance in all material respects with its obligations under the merger agreement; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
receipt of authorization from The Nasdaq Global Select Stock Market for listing of Kratos common stock to be issued in connection with the merger. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>10</FONT></P>

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<UL>
<UL>
</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither
Kratos nor SYS is aware of the need to obtain any other material regulatory approvals in order to complete the merger. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
merger agreement provides that certain of these conditions may be waived, in whole or in part, by Kratos or SYS, to the extent legally allowed. Neither Kratos nor SYS currently
expects to waive any material condition to the completion of the merger. If either Kratos or SYS determines to waive any condition to the merger that would result in a material and adverse change in
the terms of the merger to Kratos or SYS shareholders (including any change in the tax consequences of the transaction to SYS shareholders), proxies would be resolicited from the Kratos or SYS
shareholders, as applicable. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a more complete discussion of the conditions to the merger, see "The Merger Agreement&#151;Conditions to Completion of the Merger" beginning on page 84. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Timing of the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The merger is expected to be completed during the first half of 2008, subject to the receipt of necessary regulatory approvals and the satisfaction or waiver of
other closing conditions. For a discussion of the timing of the merger, see "The Merger Agreement&#151;Closing and Effective Time of the Merger" beginning on page 79. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>No Solicitation of Other Offers  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the merger agreement, SYS has agreed that it will not directly or indirectly: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>solicit,
initiate, or knowingly or intentionally encourage or facilitate, any inquiries, offers or proposals that constitute, or could reasonably be expected to lead to, any
alternative acquisition proposal; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>enter
into, continue or otherwise participate in any discussions or negotiations regarding, furnish to any person any non-public information with respect to,
assist or participate in any effort or attempt by any person with respect to, or otherwise knowingly or intentionally cooperate in any way with, any alternative acquisition. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
merger agreement does not, however, prohibit SYS from considering a bona fide acquisition proposal from a third party if certain specified conditions are met. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
a discussion of the prohibition on solicitation of acquisition proposals from third parties, see "The Merger Agreement&#151;No Solicitation; Changes in Recommendations"
beginning on page 85. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Termination  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, the merger agreement may be terminated and the merger may be abandoned at any time prior to the completion of the merger (including after stockholder
approval): </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
mutual written consent of Kratos and SYS;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
either Kratos or SYS, if
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
merger is not consummated on or before August&nbsp;20, 2008; except that such right is not available to any party whose failure to comply with the merger agreement has
been a principal cause of, or resulted in, the merger not being consummated by such date and provided that this date (referred to herein as the "outside date") may be extended to February&nbsp;20,
2009 by either Kratos or SYS;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a
governmental entity issues an order, decree or ruling or takes any other nonappealable final action permanently restraining, enjoining or otherwise prohibiting the merger; </FONT></DD></DL>
</DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>11</FONT></P>

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<UL>
<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
required Kratos or SYS shareholder vote has not been obtained at the applicable stockholder meeting or any adjournment or postponement thereof (except that this right is
not available to any party who is in material breach of or has materially failed to fulfill its obligations under the merger agreement);
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
SYS board of directors changes its recommendation that its shareholders vote in favor of the merger proposal, or if SYS enters into an acquisition agreement relating to
an alternative transaction; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
other party breaches any of its agreements or representations in the merger agreement in such a way as would cause one or more of the conditions to closing not to be
satisfied, and such breach is either incurable or is not cured after 30&nbsp;days' written notice;
<BR><BR></FONT></DD></DL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
Kratos, if:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS
willfully and materially breaches its covenants with respect to non-solicitation of an alternative acquisition proposal or its obligations to hold its
shareholders meeting and mail this Proxy Statement to its shareholders; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS's
board of directors determines to accept an alternative acquisition proposal for a change of control transaction, in which case SYS would be required to pay the
applicable termination fee (as described below); or
<BR><BR></FONT></DD></DL>
</DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
SYS to accept a proposal from a third party to acquire SYS that SYS's board of directors determines to be superior to the terms of Kratos' proposed acquisition of SYS, if
SYS's board of directors changes or withdraws its recommendation of the merger in response to such superior proposal and pays the applicable termination fee (as described below). </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Termination Fees and Expenses  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the merger agreement, SYS is required to pay a termination fee of $2,394,000 dollars to Kratos in the event the merger agreement is terminated: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>By
Kratos, if
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
SYS board of directors has failed to reconfirm its recommendation of approval of the SYS voting proposal after Kratos requests such reconfirmation pursuant to the terms
of the merger agreement;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
SYS board of directors or any committee of the SYS board of directors has approved or recommended to the SYS shareholders an alternative acquisition transaction;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS
enters into an alternative acquisition transaction; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS
has willfully breached its obligations under the merger agreement pertaining to non-solicitation of alternative acquisition proposals and the SYS shareholder
meeting to approve the SYS Voting Agreement.
<BR><BR></FONT></DD></DL>
</DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>By
SYS, if its board of directors or any committee thereof has made a recommendation to accept an alternative transaction proposal and SYS enters into an alternative
acquisition agreement which was the subject of such adverse recommendation change. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Whether
or not the merger is completed, all costs and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by
the party incurring those costs or expenses, except that Kratos and SYS will share equally the expenses incurred in connection with the printing and mailing of this Proxy Statement. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>12</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
termination fee could discourage other companies from seeking to acquire or merge with either SYS or Kratos. See "The Merger Agreement&#151;Termination,"
"&#151;Termination Fees and Expenses" and "&#151;Effect of Termination," beginning on pages 86, 87 and 88, respectively. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Comparison of the rights of Kratos and SYS shareholders  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rights of SYS shareholders as Kratos stockholders after the merger will be governed by Kratos' certificate of incorporation and bylaws, each as amended, and
the laws of the State of Delaware. Those rights differ from the rights of SYS shareholders under SYS's articles of incorporation and bylaws and the laws of the State of California. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Matters to be Considered at the Meetings  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos stockholders will be asked to vote on the following six proposals: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
elect five directors for one-year terms or until their successors are elected and duly qualified. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
ratify the selection of Grant Thornton&nbsp;LLP as the independent auditors of Kratos for the fiscal year ending December&nbsp;28, 2008. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve an amendment to the Kratos 1999 Employee Stock Purchase Plan to increase the aggregate number of shares that may be issued under the Plan by 1,500,000 shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve an amendment to the Kratos 2005 Equity Incentive Plan to increase the aggregate number of shares that may be issued under the Plan by 3,000,000 shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve the issuance of Kratos common stock, par value $0.001 per share, pursuant to the Agreement and Plan of Merger and Reorganization, dated as of
February&nbsp;20, 2008, by and among Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., White Shadow,&nbsp;Inc., and SYS, as the same may be amended from time to time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve any motion to adjourn or postpone the annual meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at
the time of the annual meeting to approve the first five proposals listed above. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
transact such other business as may properly come before the annual meeting or any adjournment or postponement thereof. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Kratos board of directors unanimously recommends that Kratos stockholders vote FOR all of the proposals set forth above, as more fully described under "Kratos Annual Meeting"
beginning on page 142. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS shareholders will be asked to vote on the following two proposals: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
adopt and approve the Agreement and Plan of Merger and Reorganization. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve any motion to adjourn or postpone the special meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at
the time of the special meeting to approve the proposal to adopt the merger agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
transact such other business as may properly come before the special meeting or any adjournment or postponement thereof. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>13</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
SYS board of directors unanimously recommends that SYS shareholders vote FOR all of the proposals set forth above, as more fully described under "SYS Special Meeting" beginning on
page 193. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Voting by Kratos and SYS Directors and Executive Officers  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008, the record date set by the
Kratos board of directors, directors and executive officers of Kratos and their affiliates owned and were
entitled to vote&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of Kratos common stock, or
approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%, of the total voting power of the shares of Kratos common stock outstanding on that date.
 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2008, the record date set by the SYS board of directors, directors and executive officers of SYS and their affiliates owned and were entitled to
vote&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
shares of SYS common stock, or approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the shares of SYS common stock outstanding on that date.
Stockholders of SYS holding approximately 9.1% of the shares of SYS common
stock outstanding on that date have executed voting agreements agreeing to vote in favor of the merger. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>14</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=10,SEQ=24,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=883203,FOLIO='14',FILE='DISK112:[08ZAT1.08ZAT42501]CA42501A.;45',USER='ABEAULI',CD=';9-APR-2008;15:34' -->
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_cc42501_1_15"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="cc42501_selected_historical_financial_data_of_kratos"> </A>
<A NAME="toc_cc42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SELECTED HISTORICAL FINANCIAL DATA OF KRATOS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The tables below present summary selected consolidated historical financial data of KRATOS </FONT><FONT SIZE=2><I>(in millions except for per share
data</I></FONT><FONT SIZE=2>) prepared in accordance with accounting principles generally accepted in the United States of America. This information should be read in conjunction with "INFORMATION
RELATING TO KRATOS&#151;KRATOS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "INFORMATION RELATING TO KRATOS&#151;BUSINESS" and Kratos'
consolidated financial statements and related notes, included elsewhere in this proxy statement/prospectus. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="95%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=5 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31, (in millions)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=5 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><B>CONSOLIDATED STATEMENT OF OPERATIONS DATA:</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>116.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>152.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>153.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Operating costs and expenses:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Costs of revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>87.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>115.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>124.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>162.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>38.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>39.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Stock option investigation and related fees</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Estimated cost for settlement of securities litigation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Loss (recovery) of unauthorized issuance of stock options</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Contingent acquisition consideration and restatement fees</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Impairment and restructuring fees</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Total operating costs and expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>130.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>149.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>184.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>218.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Operating income (loss) from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(13.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(31.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(24.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Other (income) expense:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Interest income (expense), net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Impairment of investments in unconsolidated subsidiaries</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Other income and (expense), net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Total other (income) expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Income (loss) from continuing operations before income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(16.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(32.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(26.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Provision (benefit) for income taxes from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Income (loss) from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(46.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(28.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Income (loss) from discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(57.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(40.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Preference dividend requirements</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Net income (loss) applicable to common stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(57.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(40.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Basic earnings (loss) per common share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.63</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.38</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.34</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.17</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="40%" style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.79</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.55</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Diluted earnings (loss) per common share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.63</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.38</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.34</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.17</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="40%" style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.79</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.55</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Weighted average common shares outstanding:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>68.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>73.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>68.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>73.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>15</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=25,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=412963,FOLIO='15',FILE='DISK112:[08ZAT1.08ZAT42501]CC42501A.;11',USER='KSOLTER',CD=';8-APR-2008;22:58' -->
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<TD WIDTH="100%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<TABLE WIDTH="94%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="48%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31, (in millions)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="48%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2><B>CONSOLIDATED BALANCE SHEET DATA:</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>58.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Working capital</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>132.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>98.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>94.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>129.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194.5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Other intangible assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19.9</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>279.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>330.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>342.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>337.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>335.3</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Long-term debt</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Preferred stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>191.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>219.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>229.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>187.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>167.2</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>16</FONT></P>

<HR NOSHADE>
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<!-- ZEQ.=2,SEQ=26,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=190729,FOLIO='16',FILE='DISK112:[08ZAT1.08ZAT42501]CC42501A.;11',USER='KSOLTER',CD=';8-APR-2008;22:58' -->
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NAME="page_ce42501_1_17"> </A>


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 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ce42501_selected_historical_financial_data_of_sys"> </A>
<A NAME="toc_ce42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SELECTED HISTORICAL FINANCIAL DATA OF SYS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The tables below present summary selected consolidated historical financial data of SYS </FONT><FONT SIZE=2><I>(in millions except for per share
data</I></FONT><FONT SIZE=2>) prepared in accordance with accounting principles generally accepted in the United States of America. This information should be read in conjunction with "INFORMATION
RELATING TO SYS&#151;SYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "INFORMATION RELATING TO SYS&#151;BUSINESS" and SYS's consolidated
financial statements and related notes, included elsewhere in this proxy statement/prospectus. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
statement of income data for the six months ended December&nbsp;28, 2007 and December&nbsp;29, 2006, and the balance sheet data as of December&nbsp;28, 2007 are unaudited but
include, in the opinion of management of SYS, all adjustments including normal recurring adjustments, necessary for a fair presentation of such information. Results for the six months ended
December&nbsp;28, 2007 and December&nbsp;29, 2006 are not necessarily indicative of the results that may be expected for any other interim periods or for the fiscal year as a whole. </FONT></P>

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<TH COLSPAN=5 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Six Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=5 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended June&nbsp;30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=5 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;29,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=5 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=5 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(In millions)<BR> </B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(Unaudited)<BR> </B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1><B>CONSOLIDATED STATEMENT OF OPERATIONS DATA:</B></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Revenues</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>24.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>34.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>45.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>55.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>75.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>35.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>38.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Operating costs and expenses:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Costs of revenues</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>20.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>28.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>37.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>44.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>58.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>27.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>28.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>15.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Research, engineering and development expenses</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Legal settlement</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Impairment charges</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Total operating costs and expenses</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>32.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>43.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>58.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>77.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>35.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>37.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Income (loss) from operations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Other (income) expense:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>Other income</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>Interest expense</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Total other income</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Income (loss) from continuing operations before income taxes</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Income tax (benefit) provision</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Income (loss) from continuing operations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Loss from discontinued operations, net of taxes</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Net income (loss)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>Net income (loss) applicable to common stock</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1><BR>
Basic earnings (loss) per common share:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Continuing operations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.06</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.15</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.16</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.14</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.10</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Discontinued operations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.09</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=1>Net income (loss)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.15</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.15</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.16</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.14</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.10</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1><BR>
Diluted earnings (loss) per common share:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Continuing operations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.06</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.13</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.15</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.14</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.10</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Discontinued operations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.09</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=1>Net income (loss)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.15</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.13</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.15</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.14</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.10</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=1><BR>
Weighted average common shares outstanding:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>Basic</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>17.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>16.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>19.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>Diluted</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>11.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>17.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>16.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>19.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>17</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=27,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=21157,FOLIO='17',FILE='DISK112:[08ZAT1.08ZAT42501]CE42501A.;10',USER='DSCHWAR',CD=';8-APR-2008;16:27' -->
<A NAME="page_ce42501_1_18"> </A>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="100%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="47%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="47%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28,<BR>
2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="47%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="47%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(Unaudited)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=1><B>CONSOLIDATED BALANCE SHEET DATA:</B></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=1>Cash and cash equivalents</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.2</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=1>Working capital</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>10.7</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=1>Goodwill</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>18.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>23.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>23.1</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=1>Other intangible assets</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.6</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=1>Total assets</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>17.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>24.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>42.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>52.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>53.4</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=1>Long-term debt</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.6</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=1>Preference stock</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=1>Stockholders' equity</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>15.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>27.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>35.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>36.7</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>18</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=28,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=774291,FOLIO='18',FILE='DISK112:[08ZAT1.08ZAT42501]CE42501A.;10',USER='DSCHWAR',CD=';8-APR-2008;16:27' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_cg42501_1_19"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="cg42501_summary_unaudited_pro_forma_co__sum02438"> </A>
<A NAME="toc_cg42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summary unaudited pro forma condensed combined financial information is designed to show how the merger of Kratos and SYS might have affected
historical financial statements if the merger had been completed at an earlier time and was prepared based on the historical financial results reported by Kratos, including Haverstick, and SYS. The
following should be read in connection with "Unaudited Pro Forma Condensed Combined Financial Statements" beginning on page 197 and the Kratos, SYS and Haverstick audited consolidated financial
statements beginning on pages&nbsp;FI-1, FII-1 and FIII-1, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
pro forma condensed combined financial data is presented for illustrative purposes only and is not necessarily indicative of the financial condition or results of operations of
future periods or the financial condition or results of operations that actually would have been realized had the entities been a single company during these periods. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended<BR>
December&nbsp;31, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(In millions, except per share amounts)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><B>Statements of Operations Data:</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Revenues</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>366.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Operating loss</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(20.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net loss from continuing operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(34.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Loss per common share:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.33</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.33</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Weighted average common shares outstanding:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>104.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>104.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="100%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="69%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>As of<BR>
December&nbsp;31, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2><B>Balance Sheet Data:</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Property and equipment, net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>235.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Intangible assets, net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>401.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Long-term debt, net of current portion</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>77.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(245.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Total stockholders' equity</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="24%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>218.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>19</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=29,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=915453,FOLIO='19',FILE='DISK112:[08ZAT1.08ZAT42501]CG42501A.;9',USER='TOSBORNA',CD=';9-APR-2008;14:05' -->
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_ci42501_1_20"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ci42501_comparative_per_share_data_(unaudited)"> </A>
<A NAME="toc_ci42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>COMPARATIVE PER SHARE DATA (UNAUDITED)    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows per share data regarding losses from continuing operations, book value and cash dividends for Kratos, including Haverstick, and SYS on a
historical, pro forma combined basis. The pro forma book value per share information was computed as if the merger had been completed on December&nbsp;31, 2007. The pro forma losses from continuing
operations information was computed as if the merger had been completed on January&nbsp;1, 2007. The SYS pro forma equivalent information was calculated by multiplying the corresponding pro forma
combined data by the exchange ratio of 1.2582. This information shows how each share of SYS common stock would have participated in the combined companies' losses from continuing operations and book
value per share if the merger had been completed on the relevant dates. These amounts do not necessarily reflect future per share amounts of earnings (losses) from continuing operations and book value
per share of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following unaudited comparative per share data is derived from the historical consolidated financial statements of each of Kratos and SYS. The information below should be read in
conjunction with the audited consolidated financial statements and accompanying notes of Kratos, SYS and Haverstick, which are included in this Proxy Statement. We urge you also to read "Unaudited Pro
Forma Condensed Combined Financial Statements" beginning on page 197. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="78%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="81%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>As of and for the year ended December&nbsp;31, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2><B>Kratos&#151;Historical</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Basic loss per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.38</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Diluted loss per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.38</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Book value per common share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.26</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Cash dividends per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><BR><FONT SIZE=2><B>SYS&#151;Historical</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Basic loss per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.04</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Diluted loss per sharee</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.04</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Book value per common share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.89</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Cash dividends per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><BR><FONT SIZE=2><B>Unaudited Pro Forma Combined</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Basic loss per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.33</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Diluted loss per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.33</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Book value per common share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.09</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Cash dividends per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><BR><FONT SIZE=2><B>Unaudited Pro Forma Combined SYS Equivalents(1)</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Basic loss per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.41</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Diluted loss per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.41</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Book value per common share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.64</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>Cash dividends per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS
pro forma equivalent amounts are calculated by multiplying pro forma per share amounts by the exchange ratio of 1.2582. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>20</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=30,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=523304,FOLIO='20',FILE='DISK112:[08ZAT1.08ZAT42501]CI42501A.;10',USER='GKIBBE',CD=';9-APR-2008;14:07' -->
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_ck42501_1_21"> </A>


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<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ck42501_market_prices_and_dividends_and_other_distributions"> </A>
<A NAME="toc_ck42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>MARKET PRICES AND DIVIDENDS AND OTHER DISTRIBUTIONS    <BR>    </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Kratos  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since November&nbsp;4, 1999, the Common Stock of Kratos has been traded on the Nasdaq Global Stock Exchange under the symbols "WFII" and "KTOS." The ranges of
high and low quotations during the two most recent fiscal years of Kratos are as follows: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2><B>Fiscal Year 2008</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.35</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.50</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><BR><FONT SIZE=2><B>Fiscal Year 2007</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.94</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.20</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.80</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.01</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.85</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.70</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.09</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.80</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><BR><FONT SIZE=2><B>Fiscal Year 2006</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.56</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.73</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.53</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.75</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.94</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.85</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.98</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.98</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
summary is based on prices quoted by the Nasdaq Global Stock Exchange. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of April 8, 2008, there were approximately 214 holders of record of the Common Stock of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
cash dividends have been paid on Kratos Common Stock during the two most recent fiscal years of Kratos, and Kratos does not intend to pay cash dividends on its Common Stock in the
immediate future. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> SYS  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since January&nbsp;3, 2005, the Common Stock of SYS has been traded on the American Stock Exchange under the symbol "SYS." Prior to that date, SYS Common Stock
was traded in the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>21</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=31,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=742076,FOLIO='21',FILE='DISK112:[08ZAT1.08ZAT42501]CK42501A.;11',USER='KSOLTER',CD=';9-APR-2008;00:07' -->
<A NAME="page_ck42501_1_22"> </A>

<P style="font-family:times;"><FONT SIZE=2>over-the-counter
market. The ranges of high and low quotations during SYS's two most recent fiscal years are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2><B>Fiscal Year 2008</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.52</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.90</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.45</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.60</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.47</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.30</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><BR><FONT SIZE=2><B>Fiscal Year 2007</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.90</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.10</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.14</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.11</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.80</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.97</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.34</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.73</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><BR><FONT SIZE=2><B>Fiscal Year 2006</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.33</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.61</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.98</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.34</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.25</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.35</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.95</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.70</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
summary is based on prices quoted by the American Stock Exchange. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of April 7, 2008, there were approximately 712 holders of record of SYS's Common Stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
cash dividends have been paid on SYS Common Stock during the two most recent fiscal years of SYS, and SYS does not intend to pay cash dividends on its Common Stock in the immediate
future. </FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>REFERENCES TO ADDITIONAL INFORMATION  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Proxy Statement incorporates important business and financial information about Kratos from documents filed with the Securities and Exchange Commission that
have not been included in or delivered with this document. This information is available at the internet website that the Securities and Exchange Commission maintains at http://www.sec.gov, as well as
from other sources. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
may also request copies of these documents from Kratos, without charge, upon written or oral request to: </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Kratos
Defense &amp; Security Solutions, Inc.<BR>
4810 Eastgate Mall<BR>
San Diego, California 92121<BR>
Attn: Investor Relations<BR>
(858) 812-7300 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>In order to receive timely delivery of the documents, you must make your request no later
than&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>For more information, see the section entitled "Where You Can Find More Information." </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>22</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_cm42501_1_23"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="cm42501_cautionary_statement_r__cm402378"> </A>
<A NAME="toc_cm42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We make forward-looking statements in this Proxy Statement. These forward-looking statements relate to outlooks or expectations for earnings, revenues, expenses,
asset quality or other future financial or business performance, strategies or expectations, or the impact of legal, regulatory or supervisory matters on business, results of operations or financial
condition. Specifically, forward looking statements may include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>statements
relating to the benefits of the merger, including anticipated synergies and cost savings estimated to result from the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>statements
relating to future business prospects, revenue, income and financial condition; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>statements
preceded by, followed by or that include the words "estimate," "plan," "project," "forecast," "intend," "expect," "anticipate," "believe," "seek," "target" or
similar expressions. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
statements reflect management judgments based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future
performance cannot be ensured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
ability to obtain governmental approvals of the merger on the proposed terms and time schedule, and without the imposition of significant terms, conditions, obligations
or restrictions;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
risk that the businesses will not be integrated successfully;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>expected
cost savings from the merger may not be fully realized within the expected time frames or at all;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>revenues
following the merger may be lower than expected;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
effects of vigorous competition in the markets in which Kratos and SYS operate;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
possibility of one or more of the markets in which Kratos and SYS compete being impacted by changes in political or other factors such as monetary policy, legal and
regulatory changes or other external factors over which they have no control;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
ability of Kratos to obtain debt financing on terms favorable to it or at all, whether to complete any required refinancing of outstanding debt or otherwise;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
in general economic and market conditions; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>other
risks referenced from time to time in filings with the SEC and those factors listed in this Proxy Statement under "Risk Factors" beginning on page 24. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Proxy Statement, or in the case of any other document, as of the
date of that
document. Except as required by law, neither Kratos nor SYS undertakes any obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or
circumstances after the date hereof or to reflect the occurrence of unanticipated events. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional
factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in this Prospectus, including the section of
this Prospectus entitled "Risk Factors." </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>23</FONT></P>

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<BR></FONT><FONT SIZE=2><B>RISK FACTORS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>In addition to the other information contained in this Proxy Statement, you should carefully consider the following risk factors in
deciding how to vote on the merger. In addition, you should read and consider the risks associated with each of the businesses of Kratos and SYS because these risks will also relate to Kratos
following completion of the merger.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The failure to successfully integrate SYS's business and operations in the expected time frame may adversely affect the combined company's future results.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos believes that the merger with SYS will result in certain benefits including cost synergies and operational efficiencies. To realize the anticipated
benefits, Kratos will be required to devote significant management attention and resources to integrating the two companies. The merger involves the integration of two companies that have previously
operated independently with principal offices in two distinct locations. Due to legal restrictions, at present Kratos and SYS are able to conduct only limited planning regarding the integration of the
two companies. The actual integration may result in additional and unforeseen expenses or delays. If Kratos is not able to successfully integrate SYS' business and operations, or if there are delays
in combining the businesses, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. Failure to realize the full benefits of the merger
could adversely affect Kratos' business, financial results, financial condition and stock price following the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Because the market price of Kratos common stock will fluctuate, SYS shareholders cannot be sure of the market value of the Kratos common stock that they will receive.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When we complete the merger, each share of SYS common stock will be converted into the right to receive 1.2582 shares of Kratos common stock. The exchange ratio
is fixed and will not be adjusted for changes in the market price of either Kratos common stock or SYS common stock. The merger agreement does not provide for any price-based termination right for
either party. Accordingly, the market value of the shares of Kratos common stock that Kratos issues and SYS shareholders will be entitled to receive when the parties complete the merger will depend on
the market value of shares of
Kratos common stock at the time that the parties complete the merger and could vary significantly from the market value on the date of this Proxy Statement or the date of the Kratos annual meeting and
the SYS special meeting. The market value of Kratos common stock will continue to fluctuate after the completion of the merger. For example, during the third and the fourth calendar quarters of 2007,
the sales price of Kratos common stock ranged from a low of $1.70 to a high of $3.09, all as reported on The Nasdaq Global Select Stock Market. See "Market Prices and Dividends and Other
Distributions" on page&nbsp;21. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
variations could result from changes in the business, operations or prospects of Kratos or SYS prior to or following the merger, market assessments as to whether and when the
merger will be consummated, regulatory considerations, general market and economic conditions and other factors both within and beyond the control of Kratos or SYS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The issuance of shares of Kratos common stock to SYS shareholders in the merger will substantially dilute the interest in Kratos held by Kratos stockholders prior to the
merger.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the merger is completed, Kratos will issue up to approximately 25.3&nbsp;million shares of Kratos common stock in the merger. Based on the number of shares
of Kratos and SYS common stock outstanding on the Kratos and SYS record dates, SYS shareholders before the merger will own, in the aggregate, approximately 24% of the shares of Kratos common stock
outstanding immediately after the merger on a fully diluted basis. The issuance of shares of Kratos common stock to SYS shareholders in </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>24</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>the
merger will cause a significant reduction in the relative percentage interest of current Kratos stockholders in the earnings, voting rights, liquidation value and book and market value of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Uncertainty about the merger and diversion of management could harm Kratos and SYS, whether or not the merger is completed.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In response to the announcement of the merger, existing or prospective customers of Kratos or SYS may delay or defer their procurement or other decisions
concerning Kratos or SYS, or they may seek to change their existing business relationship. In addition, as a result of the merger, current and prospective employees could experience uncertainty about
their future with Kratos or SYS, and either organization could lose key employees as a result. In addition to retention, these uncertainties may also impair each company's ability to recruit or
motivate key personnel. Completion of the merger will also require a significant amount of time and attention from management. The diversion of management attention away from ongoing operations could
adversely affect ongoing operations and business relationships. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Failure to complete the merger could adversely affect Kratos' and SYS's stock prices and their future business and financial results.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Completion of the merger is conditioned upon, among other things, the receipt of approval of the Kratos and SYS stockholders. There is no assurance that the
parties will receive the necessary approvals or satisfy the other conditions to the completion of the merger. Failure to complete the proposed merger would prevent Kratos and SYS from realizing the
anticipated benefits of the merger. Each company will also remain liable for significant transaction costs, including legal, accounting and financial advisory fees. In addition, the market price of
each company's common stock may reflect various market assumptions as to whether the merger will occur. Consequently, the failure to complete the merger could result in a significant change in the
market price of the common stock of Kratos and SYS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The combined company will incur significant transaction and merger-related costs in connection with the merger.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos and SYS expect to incur significant costs associated with completing the merger and combining the operations of the two companies. The exact magnitude of
these costs is not yet known. In addition, there may be unanticipated costs associated with the integration. Although Kratos and SYS expect that the elimination of duplicative costs and other
efficiencies may offset incremental transaction and merger-related costs over time, these benefits may not be achieved in the near term or at all. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Because SYS's executive officers have interests in seeing the merger completed that are different than those of SYS's other shareholders, these persons may have conflicts of
interest in recommending that SYS shareholders vote to adopt and approve the merger agreement.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of SYS's directors and executive officers have interests in the merger that are different from, or are in addition to, the interests of SYS shareholders
generally. This difference of interests stems from the equity and equity-linked securities held by such persons, the change of control severance arrangements covering SYS's executive officers under
which such officers are entitled to severance payments and other benefits if their employment is terminated following the merger, and the Kratos obligation under the merger agreement to indemnify
SYS's directors and officers following the merger. These and other material interests of the directors and executive officers of SYS in the merger that are different than those of the other SYS
shareholders are described under "The Merger&#151;Interests of SYS Directors and Executive Officers" beginning on page&nbsp;66. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>25</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>The merger agreement contains provisions that could discourage a potential alternative acquirer that might be willing to pay more to acquire SYS.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The merger agreement contains "no shop" provisions that restrict SYS's ability to solicit or facilitate proposals regarding a merger or similar transaction with
another party. Further, there are only limited exceptions to SYS's agreement that its board of directors will not withdraw or adversely qualify its recommendation regarding the merger agreement. SYS's
board of directors is permitted to terminate the merger agreement in response to an unsolicited third party proposal to acquire SYS, which SYS's board of directors determines to be more favorable than
the merger with Kratos. However, if SYS or Kratos terminates the merger agreement because SYS has received an acquisition proposal that is deemed more favorable by its board of directors, Kratos will
be entitled to collect a $2,394,000 termination fee from SYS. We describe these provisions under "The Merger Agreement&#151;Termination" beginning on page&nbsp;86 and
"&#151;Termination Fees and Expenses" beginning on page&nbsp;87. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
provisions could discourage a potential third party acquirer from considering or proposing an alternative acquisition, even if it were prepared to pay consideration with a higher
value than that proposed to be paid in the merger, or might result in a potential third party acquirer proposing to pay a lower per share price than it might otherwise have proposed to pay because of
the added expense of the termination fee. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Resales of shares of Kratos common stock following the merger and additional obligations to issue shares of Kratos common stock by Kratos may cause the market price of Kratos
common stock to decrease.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, Kratos had 78,998,922&nbsp;shares of common stock outstanding and approximately 8,327,306&nbsp;shares of common stock subject
to outstanding options and other rights to purchase or acquire its shares. Kratos currently expects that it will issue approximately 25.3&nbsp;million shares of common stock in connection with the
merger. The issuance of these new shares of Kratos common stock and the sale of additional shares of Kratos common stock that may become eligible for sale in the public market from time to time upon
exercise of options and other equity-linked securities could have the effect of depressing the market price for shares of Kratos common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Future results of the combined company may differ materially from the unaudited pro forma financial statements presented in this Proxy Statement.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The future results of Kratos may be materially different from those shown in the unaudited pro forma financial statements presented in this Proxy Statement that
show only a combination of the historical results of Kratos and SYS. Kratos expects to incur significant costs associated with completing the merger and combining the operations of the two companies,
and the exact magnitude of these costs is not yet known. Furthermore, these costs may decrease the capital that Kratos could use for income-earning investments in the future. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>The trading price of shares of Kratos common stock after the merger may be affected by factors different from those affecting the price of shares of Kratos common stock or
shares of SYS common stock before the merger.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When the merger is completed, holders of SYS common stock will become holders of Kratos common stock. The results of operations of Kratos, as well as the trading
price of Kratos common stock, after the merger may be affected by factors different from those currently affecting Kratos' or SYS's results of operations and the trading price of Kratos common stock
or SYS common stock. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>26</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Kratos' business could be adversely affected by changes in the contracting or fiscal policies of the federal government and governmental entities.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos derives a significant portion of Kratos' revenue from contracts with the U.S. Federal Government and government agencies and subcontracts under Federal
Government prime contracts, and the success of Kratos' business and growth of Kratos' business will continue to depend on Kratos' successful procurement of government contracts either directly or
through prime contractors. Accordingly, changes in government contracting policies or government budgetary constraints could directly affect Kratos' financial performance. Among the factors that could
adversely affect Kratos' business are: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
in fiscal policies or decreases in available government funding, including budgetary constraints affecting federal government spending generally, or specific
departments or agencies in particular;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
adoption of new laws or regulations or changes to existing laws or regulations;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
in political or social attitudes with respect to security and defense issues;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
in federal government programs or requirements, including the increased use of small business providers;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
in or delays related to government restrictions on the export of defense articles and services;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>potential
delays or changes in the government appropriations process; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>delays
in the payment of our invoices by government payment offices. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
and other factors could cause governments and government agencies, or prime contractors that use Kratos as a subcontractor, to reduce their purchases under existing contracts, to
exercise their rights to terminate contracts at-will or to abstain from exercising options to renew contracts, any of which could have an adverse effect on Kratos' business, financial
condition and results of operations. Many of Kratos' government customers are subject to stringent budgetary constraints. The award of additional contracts from government agencies could be adversely
affected by spending reductions or budget cutbacks at these agencies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos derives a substantial amount of revenues from the sale of its solutions either directly or indirectly to U.S. government entities pursuant to government contracts, which
differ materially from standard commercial contracts, involve competitive bidding and may be subject to cancellation or delay without penalty, any of which may produce volatility in Kratos' revenues
and earnings.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government contracts frequently include provisions that are not standard in private commercial transactions, and are subject to laws and regulations that give the
Federal Government rights and remedies not typically found in commercial contracts, including provisions permitting the federal government to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>terminate
Kratos' existing contracts;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reduce
potential future income from Kratos' existing contracts;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>modify
some of the terms and conditions in Kratos' existing contracts;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>suspend
or permanently prohibit Kratos from doing business with the federal government or with any specific government agency;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>impose
fines and penalties;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>subject
Kratos to criminal prosecution; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>27</FONT></P>

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<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>suspend
work under existing multiple year contracts and related task orders if the necessary funds are not appropriated by Congress;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>decline
to exercise an option to extend an existing multiple year contract; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>claim
rights in technologies and systems invented, developed or produced by Kratos. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, government contracts are frequently awarded only after formal competitive bidding processes, which have been and may continue to be protracted and typically impose
provisions that permit cancellation in the event that necessary funds are unavailable to the public agency. Competitive procurements impose substantial costs and managerial time and effort in order to
prepare bids and proposals for contracts that may not be awarded to Kratos. In many cases, unsuccessful bidders for government agency contracts are provided the opportunity to formally protest certain
contract awards through various agency, administrative and judicial channels. The protest process may substantially delay a successful bidder's contract performance, result in cancellation of the
contract award entirely and distract management. Kratos may not be awarded contracts for which Kratos bids, and substantial delays or cancellation of purchases may follow Kratos' successful bids as a
result of such protests. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
of Kratos' government contracts also contain "organizational conflict of interest" clauses that could limit Kratos' ability to compete for certain related follow-on
contracts. For example, when Kratos works on the design of a particular solution, Kratos may be precluded from competing for the contract to install that solution. While Kratos actively monitors
Kratos' contracts to avoid these conflicts, Kratos cannot guarantee that Kratos will be able to avoid all organizational conflict of interest issues. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>A significant number of Kratos' customers are government agencies which are subject to unique political and budgetary constraints and have special contracting requirements that
may affect Kratos' ability to obtain other new government customers.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant number of Kratos' customers are government agencies, principally DoD agencies. These agencies often do not set their own budgets and therefore have
little control over the amount of money they can spend. In addition, these agencies experience political pressure that may dictate the manner in which they spend money. Due to political and budgetary
processes and other scheduling delays that frequently occur in the contract or bidding process, some government agency orders may be canceled or substantially delayed, and the receipt of revenues or
payments may be substantially delayed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos faces intense competition from many competitors that have greater resources than Kratos does, which could result in price reductions, reduced profitability or loss of
market share.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos operates in highly competitive markets and generally encounters intense competition to win contracts from many other firms, including mid-tier
federal contractors with specialized capabilities and large defense and IT services providers. Competition in Kratos' markets may increase as a result of a number of factors, such as the entrance of
new or larger competitors, including those formed through alliances or consolidation. These competitors may have greater financial, technical, marketing and public relations resources, larger client
bases and greater brand or name recognition than Kratos does. These competitors could, among other things: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>divert
sales from Kratos by winning very large-scale government contracts, a risk that is enhanced by the recent trend in government procurement practices to bundle services
into larger contracts;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>force
Kratos to charge lower prices; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>adversely
affect Kratos' relationships with current clients, including Kratos' ability to continue to win competitively awarded engagements in which Kratos is the incumbent. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>28</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
Kratos loses business to Kratos' competitors or is forced to lower Kratos' prices, Kratos' revenue and Kratos' operating profits could decline. In addition, Kratos may face
competition from Kratos' subcontractors who, from time-to-time, seek to obtain prime contractor status on contracts for which they currently serve as a subcontractor to Kratos.
If one or more of our current subcontractors are awarded prime contractor status on such contracts in the future, it could divert sales from Kratos or could force Kratos to charge lower prices, which
could cause Kratos' margins to suffer. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Recent acquisitions and potential future acquisitions could prove difficult to integrate, disrupt Kratos' business, dilute stockholder value and strain Kratos' resources.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has completed several acquisitions of complementary businesses in recent years, including Kratos' October 2006 acquisition of Madison Research Technology
Corporation and December 2007 acquisition of Haverstick Consulting,&nbsp;Inc. Kratos currently expects the merger with SYS to close by the end of the second quarter of 2008 upon receipt of the
required stockholder approvals. However, the merger may not close as expected, and the anticipated synergies from the acquisition may not be fully realized or may take longer to realize than expected.
The success of the merger with SYS will depend in part on the success in integrating the operations, technologies and personnel of SYS. The failure to successfully integrate the operations of the two
companies or otherwise to realize any of the anticipated benefits of the acquisition could seriously harm Kratos' results of operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
continually evaluates opportunities to acquire new businesses as part of Krato's ongoing strategy, and Kratos may in the future acquire additional companies that Kratos believes
could compliment or expand Kratos' business or increase Kratos' customer base. Kratos may not be able to identify suitable acquisition candidates at prices that Kratos considers appropriate. If Kratos
does identify an appropriate acquisition candidate, Kratos may not be able to successfully negotiate the terms of the acquisition or finance the acquisition on terms that are satisfactory to Kratos.
Negotiations of potential acquisitions and the integration of acquired business operations could disrupt Kratos' business by diverting management attention from day-to-day
operations. Acquisitions of businesses or other material operations may require additional debt or equity financing, resulting in additional leverage or dilution of ownership. Kratos may encounter
increased competition for acquisitions, which may increase the price of Kratos' acquisitions. Acquisitions involve numerous risks, including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>difficulties
in integrating operations, technologies, accounting and personnel;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>difficulties
in supporting and transitioning customers of acquired companies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>difficulties
or delays in transitioning federal government contracts pursuant to federal acquisition regulations;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>diversion
of financial and management resources from existing operations;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>potential
loss of key employees;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>federal
acquisition regulations may require us to enter into government novation agreements, a potentially time-consuming process; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>inability
to generate sufficient revenue to offset acquisition costs. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquired
companies may have liabilities or adverse operating issues that Kratos fails to discover through due diligence prior to the acquisition. In particular, to the extent that prior
owners of any acquired businesses or properties failed to comply with or otherwise violated applicable laws or regulations, or failed to fulfill their contractual obligations to the federal government
or other clients, Kratos, as the successor owner, may be financially responsible for these violations and failures and may suffer reputational harm or otherwise be adversely affected. Acquisitions
also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments in the future that could harm our financial results. In addition, if Kratos
finances acquisitions by issuing </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>convertible
debt or equity securities, Kratos' existing stockholders may be diluted, which could affect the market price of Kratos' stock. As a result, if Kratos fails to properly evaluate
acquisitions or investments, Kratos may not achieve the anticipated benefits of any such acquisitions, and Kratos may incur costs in excess of what Kratos anticipates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos agreed to indemnify acquirers of Kratos' divested operations against specified losses in connection with the sale of these operations, and any demands for
indemnification may result in expenses Kratos does not anticipate and distract the attention of Kratos' management from Kratos' continuing businesses.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos agreed to indemnify acquirers of Kratos' divested operations against specified losses in connection with their sale and generally retain responsibility for
various legal liabilities that accrued prior to closing. Kratos also made representations and warranties to these acquirers about the condition of the divested businesses. If any acquirer makes an
indemnification claim because it has suffered a loss or a third party has commenced an action against the divested business, Kratos may incur substantial expenses resolving such claims or defending
against the third party action, which would harm Kratos' operating results. In addition, Kratos' ability to defend itself may be impaired because Kratos' former employees are now employees of the
acquirer or other companies, and Kratos' management may have to devote a substantial amount of time to resolving the claim. In addition, these indemnity claims may divert management attention from
responsibilities related to the daily ongoing concerns of the business.
In addition, Kratos may be required to expend substantial resources trying to determine which party has responsibility for the claim, even if Kratos is ultimately found to be not responsible. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>A preference for minority-owned, small and small disadvantaged businesses could impact Kratos' ability to be a prime contractor on certain governmental procurements.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of an SBA set-aside program, the Federal Government may decide to restrict certain procurements to bidders that qualify as minority-owned,
small or small disadvantaged businesses. As a result, Kratos would not be eligible to perform as a prime contractor on those programs and would be restricted to a maximum of 49% of the work as a
subcontractor on those programs. An increase in the amount of procurements under the SBA set-aside program may impact Kratos' ability to bid on new procurements or restrict Kratos' ability
to recompete on incumbent work that is placed in the set-aside program. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos' financial results may vary significantly from quarter to quarter.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos expects Kratos' revenue and operating results to vary from quarter to quarter. Reductions in revenue in a particular quarter could lead to lower
profitability in that quarter because a relatively large amount of our expenses are fixed in the short-term. Kratos may incur significant operating expenses during the start-up
and early stages of large contracts and may not be able to recognize corresponding revenue in that same quarter. Kratos may also incur additional expenses when contracts expire, are terminated or are
not renewed. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>30</FONT></P>

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, payments due to Kratos from federal government agencies may be delayed due to billing cycles or as a result of failures of government budgets to gain congressional and
administration approval in a timely manner. The Federal Government's fiscal year ends September&nbsp;30. If a federal budget for the next federal fiscal year has not been approved by that date in
each year, Kratos' clients may have to suspend engagements that Kratos is working on until a budget has been approved. Any such suspensions may reduce Kratos' revenue in the fourth quarter of that
year or the first quarter of the subsequent year. The federal government's fiscal year end can also trigger increased purchase requests from clients for equipment and materials. Any increased purchase
requests Kratos receives as a result of the federal government's fiscal year end would serve to increase Kratos' third or fourth quarter revenue, but will generally decrease profit margins for that
quarter, as these activities generally are not as profitable as Kratos' typical offerings. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional
factors that may cause Kratos' financial results to fluctuate from quarter to quarter include those addressed elsewhere in these Risk Factors and the following, among others: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
terms of customer contracts that affect the timing of revenue recognition;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>variability
in demand for Kratos' services and solutions;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>commencement,
completion or termination of contracts during any particular quarter;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>timing
of award or performance incentive fee notices;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>timing
of significant bid and proposal costs;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>variable
purchasing patterns under the GSA Schedule&nbsp;70 Contracts, government wide acquisition contracts, which we refer to as GWACs, blanket purchase agreements and
other indefinite delivery/indefinite quantity contracts;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>restrictions
on and delays related to the export of defense articles and services;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>costs
related to ongoing government inquiries;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>strategic
decisions by Kratos or Kratos' competitors, such as acquisitions, divestitures, spin-offs and joint ventures;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>strategic
investments or changes in business strategy;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
in the extent to which we use subcontractors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>seasonal
fluctuations in Kratos' staff utilization rates;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
in Kratos' effective tax rate including changes in Kratos' judgment as to the necessity of the valuation allowance recorded against Kratos' deferred tax assets; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
length of sales cycles. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant
fluctuations in Kratos' operating results for a particular quarter could cause Kratos to fall out of compliance with the financial covenants contained in Kratos' credit
facility, which if not waived by the lender, could restrict Kratos' access to capital and cause Kratos to take extreme measures to pay
down Kratos' debt under the credit facility. In addition, fluctuations in Kratos' financial results could cause Kratos' stock price to&nbsp;decline. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If Kratos fails to establish and maintain important relationships with government entities and agencies and other government contractors, Kratos' ability to bid successfully
for new business may be adversely affected.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To develop new business opportunities, Kratos primarily relies on establishing and maintaining relationships with various government entities and agencies. Kratos
may be unable to successfully </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>31</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>maintain
our relationships with government entities and agencies, and any failure to do so could materially adversely affect Kratos' ability to compete successfully for new business. In addition,
Kratos often acts as a subcontractor or in "teaming" arrangements in which Kratos and other contractors bid together on particular contracts or programs for the federal government or government
agencies. As a subcontractor or team member, Kratos often lacks control over fulfillment of a contract, and poor performance on the contract could tarnish Kratos' reputation, even when Kratos performs
as required. Kratos expects to continue to depend on relationships with other contractors for a portion of Kratos' revenue in the foreseeable future. Moreover, Kratos' revenue and operating results
could be materially adversely affected if any prime contractor or teammate chooses to offer a client services of the type that Kratos provides or if any prime contractor or teammate teams with other
companies to independently provide those services. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos derives a significant portion of Kratos' revenues from a limited number of customers.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has derived, and believes that it will continue to derive, a significant portion of Kratos' revenues from a limited number of customers. To the extent that
any significant customer uses less of Kratos' services or terminates its relationship with Kratos, our revenues could decline significantly. As a result, the loss of any significant client could
seriously harm our business. For the fiscal year ended December&nbsp;31, 2007, two customers comprised approximately 60% and 44% of Kratos' federal business revenues and total revenues,
respectively, and Kratos' five largest customers accounted for approximately 84% and 62% of Kratos' total federal business revenues and total revenues, respectively. None of Kratos' customers are
obligated to purchase additional services from Kratos. As a result, the volume of work that Kratos performs for a specific customer is likely to vary from period to period, and a significant client in
one period may not use Kratos' services in a subsequent period. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos' margins and operating results may suffer if Kratos experience unfavorable changes in the proportion of cost-plus-fee or fixed-price contracts in
Kratos' total contract mix.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although fixed-price contracts entail a greater risk of a reduced profit or financial loss on a contract compared to other types of contracts Kratos enters into,
fixed-price contracts typically provide higher profit opportunities because Kratos may be able to benefit from cost savings. In contrast, cost-plus-fee contracts are subject to
statutory limits on profit margins, and generally are the least profitable of Kratos' contract types. Kratos' federal government customers typically determine what type of contract Kratos enters into.
Cost-plus-fee and fixed-price contracts in Kratos' federal business accounted for approximately 51.1% and 23.3%, respectively, of Kratos' federal business revenues for the
fiscal year ended December&nbsp;31, 2007. To the extent that Kratos enters into more cost-plus-fee or less fixed-price contracts in proportion to Kratos' total contract mix
in the future, Kratos' margins and operating results may suffer. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The Federal Government may revise its procurement or other practices in a manner adverse to Kratos.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Federal Government may revise its procurement practices or adopt new contracting rules and regulations, such as cost accounting standards. It could also adopt
new contracting methods relating to GSA contracts, MACs or other government-wide contracts, or adopt new standards for contract awards intended to achieve certain social or other policy
objectives, such as establishing new set-aside programs for small or minority-owned businesses. In addition, the Federal Government may face restrictions from new legislation or
regulations, as well as pressure from government employees and their unions, on the nature and amount of services the Federal Government may obtain from private contractors. These changes could impair
Kratos' ability to obtain new contracts or contracts under which Kratos currently performs when those contracts are put up for recompetition bids. Any new contracting methods could be costly or
administratively difficult for Kratos to implement, and, as a result, could harm Kratos' operating results. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>32</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Kratos' cash flow and profitability could be reduced if expenditures are incurred prior to the final receipt of a contract.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos provides various professional services and sometimes procure equipment and materials on behalf of our federal government customers under various
contractual arrangements. From time to
time, in order to ensure that Kratos satisfies Kratos' customers' delivery requirements and schedules, Kratos may elect to initiate procurement in advance of receiving final authorization from the
government customer or a prime contractor. If Kratos' government or prime contractor customers' requirements should change or if the government or the prime contractor should direct the anticipated
procurement to a contractor other than Kratos or if the equipment or materials become obsolete or require modification before Kratos is under contract for the procurement, Kratos' investment in the
equipment or materials might be at risk if Kratos cannot efficiently resell them. This could reduce anticipated earnings or result in a loss, negatively affecting Kratos' cash flow and profitability. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Loss of Kratos' GSA contracts or GWACs would impair Kratos' ability to attract new business.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos is a prime contractor under several GSA contracts and GWAC schedule contracts. Kratos believes that Kratos' ability to provide services under these
contracts will continue to be important to our business because of the multiple opportunities for new engagements each contract provides. If Kratos were to lose Kratos' position as prime contractor on
one or more of these contracts, Kratos could lose substantial revenues and our operating results could suffer. GSA contracts and other GWACs typically have a one or two-year initial term
with multiple options exercisable at the government client's discretion to extend the contract for one or more years. Kratos cannot be assured that Kratos' government clients will continue to exercise
the options remaining on Kratos' current contracts, nor can Kratos be assured that Kratos' future clients will exercise options on any contracts Kratos may receive in the future. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Failure to properly manage projects may result in additional costs or claims.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos' engagements often involve large scale, highly complex projects. The quality of Kratos' performance on such projects depends in large part upon our ability
to manage the relationship with Kratos' customers, and to effectively manage the project and deploy appropriate resources, including third-party contractors, and Kratos' own personnel, in a timely
manner. Any defects or errors or failure to meet clients' expectations could result in claims for substantial damages against us. Kratos' contracts generally limit Kratos' liability for damages that
arise from negligent acts, error, mistakes or omissions in rendering services to Kratos' clients. However, Kratos cannot be sure that these contractual provisions will protect Kratos from liability
for damages in the event Kratos is sued. In addition, in certain instances, Kratos guarantees customers that Kratos will complete a project by a scheduled date. If the project experiences a
performance problem, Kratos may not be able to recover the additional costs Kratos will incur, which could exceed revenues realized from a project. Finally, if Kratos underestimates the resources or
time Kratos needs to complete a project with capped or fixed fees, Kratos' operating results could be seriously harmed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The loss of any member of Kratos' senior management could impair Kratos' relationships with federal government clients and disrupt the management of Kratos' business.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos believes that the success of Kratos' business and Kratos' ability to operate profitably depends on the continued contributions of the members of Kratos'
senior management. Kratos relies on Kratos' senior management to generate business and execute programs successfully. In addition, the relationships and reputation that many members of Kratos' senior
management team have established and maintain with federal government personnel contribute to Kratos' ability to maintain strong client relationships and to identify new business opportunities. Kratos
does not have any employment agreements providing for a specific term of employment with any member of Kratos' senior </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>33</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>management.
The loss of any member of Kratos' senior management could impair Kratos' ability to identify and secure new contracts, to maintain good client relations and to otherwise manage Kratos'
business. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If Kratos fail to attract and retain skilled employees or employees with the necessary security clearances, Kratos might not be able to perform under Kratos' contracts or win
new business.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The growth of Kratos' business and revenue depends in large part upon Kratos' ability to attract and retain sufficient numbers of highly qualified individuals who
have advanced information technology and/or engineering skills. These employees are in great demand and are likely to remain a limited resource in the foreseeable future. Certain federal government
contracts require Kratos, and some of Kratos' employees, to maintain security clearances. Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to
identify, recruit and retain employees who already hold security clearances. In addition, some of Kratos' contracts contain provisions requiring Kratos to staff an engagement with personnel that the
client considers key to Kratos' successful performance under the contract. In the event Kratos is unable to provide these key personnel or acceptable substitutions, the client may terminate the
contract and Kratos may lose revenue. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
Kratos is unable to recruit and retain a sufficient number of qualified employees, Kratos' ability to maintain and grow our business could be limited. In a tight labor market, our
direct labor costs could increase or Kratos may be required to engage large numbers of subcontractor personnel, which could cause our profit margins to suffer. Conversely, if Kratos maintains or
increases Kratos' staffing levels in anticipation of one or more projects and the projects are delayed, reduced or terminated, Kratos may underutilize the additional personnel, which would increase
Kratos' general and administrative expenses, reduce Kratos' earnings and possibly harm Kratos' results of operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If Kratos' subcontractors fail to perform their contractual obligations, Kratos' performance and reputation as a prime contractor and Kratos' ability to obtain future business
could suffer.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a prime contractor, Kratos often relies upon other companies to perform work Kratos is obligated to perform for Kratos' clients as subcontractors. As Kratos
secures more work under our GWAC vehicles, Kratos expects to require an increasing level of support from subcontractors that provide complementary and supplementary services to Kratos' offerings.
Depending on labor market conditions, Kratos may not be able to identify, hire and retain sufficient numbers of qualified employees to perform the task orders Kratos expects to win. In such cases,
Kratos will need to rely on subcontracts with unrelated companies. Moreover, even in favorable labor market conditions, Kratos anticipates entering into more subcontracts in the future as Kratos
expand Kratos' work under Kratos' GWACs. Kratos is responsible for the work performed by Kratos' subcontractors, even though in some cases Kratos has limited involvement in that work. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
one or more of Kratos' subcontractors fail to satisfactorily perform the agreed-upon services on a timely basis or violate federal government contracting policies, laws or
regulations, Kratos' ability to perform Kratos' obligations as a prime contractor or meet Kratos' clients' expectations may be compromised. In extreme cases, performance or other deficiencies on the
part of our subcontractors could result in a client terminating Kratos' contract for default. A termination for default could expose Kratos to liability, including liability for the agency's costs of
reprocurement, could damage Kratos' reputation and could hurt Kratos' ability to compete for future contracts. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos' failure to comply with complex procurement laws and regulations could cause Kratos to lose business and subject Kratos to a variety of penalties.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos must comply with laws and regulations relating to the formation, administration and performance of federal government contracts, which affect how Kratos
does business with Kratos' </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>34</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>clients
and may impose added costs on Kratos. In addition, the federal government, including the Defense Contract Audit Agency, which we refer to as the DCAA, audits and reviews Kratos' performance on
contracts, pricing practices, cost structure and compliance with applicable laws, regulations and standards. The DCAA reviews a contractor's internal control systems and policies, including the
contractor's purchasing, property, estimating, compensation and management information systems, and the contractor's compliance with such policies. Any costs found to be improperly allocated to a
specific contract will not be reimbursed, while such costs already reimbursed must be refunded. Adverse findings in a DCAA audit could materially affect Kratos' competitive position and result in a
substantial adjustment to Kratos' revenue and profit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Accuracy of indirect billing rates is critical.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos' provisional indirect billing rates are approved at least annually by the Defense Contract Management Agency, which we refer to as the DCMA after being
reviewed by the DCAA. These rates can differ from Kratos' actual indirect rates. Kratos budgets to have our actual indirect rates as close as possible to Kratos' government approved indirect rates at
fiscal year end. Throughout the year, management assesses how these rates compare to forecasted rates for the year. If a variance is expected to exceed the amount to be billed, provisions for such
variance are recognized at that time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
interim reporting purposes, Kratos applies overhead and selling, general and administrative expenses as a percentage of direct contract costs based on annual budgeted indirect
expense rates. To the extent actual expenses for an interim period are greater than the budgeted rates, the variance is deferred if management believes it is probable that the variance will be
absorbed by planned contract activity. This probability assessment includes projecting whether future indirect costs will be sufficiently less than the annual budgeted rates or can be absorbed by
seeking increased billing rates applied on cost-plus-fee contracts. At the end of each interim reporting period, management assesses the recoverability of any amount deferred
to determine if any portion should be charged to expense. In assessing the recoverability of variances deferred, management takes into consideration estimates of the amount of direct labor and other
direct costs to be incurred in future interim periods, the feasibility of modifications for provisional billing rates, and the likelihood that an approved increase in provisional billing rates can be
passed along to a customer. If assumptions about the probability of recovering deferred variances change, deferred amounts could be expensed and such expenses could have a material adverse effect on
the results of operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The commercial business arena in which Kratos operates has relatively low barriers to entry and increased competition could result in margin erosion, which would make
profitability even more difficult to sustain.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than the technical skills required in our commercial business, the barriers to entry in this area are relatively low. Kratos does not have any intellectual
property rights in this segment of Kratos' business to protect Kratos' methods and business start-up costs do not pose a significant barrier to entry. The success of Kratos' commercial
business is dependent on Kratos' employees, customer relations and the successful performance of Kratos' services. If we face increased competition as a result of new entrants in Kratos' markets,
Kratos could experience reduced operating margins and loss of market share and brand recognition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If Kratos experiences systems or service failure, Kratos' reputation could be harmed and Kratos' clients could assert claims against Kratos for damages or refunds.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos creates, implements and maintains IT solutions that are often critical to Kratos' clients' operations. We have experienced, and may in the future
experience, some systems and service failures, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>35</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>schedule
or delivery delays and other problems in connection with Kratos' work. If Kratos experiences these problems, Kratos may: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>lose
revenue due to adverse client reaction;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>be
required to provide additional services to a client at no charge;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>receive
negative publicity, which could damage Kratos' reputation and adversely affect Kratos' ability to attract or retain clients; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>suffer
claims for substantial damages. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to any costs resulting from product or service warranties, contract performance or required corrective action, these failures may result in increased costs or loss of revenue
if clients postpone subsequently scheduled work or cancel, or fail to renew, contracts. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While
many of Kratos' contracts limit our liability for consequential damages that may arise from negligence in rendering services to Kratos' clients, Kratos cannot assure you that these
contractual provisions will be legally sufficient to protect Kratos if Kratos is sued. In addition, our errors and omissions and product liability insurance coverage may not be adequate, may not
continue to be available on reasonable terms or in sufficient amounts to cover one or more large claims, or the insurer may disclaim coverage as to some types of future claims. The successful
assertion of any large claim against Kratos could seriously harm our business. Even if not successful, these claims could result in
significant legal and other costs, may be a distraction to Kratos' management and may harm Kratos' reputation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Security breaches in sensitive federal government systems could result in the loss of clients and negative publicity.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of the systems Kratos develops, installs and maintains involve managing and protecting information involved in intelligence, national security and other
sensitive or classified federal government functions. A security breach in one of these systems could cause serious harm to Kratos' business, damage Kratos' reputation and prevent Kratos from being
eligible for further work on sensitive or classified systems for federal government clients. Kratos could incur losses from such a security breach that could exceed the policy limits under Kratos'
errors and omissions and product liability insurance. Damage to Kratos' reputation or limitations on Kratos' eligibility for additional work resulting from a security breach in one of the systems
Kratos develops, installs and maintains could materially reduce Kratos' revenue. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos' employees may engage in misconduct or other improper activities, which could cause Kratos to lose contracts.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos is exposed to the risk that employee fraud or other misconduct could occur. Misconduct by employees could include intentional failures to comply with
federal government procurement regulations, engaging in unauthorized activities or falsifying time records. Employee misconduct could also involve the improper use of Kratos' clients' sensitive or
classified information, which could result in regulatory sanctions against Kratos and serious harm to Kratos' reputation and could result in a loss of contracts and a reduction in revenues. It is not
always possible to deter employee misconduct, and the precautions Kratos takes to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses, which could
cause Kratos to lose contracts or cause a reduction in revenues. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>36</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Kratos' business is dependent upon Kratos' ability to keep pace with the latest technological changes.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for Kratos' services is characterized by rapid change and technological improvements. Failure to respond in a timely and cost effective way to these
technological developments would result
in serious harm to Kratos' business and operating results. Kratos has derived, and Kratos expects to continue to derive, a substantial portion of Kratos' revenues from providing innovative engineering
services and technical solutions that are based upon today's leading technologies and that are capable of adapting to future technologies. As a result, Kratos' success will depend, in part, on Kratos'
ability to develop and market service offerings that respond in a timely manner to the technological advances of Kratos' customers, evolving industry standards and changing client preferences. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If Kratos is unable to manage its growth, Kratos' business could be adversely affected.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sustaining Kratos' growth has placed significant demands on Kratos' management, as well as on Kratos' administrative, operational and financial resources. For
Kratos to continue to manage its growth, Kratos must continue to improve its operational, financial and management information systems and expand, motivate and manage its workforce. If Kratos is
unable to manage Kratos' growth while maintaining its quality of service and profit margins, or if new systems that Kratos implements to assist in managing Kratos' growth do not produce the expected
benefits, Kratos' business, prospects, financial condition or operating results could be adversely affected. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos may be harmed by intellectual property infringement claims and Kratos' failure to protect Kratos' intellectual property could enable competitors to market products and
services with similar features.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos may become subject to claims from Kratos' employees or third parties who assert that software and other forms of intellectual property that Kratos uses in
delivering services and solutions to its clients infringe upon intellectual property rights of such employees or third parties. Kratos' employees develop some of the software and other forms of
intellectual property that Kratos uses to provide its services and solutions to its clients, but Kratos also licenses technology from other vendors. If Kratos' employees, vendors, or other third
parties assert claims that Krato or its clients are infringing on their intellectual property rights, Kratos could incur substantial costs to defend those claims. If any of these infringement claims
are ultimately successful, Kratos could be required to cease selling or using products or services that incorporate the challenged software or technology, obtain a license or additional licenses from
Kratos' employees, vendors, or other third parties, or redesign our products and services that rely on the challenged software or technology. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
attempts to protect its trade secrets by entering into confidentiality and intellectual property assignment agreements with third parties, its employees and consultants. However,
these agreements can be breached and, if they are, there may not be an adequate remedy available to Kratos. In addition, others may independently discover Kratos' trade secrets and proprietary
information and in such cases Kratos could not assert any trade secret rights against such party. Enforcing a claim that a party illegally obtained and is using Kratos' trade secret is difficult,
expensive and time consuming, and the outcome is unpredictable. If Kratos is unable to protect its intellectual property, its competitors could market services or products similar to its services and
products, which could reduce demand for Kratos' offerings. Any litigation to enforce Kratos' intellectual property rights, protect its trade secrets
or determine the validity and scope of the proprietary rights of others could result in substantial costs and diversion of resources, with no assurance of success. See "Legal Proceedings" on
page&nbsp;94 for additional information. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>37</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>The matters relating to Kratos' internal review of its stock option granting practices and the restatement of its financial statements have exposed Kratos to civil litigation
claims, regulatory proceedings and government proceedings which could have a material adverse effect on Kratos.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the summer of 2006, Kratos' current executive management team, which has been in place since 2004, initiated an investigation of Kratos' past stock option
granting practices, which we refer to as the Equity Award Review, in reaction to media reports regarding stock option granting practices of public companies. The Equity Award Review was conducted with
oversight from the Board and assistance from Kratos' outside counsel. In February 2007, the Board appointed a Special Committee of the Board to review the adequacy of the Equity Award Review and the
recommendations of management regarding historical option granting practices, and to make recommendations and findings regarding those practices and individual conduct. The Special Committee was not
charged with making, and did not make, any evaluation of the accounting determinations or tax adjustments. The Special Committee was comprised of a non-employee director who had not served
on the Compensation Committee before 2005. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Equity Award Review encompassed all grants of options to purchase shares of Kratos' common stock and other equity awards made since two months prior to our IPO in November 1999
through December 2006. Kratos also reviewed all option grants that were entered into its stock option database, which is known as Equity Edge, after its IPO with a grant date before November 1999, as
well as other substantial grants issued prior to its IPO, consisting of more than 14,000 grants. Kratos further reviewed all option grants with a grant date that preceded an employee's date of hire.
As part of the review, interviews of 18 current and former officers, directors, employees and attorneys were conducted, and more than 40&nbsp;million pages of electronic and hard copy documents were
searched for relevant information. The Special Committee also conducted its own separate review of the option granting practices during the tenure of current executive management team through
additional interviews and document collection and review with the assistance of its own separate counsel and FTI&nbsp;Consulting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Equity Award Review established the absence of contemporaneous evidence supporting a substantial number of the previously-recorded option grants, substantially all of which were made
in the period from 1998 through late 2003. During this period of time, in some instances, documents, data and interviews suggest that option grants were prepared or finalized days or, in some cases,
weeks or months after the option grant date recorded in Kratos' books. The affected grants include options issued to certain newly-hired employees but dated prior to their employment start dates and
options
issued to non-employees, including advisors to the Board erroneously designated as employees. The Special Committee also concluded that certain former employees and former officers
participated in making improper option grants, including the selection of grant dates with the benefit of hindsight and in the deferral of the recording of otherwise approved option grants. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
light of the Equity Award Review, the Audit Committee of Kratos' Board concluded that Kratos' prior financial statements for periods from 1998 through Kratos' filing of interim
financial statements for the period ended September&nbsp;30, 2006, could no longer be relied upon and must be restated. Kratos' management determined that, from fiscal year 1998 through fiscal year
2005, Kratos had unrecorded non-cash equity-based compensation charges associated with its equity incentive plans. These charges are material to Kratos' financial statements for the years
ended December&nbsp;31, 1998 through 2005, the periods to which such charges would have related. Previously filed annual reports on Form&nbsp;10-K and quarterly reports on
Form&nbsp;10-Q affected by the restatements have not been and will not be amended and should not be relied upon. Kratos' Annual Report on Form&nbsp;10-K filed on
September&nbsp;11, 2007 superseded and replaced in their entirety all of Kratos' previously issued financial statements and related reports filed with the Securities and Exchange Commission. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>38</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos'
past stock option granting practices and the restatement of its prior financial statements have exposed and may continue to expose Kratos to greater risks associated with
litigation, regulatory proceedings and government inquiries and enforcement actions. As described in "Legal Proceedings" on page&nbsp;94, several derivative complaints have been filed in state and
federal courts against Kratos' current directors, some of its former directors and some of its current and former executive officers pertaining to allegations relating to stock option grants. The SEC
also initiated an informal inquiry into Kratos' historical stock option granting practices and Kratos received a subpoena from the United States Attorney's Office for the Southern District of
California for the production of documents relating to its historical stock option granting practices, which could result in civil and/or criminal actions seeking, among other things, injunctions
against Kratos and the payment of significant fines and penalties by Kratos. On April&nbsp;1, 2008, the SEC notified Kratos that it had completed its informal investigation and that it did not
intend to recommend any enforcement action by the SEC against the company. Kratos is cooperating with the United States Attorney's Office for the Southern District of California, and expects to
continue to do&nbsp;so. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
period of time necessary to resolve the U.S.&nbsp;Attorney's inquiry is uncertain, and Kratos cannot predict the outcome or whether Kratos will face additional government
inquiries, investigations or other actions related to its historical stock option grant practices. Subject to certain limitations, Kratos is obligated to indemnify its current and former directors,
officers and employees in connection with the investigation of its historical stock option practices, the pending DOJ and recently concluded SEC inquiries and any future government inquiries,
investigations or actions. These inquiries could require Kratos to expend significant management time and incur significant legal and other expenses, and could result in civil and criminal actions
seeking, among other things, injunctions against Kratos and the
payment of significant fines and penalties by Kratos, which could have a material adverse effect on its financial condition, business, results of operations and cash flow. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
a Federal Government investigation uncovers improper or illegal activities, including any potential improper or illegal activities related to Kratos' stock option review or related
matters, Kratos may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or
debarment from doing business with federal government agencies. In addition, Kratos could suffer serious harm to its reputation and competitive position if allegations of impropriety were made against
it, whether or not true. If Kratos' reputation or relationship with Federal Government agencies were impaired, or if the Federal Government otherwise ceased doing business with Kratos or significantly
decreased the amount of business it does with Kratos, Kratos' revenue and operating profit would decline. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>If Kratos fails to maintain an effective system of internal controls, Kratos may not be able to accurately report Kratos' financial results or prevent fraud.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective internal controls are necessary for Kratos to provide reliable financial reports. If Kratos cannot provide reliable financial reports, Kratos' operating
results could be misstated, Kratos' reputation may be harmed and the trading price of Kratos' stock could be negatively affected. Kratos' management has concluded that there are no material weaknesses
in Kratos' internal controls over financial reporting as of December&nbsp;31, 2007. However, there can be no assurance that Kratos' controls over financial processes and reporting will be effective
in the future or that additional material weaknesses or significant deficiencies in Kratos' internal controls will not be discovered in the future. Any failure to remediate any future material
weaknesses or implement required new or improved controls, or difficulties encountered in their implementation, could harm Kratos' operating results, cause Kratos to fail to meet Kratos' reporting
obligations or result in material misstatements in Kratos' financial statements or other public disclosures. Inferior internal controls could also cause investors to lose confidence in Kratos'
reported financial information, which could have a negative effect on the trading price of Kratos' stock. In addition, from time to time we acquire businesses which could have </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>39</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>limited
infrastructure and systems of internal controls. Performing assessments of internal controls, implementing necessary changes, and maintaining an effective internal controls process is costly
and requires considerable management attention, particularly in the case of newly acquired entities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos may need additional capital in the future to fund the growth of Kratos' business, and financing may not be available.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos currently anticipates that Kratos' available capital resources, including Kratos' credit facility and operating cash flows, will be sufficient to meet
Kratos' expected working capital and capital expenditure requirements for at least the next 12&nbsp;months. However, such resources may not be sufficient to fund the long-term growth of
Kratos' business or the expenses associated with the ongoing litigation, litigation settlements and government inquiries. In particular, Kratos may experience a negative operating cash flow due to
billing milestones and project timelines in certain of Kratos' contracts. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
may raise additional funds through public or private debt or equity financings if such financings become available on favorable terms or Kratos may expand Kratos' credit facility
to fund future acquisitions and for general corporate purposes. However, due to the current challenges in the lending markets, Kratos can provide no assurance that the lender would agree to extend
additional or continuing credit under that facility. Kratos could fall out of compliance with financial and other covenants contained in Kratos' credit facility which, if not waived, would restrict
Kratos' access to capital and could require Kratos to pay down Kratos' existing debt under the credit facility. Any new financing or offerings would likely dilute Kratos' stockholders' equity
ownership. In addition, additional financing may not be available on terms favorable to Kratos, or at all. If adequate funds are not available or are not available on acceptable terms, Kratos may not
be able to take advantage of unanticipated opportunities, develop new products or otherwise respond to competitive pressures. In any such case, Kratos' business, operating results or financial
condition could be materially adversely affected. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos' ability to make payments on Kratos' debt will be contingent on Kratos' future operating performance, which will depend on a number of factors that are outside of
Kratos' control.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos' debt service obligations are estimated to be approximately $11&nbsp;million to $13&nbsp;million in 2008, including approximately $2.6&nbsp;million
of principal repayments. This debt service may have an adverse impact on Kratos' earnings and cash flow, which could in turn negatively impact Kratos' stock price. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos'
ability to make principal and interest payments on Kratos' debt is contingent on Kratos' future operating performance, which will depend on a number of factors, many of which are
outside of Kratos' control. The degree to which Kratos is leveraged could have other important negative consequences, including the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos
must dedicate a substantial portion of Kratos' cash flows from operations to the payment of Kratos' indebtedness, reducing the funds available for future working
capital requirements, capital expenditures, acquisitions or other general corporate requirements;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a
significant portion of Kratos' borrowings are, and will continue to be, at variable rates of interest, which may result in higher interest expense in the event of
increases in interest rates;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos
may be more vulnerable to a downturn in the industries in which Kratos operates or a downturn in the economy in general;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos
may be limited in Kratos' flexibility to plan for, or react to, changes in Kratos' businesses and the industries in which Kratos operates; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>40</FONT></P>

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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos
may be placed at a competitive disadvantage compared to Kratos' competitors that have less debt;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos
may determine it to be necessary to dispose of certain assets or one or more of Kratos' businesses to reduce Kratos' debt; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos'
ability to borrow additional funds in excess of Kratos' current financing may be limited. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
may not generate sufficient cash flow from operations and future borrowings may not be available in amounts sufficient to enable Kratos to pay Kratos' indebtedness or to fund
Kratos' other liquidity needs. Moreover, Kratos may need to refinance all or a portion of Kratos' indebtedness on or before maturity. In such a case, Kratos cannot make assurances that Kratos will be
able to refinance any of Kratos' indebtedness on commercially reasonable terms or at all. If Kratos are unable to make
scheduled debt payments or comply with the other provisions of Kratos' debt instruments, Kratos' various lenders may be permitted under certain circumstances to accelerate the maturity of the
indebtedness owed to them and exercise other remedies provided for in those instruments and under applicable law. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos is subject to restrictive debt covenants pursuant to Kratos' indebtedness. These covenants may restrict Kratos' ability to finance Kratos' business and, if Kratos does
not comply with the covenants or otherwise default under them, Kratos may not have the funds necessary to pay all amounts that could become due and the lenders could foreclose on substantially all of
Kratos' assets.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos' indebtedness contains covenants that, among other things, significantly restricts and, in some cases, effectively eliminates Kratos' ability and the
ability of Kratos' subsidiaries to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>incur
additional debt;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>create
or incur liens;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>secure
performance bonds by letters of credit, thereby limiting the amount of work Kratos may bid on or perform;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>pay
dividends or make other equity distributions to Kratos' stockholders;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>make
investments;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>sell
assets;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>issue
or become liable on a guarantee;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>create
or acquire new subsidiaries;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>effect
a merger or consolidation of, or sell all or substantially all of our assets; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>raise
capital via equity securities. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, Kratos must comply with certain financial covenants. In the event Kratos fails to meet any of such covenants and is unable to cure such breach or otherwise renegotiate such
covenants, Kratos' lenders would have significant rights to deny future access to liquidity and/or seize control of substantially all of Kratos' assets. The material financial covenants with which
Kratos must comply include a maximum first lien leverage ratio, a maximum total leverage ratio, a minimum liquidity ratio, a minimum fixed charge coverage ratio, and a minimum consolidated EBITDA. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
covenants contained in Kratos' indebtedness and any credit agreement governing future debt may significantly restrict Kratos' future operations. Furthermore, upon the occurrence of
any event of default, Kratos' lenders could elect to declare all amounts outstanding under such agreements, together with accrued interest, to be immediately due and payable. If those lenders were to
accelerate the payment of those amounts, Kratos' assets may not be sufficient to repay those amounts in full. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>41</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
is also subject to interest rate risk due to Kratos' indebtedness at variable interest rates, based on a base rate or LIBOR plus an applicable margin. Shifts in interest rates
could have a material adverse effect on Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos may be required to prepay Kratos' indebtedness prior to its stated maturity, which may limit Kratos' ability to pursue business opportunities.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the terms of certain of Kratos' indebtedness, in certain instances Kratos is required to prepay outstanding indebtedness prior to its stated maturity
date. Specifically, certain
non-recurring cash inflows such as proceeds from asset sales, insurance recoveries, and equity offerings may have to be used to pay down indebtedness and may not be reborrowed. These
prepayment provisions may limit Kratos' ability to utilize this cash flow to pursue business opportunities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos' stock price may be volatile, which may result in lawsuits against Kratos and Kratos' officers and directors.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The stock market in general and the stock prices of government services companies in particular, have experienced volatility that has often been unrelated to or
disproportionate to the operating performance of those companies. The market price of Kratos' common stock has fluctuated in the past and is likely to fluctuate in the future. Factors which could have
a significant impact on the market price of Kratos' common stock include, but are not limited to, the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>quarterly
variations in operating results;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>announcements
of new services by Kratos or Kratos' competitors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
gain or loss of significant customers;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
in analysts' earnings estimates;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>rumors
or dissemination of false information;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>pricing
pressures;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>short
selling of Kratos' common stock;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>impact
of litigation and ongoing government inquiries;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>general
conditions in the market;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>political
and/or military events associated with current worldwide conflicts; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>events
affecting other companies that investors deem comparable to Kratos. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Companies
that have experienced volatility in the market price of their stock have frequently been the object of securities class action litigation. Kratos and certain of Kratos' current
and former officers and directors have been named defendants in class action and derivative lawsuits. These matters and any other securities class action litigation and derivative lawsuits in which
Kratos may be involved could result in substantial costs to Kratos and a diversion of Kratos' management's attention and resources, which could materially harm Kratos' financial condition and results
of operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos' charter documents and Delaware law may deter potential acquirers and may depress Kratos' stock price.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain provisions of Kratos' charter documents and Delaware law, as well as certain agreements Kratos has with Kratos' executives, could make it substantially
more difficult for a third party to acquire control of Kratos. These provisions include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>authorizing
the board of directors to issue preferred stock; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>42</FONT></P>

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<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>prohibiting
cumulative voting in the election of directors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>prohibiting
stockholder action by written consent;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>establishing
advance notice requirements for nominations for election to Kratos' board of directors or for proposing matters that can be acted on by stockholders at meetings
of Kratos' stockholders;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Section&nbsp;203
of the Delaware General Corporation Law, which prohibits Kratos from engaging in a business combination with an interested stockholder unless specific
conditions are met; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a
number of Kratos' executives have agreements with Kratos that entitle them to payments in certain circumstances following a change in control. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
has a stockholder rights plan which may discourage certain types of transactions involving an actual or potential change in control and may limit our stockholders' ability to
approve transactions that they deem to be in their best interests. As a result, these provisions may depress Kratos' stock price. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos may incur goodwill impairment charges in Kratos' reporting entities which could harm Kratos' profitability.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of Kratos' net assets come from goodwill and other intangible assets. In accordance with Statement of Financial Accounting Standards, or
SFAS, No.&nbsp;142, "Goodwill and Other Intangible Assets," Kratos periodically reviews the carrying values of Kratos' goodwill to determine whether such carrying values exceed the fair market
value. Our acquired companies are subject to annual review for goodwill impairment. If impairment testing indicates that the carrying value of a reporting unit exceeds its fair value, the goodwill of
the reporting unit is deemed impaired. Accordingly, an impairment charge would be recognized for that reporting unit in the period identified, which could reduce Kratos' profitability. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>43</FONT></P>

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<BR></FONT><FONT SIZE=2><B>THE MERGER    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>The following is a discussion of the merger and the material terms of the merger agreement between Kratos and SYS. You are urged to read
carefully the merger agreement in its entirety, a copy of which is attached as Annex&nbsp;A to this Proxy Statement and incorporated by reference herein.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Background of the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS has regularly reviewed and assessed trends and conditions impacting SYS, the information connectivity solutions business, the government services industry
generally and the related impacts of all of these factors on SYS's stock price and market capitalization. Further, from time to time, the SYS&nbsp;board of directors, which we refer to as the SYS
Board, and management has reviewed various strategic options potentially available to achieve SYS's desired business objectives, including internal growth through expanded services capabilities and
product initiatives and growth through acquisitions of other businesses. More recently and, in particular during calendar 2007, as a direct result of increasing competition, changes within the
government contract services industry affecting smaller service providers, overall consolidation within the industry and general market conditions limiting or inhibiting small cap funds from investing
in small publicly traded companies and the ever increasing costs associated with being a publicly traded company, the SYS&nbsp;management and SYS&nbsp;Board began considering more fully the
possibilities of various strategic alternatives including a business combination. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
this regard, over a period of time ranging from January&nbsp;2007 through August 2007 Clifton&nbsp;L. Cooke,&nbsp;Jr., President and CEO of SYS, held various informal
discussions with key decision makers at numerous companies in the government services sector as to their potential interest in acquiring SYS at some point in the future and with regard to the specific
criteria that would drive their decision making process. These discussions helped Mr.&nbsp;Cooke shape the strategic direction of SYS, as these discussions provided valuable data points regarding
the product and service capabilities as well as the types of government programs which were sought after by these companies as part of their merger and acquisition strategies. Most of these
conversations were held with executives with whom Mr.&nbsp;Cooke had developed relationships over the course of his 30+&nbsp;year career in the industry; and in addition to helping shape the
strategic direction of SYS, these discussions also provided a means by which to measure SYS's progress toward building a business capable of creating value for its shareholders through such a
strategic transaction. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Several
of these discussions took place in or around the last quarter of SYS's 2007 fiscal year between April&nbsp;1<SUP>st</SUP> and June&nbsp;30<SUP>th</SUP>. Three companies
expressed a willingness to engage in general discussions about potential business combinations but wanted to defer detailed discussions until SYS completed its fourth quarter and fiscal year 2007 and
its budget cycle process for fiscal year 2008. Accordingly, SYS and these companies mutually agreed to defer further conversations until SYS could complete its audit for the fiscal year ended
June&nbsp;30, 2007 and so that SYS could complete its business planning for fiscal year 2008, at which time SYS could provide any such interested parties with updated pro forma financial information
as a basis for more detailed discussions. Throughout this period, Mr.&nbsp;Cooke notified the SYS&nbsp;Board of such discussions at the regularly scheduled board meetings as part of his ongoing
business and strategic update. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
2004, Kratos has undertaken a number of strategic acquisitions and since 2006, has also undertaken a number of divestitures and, as a result of successfully executing the plan to
divest all of its previous Commercial Wireless Communications Infrastructure business, has successfully completed its initial transition to being substantially a "pure-play" Government
services solution provider. Kratos' stated strategy is to grow the business, organically and through strategic acquisitions, into the premier mid-market Federal Government Security, IT, and
Engineering Solutions provider. As a result the Kratos board of directors has reviewed numerous strategic opportunities (i)&nbsp;to reach new customers and acquire additional contract vehicles,
(ii)&nbsp;to quickly follow changes in government priorities, (iii)&nbsp;to </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>44</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>position
the company for changes in the coming years from Base Realignment and Closure, or BRAC, activities, (iv)&nbsp;to broaden and improve the company's services offerings, and (v)&nbsp;to
ultimately grow Kratos' revenue and improve profit margins. In furtherance of these goals, and as a result of increased competition and consolidation in the defense and security solutions industry,
Kratos regularly reviews possible strategic actions, including acquisitions and combinations, and has discussions from time to time with various parties regarding such possible actions. For example,
and as part of pursuing this strategic agenda, on December,&nbsp;31, 2007, Kratos completed its acquisition of the Haverstick business. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent
to completing its fiscal year ended June&nbsp;30, 2007 and in preparation for implementing its operating plan for the fiscal year ending June&nbsp;30, 2008,
SYS&nbsp;management and the SYS&nbsp;Board began to engage in a series of discussions regarding both the near-term and long-term strategy for SYS in light of its financial
results, current industry trends and general stock market conditions. During this same approximate timeframe, Mr.&nbsp;Cooke and the CEO and President of Kratos, Eric DeMarco, met informally to
discuss common industry issues and trends affecting both companies, business operations challenges and the continuing difficulties of growing their respective businesses while maintaining and
expanding their shareholder bases. During these discussions, the concept of the two companies joining forces was broached, but nothing specific was concluded. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
its regularly scheduled board meeting in September 2007, SYS&nbsp;management and the SYS&nbsp;Board engaged in further discussions regarding the status of the industry, the
capital markets and the continuing decrease of investment funds available to invest in micro cap stocks, the general strategy of
SYS and various courses of action that would best serve the interests of its shareholders. The SYS&nbsp;Board discussed the formation of a strategic working group, which we refer to as the
Committee, to formally assess strategic alternatives. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the late summer and early fall of 2007, Mr.&nbsp;Cooke met with defense industry analysts and investment bankers and attended conferences with the goal of gaining current
information on merger and acquisition trends in the government contracting arena. In addition to providing relevant and timely valuation metrics, these activities highlighted various market issues
affecting mergers and acquisitions, including political uncertainty, the impact on valuations resulting from recent changes in the small business contract rules, the recent downturn in the credit
markets and federal and defense budget spending impacts from the ongoing war effort. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
the SYS&nbsp;Board meeting on October&nbsp;26, 2007, Mr.&nbsp;Cooke briefed the SYS&nbsp;Board on this conference and presented a strategic working group charter together with
a proposed plan of action and a timetable. After discussing the proposed charter, the SYS&nbsp;Board resolved to form the Committee to further explore the various alternatives outlined in the
charter in order to determine which path would best maximize shareholder value given the circumstance described above. The Committee was tasked to complete its detailed review and analysis and to
report back to the SYS&nbsp;Board with a recommendation at the next regularly scheduled meeting on December&nbsp;7, 2007. These alternatives included conducting assessments of internal growth
opportunities, further SYS&nbsp;acquisitions, divestitures of existing products and/or business lines and an outright sale of SYS. SYS management was further authorized to extend the engagement
letter with its financial advisory services firm, USBX Advisory Services&nbsp;LLC, which we refer to as USBX, to assist management in this undertaking. Mr.&nbsp;Cooke also advised the
SYS&nbsp;Board that he had been having some general business discussions with Mr.&nbsp;DeMarco; and, given the nature of the activities being undertaken by management and the Committee, on
October&nbsp;26, 2007, Kratos and SYS&nbsp;signed a mutual nondisclosure agreement in connection with such discussions. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the first two weeks of November&nbsp;2007, Messrs.&nbsp;Cooke and DeMarco met to further assess the prospects of a potential merger between the two companies. Initial
discussions included the potential synergies between the two companies that existed between customers, capabilities and programs as well as potential cost savings that might be expected. Additionally,
preliminary discussions were held regarding business valuation expectations, forms of potential consideration, impacts on their </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>45</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>employees
and customers and preliminary estimated timetables to complete such a transaction if approved by their respective boards of directors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent
to its conference call on November&nbsp;13, 2007, concerning its first quarter results and based on the direction of the SYS&nbsp;Board, management, together with its
financial advisor, commenced and conducted a rigorous and detailed analysis of SYS's business prospects in advance of a Committee meeting held on November&nbsp;29, 2007, the results of which would
be presented to the SYS&nbsp;Board on December&nbsp;7, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Between
November&nbsp;14, 2007 and November&nbsp;29, 2007, Messrs.&nbsp;Cooke and DeMarco continued these discussions and established an objective to develop a preliminary
valuation based on information shared to date. and transaction structure that Mr.&nbsp;Cooke could incorporate into the work the Committee was performing as a frame of reference for its strategic
discussions to be held on November&nbsp;29, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
discussion led to a "preliminary" enterprise value for SYS on the low end of a range of $50&nbsp;million to $55&nbsp;million, subject to the treatment of outstanding debt and
other equity related instruments, with the purchase price to be paid in registered shares of Kratos stock. This enterprise value represented a premium to the then market capitalization of SYS. The low
end of the range was predicated on the most recent last twelve months SYS financial results and market based EBITDA multiples applied to those results. This enterprise value also reflected the concern
that certain of the SYS small business contracts might be at risk to the acquirer due to recent changes in the rules governing the treatment of small business contracts after an acquisition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November&nbsp;27, 2007, management from the two companies met and reviewed a presentation provided by Edward Lake, Executive Vice President and CFO of SYS, that provided a general
business overview, recent actual financial results, estimated financial results for the fiscal year ended June&nbsp;30, 2008, and a pro forma analysis of what the SYS&nbsp;financial results would
look like absent certain non-recurring costs, such as the costs of being a publicly traded company, among other EBITDA adjustments customary in such circumstances. During this same
timeframe, management from Kratos briefed the management of SYS with a similar presentation and financial analysis. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the SYS&nbsp;Committee meeting held on November&nbsp;29, 2007, SYS&nbsp;management and its financial advisor presented a comprehensive analysis to the Committee that included,
among other things: (i)&nbsp;the current status of the business, (ii)&nbsp;current public company challenges, (iii)&nbsp;valuation metrics and issues, (iv)&nbsp;SYS&nbsp;financial
projections under a variety of scenarios, (v)&nbsp;strategic alternatives including staying the course, selling the business, taking the company private and continuing to pursue acquisitions as an
acquirer, and (vi)&nbsp;key drivers that management considered relevant to this decision process. During these discussions, management provided the Committee with a synopsis of the discussions that
had been held to date with Kratos, including preliminary valuation estimates and information regarding another government IT services company that SYS&nbsp;management considered as a potential
acquisition candidate for SYS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of this meeting, SYS&nbsp;management was tasked with: (i)&nbsp;preparing a final concise summary of its findings and recommendations to be delivered in advance of and for
full discussion at the SYS&nbsp;Board meeting scheduled for December&nbsp;7, 2007, (ii)&nbsp;continuing its discussions with Kratos management, (iii)&nbsp;together with its financial advisor,
continuing to build on other discussions that had taken place from time to time with other potential interested acquirers, and (iv)&nbsp;developing and pursuing a focused target list of other
potential acquirers that SYS&nbsp;management believed would represent viable candidates who were capable of making a decision and who could execute on that decision in a timely manner. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the period from November&nbsp;29, 2007 through December&nbsp;7, 2007, SYS management and its financial advisor finalized a list of other potential acquirers based on prior
discussions or indications of interest and that represented a fair sampling of companies in the government IT services industry that </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>46</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>could
quickly review and assess a management presentation of SYS's capabilities and provide SYS&nbsp;management with an indication of interest and a general estimate of value for comparative
purposes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also
during this time, Messrs.&nbsp;Cooke and Demarco, together with Mr.&nbsp;Lake and the respective financial and legal advisors of SYS and Kratos, continued to review and refine
the preliminary valuation analysis and worked to develop customary terms and conditions that might lead to a non-binding indication of interest which could be presented to the
SYS&nbsp;Board on December&nbsp;7, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
this process, SYS was able to provide financial and other information that supported a higher valuation based on the pro forma analysis of what the SYS financial results would
look like absent certain non-recurring costs, such as the costs of being a publicly traded company, among other EBITDA adjustments customary in such circumstances, its projections for the remainder of
fiscal year 2008 and fiscal year 2009, potential key new contract wins during those periods and was further able to demonstrate that the risk of losing any of its small business contracts was minimal.
As a result, the parties developed a "revised" preliminary enterprise valuation of $60&nbsp;million less the value of the outstanding subordinated debt of $3.1&nbsp;million for a post-debt equity
value of $56.9&nbsp;million and such that, after the transaction and after the completion of the then pending Haverstick transaction by Kratos, the SYS shareholders would own approximately 24% of
the issued and outstanding stock of Kratos post-closing. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;3, 2007 Kratos engaged Wachovia Capital Markets,&nbsp;LLC as its financial advisor with respect to a potential business combination of Kratos and SYS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;4, 2007, Kratos delivered its preliminary proposal to SYS, expressing Kratos' interest in a potential stock-for-stock merger with SYS at an
enterprise value for SYS of $60&nbsp;million subject to a fixed stock price assumption of Kratos' common stock of $2.25 per share. With its letter of intent, Kratos included proposed exclusivity
provisions and requested that SYS agree to exclusive negotiations with respect to its proposal. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;7, 2007 the SYS&nbsp;Board met with management to review the report and findings previously briefed to the Committee and the initial letter of intent from Kratos. As
a result of these discussions, the SYS&nbsp;Board instructed management to continue working with Kratos management to negotiate a letter of intent that might be deemed acceptable to both parties, to
continue discussions with the other potential acquirers, and to report those findings to the SYS&nbsp;Board. The SYS&nbsp;Board also authorized management to have SYS&nbsp;legal counsel conduct
a thorough legal due diligence review of litigation in
which Kratos was involved and which Kratos has recently resolved. A telephonic board meeting was scheduled for December&nbsp;21, 2007 to reconvene and assess the outcome of the aforementioned
activities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
the period between December&nbsp;7, 2007 and December&nbsp;21, 2007, SYS&nbsp;management and its financial advisor continued to pursue the efforts recommended by the
SYS&nbsp;Board as outlined below: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>They
conducted face to face and/or telephonic meetings with the short list of other potential acquirers. Each of these companies was provided with a significant amount of information
relevant to determining a level of interest in acquiring SYS and were provided with current information as to the status of SYS' deliberations;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>They
directed legal counsel to conduct a thorough review of the outstanding litigation matters involving Kratos, which resulted in the preparation of a detailed analysis that was then
reviewed with management and its financial advisor; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>They
continued to hold meetings with Kratos to better understand the detailed aspects of Kratos' business and continued to work on terms and conditions that would lead to an acceptable
non-binding letter of intent, including valuation, the treatment of outstanding </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>47</FONT></P>

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<UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>SYS&nbsp;options
and warrants, a break-up fee upon termination of the agreement and other items customary in a non-binding letter of intent. </FONT></P>

</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;21, 2007 SYS received a revised letter of intent from Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also
on December&nbsp;21, 2007 SYS&nbsp;management and the SYS&nbsp;board of directors met to review the results of management's efforts over the previous few weeks. Management
reported that, based on the results of its meetings with other companies, that the other companies either were not interested in pursuing a transaction with SYS or, if they did want to pursue further
discussions, that it was not likely that they would put forth an offer that would exceed the then current market capitalization for SYS which was considerably lower than the $60&nbsp;million
enterprise value contemplated in the non-binding letter of intent with Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
SYS&nbsp;Board then reviewed and discussed the proposed terms in the non-binding letter of intent from Kratos and authorized management to continue refining certain
terms and, if successful in achieving those refinements, to execute the non-binding letter of intent. The SYS&nbsp;Board further discussed and reviewed the terms of the engagement letter
with the company's financial advisor, USBX, which had been assigned to Imperial Capital&nbsp;LLC, which we refer to as Imperial Capital, upon its acquisition of USBX and approved the fee structure
for completing a transaction in accordance with the engagement letter. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December, 24, 2007, Kratos executed and delivered a revised letter of intent to SYS which contained the changes deemed acceptable and necessary to the SYS&nbsp;Board which was then
executed by Mr.&nbsp;Cooke on behalf of SYS. Pursuant to this letter of intent, SYS agreed to negotiate exclusively with Kratos until February&nbsp;22, 2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the period from December&nbsp;28, 2007 through February&nbsp;19, 2008, Kratos, SYS, Wachovia and Imperial Capital, financial advisors for Kratos and SYS, respectively, and DLA
Piper and Luce, Forward, Hamilton &amp; Scripps, which we refer to as Luce Forward, legal counsel for Kratos and SYS, respectively, engaged in a lengthy and detailed process of completing due diligence,
drafting a definitive merger agreement and completing all the other matters necessary to determine if a final agreement could be reached, which included assessing the impacts of such a transaction on
existing contract vehicles, customers, employees, facilities and shareholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;31, 2007, Kratos completed its acquisition of Haverstick Consulting,&nbsp;Inc. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January&nbsp;1, 2008, DLA Piper delivered to Luce Forward an initial draft of the merger agreement. From January&nbsp;1, 2008 until the execution of the merger agreement, Kratos
and SYS and their representatives exchanged drafts of the merger agreement and held extensive negotiations relating to its terms and conditions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January&nbsp;7, 2008, the parties held an organizational meeting at which SYS provided a business presentation to a broader set of both Kratos and SYS&nbsp;management and their
respective financial advisors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
January&nbsp;7, 2008 onward, management from both companies, together with their respective financial advisors and legal counsel, conducted due diligence via an analysis of items
in an electronic data room, meetings and conference calls. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January&nbsp;31, 2008, the senior management teams of Kratos and SYS, as well as DLA Piper and Luce Forward met to negotiate the merger agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;8, 2008, the senior management teams of Kratos and SYS, as well as Wachovia and Imperial Capital met to review SYS's projected financial statements and to discuss
other due diligence items. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>48</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;12, 2008, Kratos, SYS, Wachovia and Imperial Capital met to review Kratos' projected financials and to discuss other due diligence items. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;13, 2008, Kratos, SYS, DLA Piper and Luce Forward met to review outstanding items in, and schedules to, the merger agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;19, 2008, the SYS&nbsp;Board met to review and discuss the terms and conditions of the definitive agreement, the fairness opinion of SYS's financial advisor, an
update of the litigation status of Kratos as prepared by SYS's legal counsel and the proposed timetable for the transaction taking into consideration the required SEC filings and shareholder approval
process. The full text of the Imperial Capital opinion, which sets forth, among other things, the procedures followed, assumptions made, matters considered and limitations on the scope of the review
undertaken by Imperial Capital in rendering its opinion, is attached as </FONT><FONT SIZE=2><I>Annex&nbsp;E</I></FONT><FONT SIZE=2> to this Proxy Statement. The SYS Board discussed the various
presentations and the terms of the transaction and approved the merger agreement and the share issuance. The SYS&nbsp;Board then approved moving forward with the transaction. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also
on February&nbsp;19, 2008, the Kratos board of directors convened a special meeting to consider the proposed transaction with SYS. Representatives of Kratos' senior management, as
well as representatives of Wachovia and DLA Piper were present at the meeting. The Kratos board of directors reviewed and discussed the terms and conditions of the definitive agreement, Wachovia's
fairness opinion and the proposed timetable for the transaction taking into consideration the required SEC filings and stockholder approval process. Representatives of Wachovia reviewed Wachovia's
financial analyses of the proposed exchange ratio and rendered the oral opinion of Wachovia, subsequently confirmed by delivery of its written opinion dated February&nbsp;20, 2008, that as of such
date and based upon and subject to the various considerations described in its written opinion, the exchange ratio provided for in the merger agreement was fair, from a financial point of view, to
Kratos. The full text of the Wachovia opinion, which sets forth, among other things, the procedures followed, assumptions made, matters considered and limitations on the scope of the review undertaken
by Wachovia in rendering its opinion, is attached as </FONT><FONT SIZE=2><I>Annex&nbsp;D</I></FONT><FONT SIZE=2> to this Proxy Statement. The Kratos board of directors discussed the various
presentations and the terms of the transaction and approved the merger agreement and the share issuance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;20, 2008, Kratos, SYS, DLA Piper and Luce Forward finalized the merger agreement and the schedules thereto. Kratos and SYS thereafter executed the merger agreement.
Concurrently, certain of Kratos' directors, executive officers and significant stockholders executed the Kratos voting agreement, the form of which is included as </FONT> <FONT SIZE=2><I>Annex&nbsp;B</I></FONT><FONT SIZE=2> to this Proxy Statement,
and certain of SYS's directors and executive officers executed the SYS&nbsp;voting agreement, the form of
which is included as </FONT><FONT SIZE=2><I>Annex&nbsp;C</I></FONT><FONT SIZE=2> to this Proxy Statement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;21, 2008, Kratos and SYS each issued a press release announcing the transaction and the execution of the merger agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The Kratos Board of Directors' Recommendations and Reasons for the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>The Kratos board of directors believes that the merger and the merger agreement, and related transactions, are advisable and in the best
interests of Kratos and its stockholders. Accordingly, the Kratos board of directors has approved the merger and the merger agreement, and related transactions, and recommends that Kratos stockholders
vote "FOR" " approval of the Share Issuance.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the foregoing actions, the Kratos board of directors consulted with Kratos' management, as well as Kratos' financial advisor and outside legal
counsel, and considered the short-term and long-term interests of Kratos and its stockholders. In reaching the foregoing determinations, the Kratos board of directors
considered that the merger could enhance stockholder </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>49</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>value
through, among other things, enabling Kratos, following the merger, to capitalize on the following strategic advantages and opportunities: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
government market is an attractive market to continue to expand into due to relative stability and steady cash flow generation;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
merger would allow Kratos to access new customers and obtain new/more contract vehicles;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
combined company, with greater scale, size, more past performance qualifications and a larger number of employees, especially those with security clearances, will be
able to bid on larger/more contracts in the prime contract position/role;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
merger will improve the offerings of Kratos to its customers
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Obtaining
several hundred hard-to-find employees with skill sets that are very marketable, and in high demand;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Expand
the reach of Kratos with SPAWAR one of Kratos' major customers;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Help
Kratos achieve growth objectives and profitability targets. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Kratos board of directors also considered a variety of other factors and risks concerning the merger, including the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
information concerning the respective historic businesses of Kratos and SYS, financial results and prospects, including the result of Kratos due diligence review of SYS;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
assessments of Kratos that SYS's business can effectively and efficiently be integrated;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
opinion of the financial advisor of Kratos, Wachovia, that, subject to and based on the assumptions made, procedures followed, matters considered and limitations on its
review undertaken, as of February&nbsp;20, 2008, the exchange ratio of 1.2582 shares of Kratos common stock for each share of SYS&nbsp;common stock was fair to Kratos from a financial point of
view;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
exchange ratio and the fact that the exchange ratio is fixed and will not fluctuate based upon changes in the Kratos stock price between signing and closing, reflecting
the strategic purpose of the merger and consistent with market practices for a merger of this type;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
expectation that SYS&nbsp;shareholders and option holders, immediately after completion of the merger, would hold approximately 24% of the outstanding shares of common
stock of Kratos, on a fully diluted basis;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
risk that U.S. and foreign antitrust and competition authorities may not approve the merger or may impose terms and conditions on their approvals that, if accepted,
would materially and adversely affect the projected financial results of the combined company;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
potential impact of the restrictions under the merger agreement on the ability of Kratos to take certain actions during the period prior to the closing of the merger,
which may delay or prevent Kratos from undertaking business opportunities that may arise pending completion of the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
challenges and costs of combining the two businesses and the risks of completing the integration, which could harm the combined company's operating results and preclude
the realization of anticipated synergies or benefits from the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
potential for diversion of management and employee attention from other strategic priorities and for increased employee attrition both before and after the closing of
the merger agreement, and the potential effect on the business and relations of Kratos with customers and suppliers; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>50</FONT></P>

<HR NOSHADE>
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<UL>
<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
fees and expenses associated with completing the merger; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
risk that anticipated cost savings will not be achieved. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
foregoing discussion of the factors considered by the Kratos board of directors is not intended to be exhaustive but summarizes the material factors and risks considered by Kratos'
board of directors in making its recommendation. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the Kratos board
of directors did not find it useful to, and did not attempt to, quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of
the Kratos board of directors may have given different weight to different factors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, the Kratos board of directors did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable
or unfavorable to its ultimate determination, but rather conducted an overall analysis of the factors described above, including discussions with the Kratos management team and the Kratos outside
legal and financial advisors. Based on the totality of the information presented, the Kratos board of directors determined that Kratos should proceed with the merger and the merger agreement, and
recommends that the Kratos stockholders approve the Share Issuance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>The SYS&nbsp;Board of Directors' Recommendations and Reasons for the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>The SYS&nbsp;board of directors believes that the merger and the merger agreement are advisable and in the best interests of SYS and its
shareholders. Accordingly, the SYS&nbsp;board of directors has unanimously approved the merger and the merger agreement and unanimously recommends that SYS&nbsp;shareholders vote "FOR" approval of
the Merger Proposal. When SYS's shareholders consider the SYS&nbsp;board of directors' recommendation, SYS's shareholders should be aware that SYS's directors may have interests in the merger that
may be different from, or in addition to, their interests. These interests are described in "Interests of SYS's Directors and Executive Officers in the Merger" beginning on
page&nbsp;9.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
a special meeting of the SYS&nbsp;Board held on February&nbsp;19, 2008, the SYS Board of directors voted unanimously to approve the merger agreement, the merger, and the other
transactions contemplated by the merger agreement, to direct that the merger agreement and the merger be submitted to a vote of SYS's shareholders and to recommend that SYS's shareholders vote to
adopt and approve the merger agreement and the merger. In the course of reaching its decision to enter into the merger agreement, SYS's Board consulted with its senior management, outside legal
counsel and Imperial Capital, reviewed a significant amount of information and considered a number of factors, the most relevant of which include the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>that
by combining complementary operations, the combined company would have better opportunities for future growth;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
opportunity for SYS's shareholders to participate in a larger, more diversified organization and to benefit from the potential appreciation in the value of Kratos'
common stock;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>information
concerning the business, earnings, operations, competitive position and prospects of SYS and Kratos both individually and on a combined basis;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
opportunity for SYS&nbsp;shareholders to receive a significant premium over the existing market price for shares of SYS's common stock prior to the announcement of the
merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>discussions
with, SYS&nbsp;senior management and legal and financial advisor regarding certain business, financial, legal and accounting aspects of the merger, the results
of the legal and financial due diligence and a review of the terms and conditions of the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
opinion of Imperial Capital that, as of February&nbsp;19, 2008, and subject to the assumptions and limitations set forth in the fairness opinion, the exchange ratio in
the merger was fair, from a financial point of view, to the holders of SYS's common stock; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>51</FONT></P>

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<UL>
<UL>
</UL>
</UL>
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 </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
possibility, as alternatives to the merger, of seeking to acquire another company, seeking to engage in one or more joint ventures, seeking to raise additional capital,
or seeking to engage in a business combination with an organization other than Kratos;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
likely impact of the merger on SYS's employees and customers;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
interests that certain executive officers and directors of SYS may have with respect to the merger, in addition to their interests as shareholders of SYS generally, as
described in "THE MERGER&#151;CERTAIN ARRANGEMENTS BETWEEN SYS AND ITS EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATES" starting on page&nbsp;70;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
fact that the parties intend for the merger to qualify as a tax-free transaction for U.S. federal income tax purposes which would permit SYS's shareholders
to receive Kratos common stock in a tax-free exchange; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
history of contacts with other potential strategic partners and the judgment of SYS's Board and management that it was unlikely that any other party would be a more
attractive strategic partner or make a proposal more favorable to SYS and its shareholders than Kratos. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
Board also considered a number of potentially negative factors in its deliberations concerning the merger. The negative factors considered by the Board of SYS included: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
risk that the merger would not be completed in a timely manner or at all;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
possible negative effects of the public announcement of the merger on SYS's sales, relationships with customers, suppliers, and employees; and operating results;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
fact that SYS&nbsp;shareholders will not receive the full benefit of any future growth in the value of their equity that SYS may have achieved as an independent
company, and the potential disadvantage to SYS&nbsp;shareholders in the event that Kratos does not perform as well in the future as SYS may have performed as an independent company;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
substantial management time, effort and expense that will be required to consummate the merger and integrate the operations of the two companies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
possibility that certain provisions of the merger agreement, including, among others, the no solicitation and termination fee payment provisions of the merger agreement
and the fact that certain officers of SYS executed shareholder voting agreements, would likely have the effect of discouraging other persons potentially interested in merging with or acquiring SYS
from pursuing such an opportunity; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
other risks and uncertainties discussed above under "RISK FACTORS" starting on page&nbsp;24 of this proxy statement/prospectus including the various outstanding
shareholder and stock option litigation matters involving Kratos and the potential future impacts of those matters on the merger consideration being issued to the SYS&nbsp;shareholders. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
foregoing discussion of the information and factors considered by the Board of SYS is not intended to be exhaustive. In view of the wide variety of the material factors considered in
connection with the evaluation of the merger and the complexity of these matters, the Board of SYS did not find it practicable to, and did not, quantify or otherwise attempt to assign any relative
weight to the various factors considered. In addition, the Board of SYS did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular
factor, was favorable or unfavorable to the ultimate determination of the SYS Board, but rather the SYS Board conducted an overall analysis of the factors described above, including discussions with
and questioning of SYS's senior management, and legal and financial adviser. In considering the factors described above, individual members of the board of directors of SYS Board may have given
different weight to different factors. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>52</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Opinion of Financial Advisor to the Kratos Board of Directors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the February&nbsp;19, 2008 meeting of Kratos' board of directors, Wachovia indicated to Kratos' board of directors, that subject to and based on the
assumptions made, procedures followed, matters considered and limitations on its review undertaken, that assuming that the merger agreement was substantially in the form provided at the meeting,
Wachovia would, at the time of execution of the merger agreement, be able to provide its opinion that, as of the date of the merger agreement, the 1.2582 to 1 exchange ratio pursuant to the merger
agreement was fair from a financial point of view to Kratos. Wachovia subsequently delivered a written opinion to Kratos' board of directors to the effect that, subject to and based on the assumptions
made, procedures followed, matters considered and limitations on its review undertaken, as of February&nbsp;20, 2008, the exchange ratio pursuant to the merger agreement was fair from a financial
point of view to Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
full text of Wachovia's opinion, dated February&nbsp;20, 2008, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations
on the review undertaken by Wachovia in connection with the opinion, is attached as </FONT><FONT SIZE=2><I>Annex&nbsp;D</I></FONT><FONT SIZE=2> to this Proxy Statement. Holders of shares of Kratos
common stock are urged to read the opinion carefully and in its entirety. This summary is qualified in its entirety by reference to the full text of the opinion. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Wachovia's
opinion only addressed the fairness of the exchange ratio offered to Kratos from a financial point of view and did not address any other term of the Merger or any other
agreement, arrangement or understanding entered into in connection with the Merger or otherwise, and did not address the relative merits of the Merger compared with other business strategies that may
have been considered by Kratos' management or its board of directors, nor did its opinion address the merits of the underlying decision by Kratos to enter into the merger agreement. Wachovia's opinion
does not and shall not constitute a recommendation to any holders of shares of Kratos common stock as to how they should vote in connection with the Merger. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
arriving at its opinion, Wachovia, among other things: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the merger agreement including the proposed financial terms of the merger set forth therein.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
Annual Reports to Stockholders and Annual Reports on Form&nbsp;10-K for Kratos.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
certain interim reports to Stockholders and Quarterly Reports on Form&nbsp;10-Q for Kratos.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
certain other business, financial, and other information, including certain confidential information, regarding Kratos and its prospects, including financial
forecasts, which were furnished to Wachovia, and that Wachovia discussed with the management of Kratos and its agents or representatives.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
Annual Reports to Stockholders and Annual Reports on Form&nbsp;10-K for SYS.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
certain interim reports to Stockholders and Quarterly Reports on Form&nbsp;10-Q for SYS.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
certain business, financial, and other information, including certain confidential information, regarding SYS and its subsidiaries and their respective prospects,
which were publicly available or furnished to Wachovia by, and that Wachovia has discussed with, the respective managements of SYS and Kratos, including financial forecasts for SYS furnished to
Wachovia by SYS, and reviewed and discussed with Kratos estimates for SYS prepared by Kratos.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Compared
certain business, financial, and other information regarding SYS and Kratos with publicly available business, financial and other information regarding certain
publicly traded companies that Wachovia deemed relevant. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>53</FONT></P>

<HR NOSHADE>
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<UL>
<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Compared
the proposed financial terms of the merger with the financial terms of certain other business combinations and transactions that Wachovia deemed relevant.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
a discounted cash flow model based upon the Kratos forecasts for Kratos and SYS, respectively, on a stand-alone basis.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the potential pro forma impact of the merger on the Kratos financial statements on a Pro Forma and GAAP basis based upon Kratos' forecasts for Kratos and SYS.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
a contribution analysis based upon Kratos' forecasts for Kratos and SYS.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the historic reported stock price and trading volumes of the Kratos common stock and SYS common stock.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Considered
other information such as financial studies, analyses and investigations as well as financial, economic and market criteria that Wachovia deemed relevant. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with its review, Wachovia relied upon and assumed for purposes of its opinion, the accuracy and completeness of the foregoing financial and other information, including all
accounting, legal, regulatory and tax information Wachovia obtained and reviewed for the purpose of its opinion, and Wachovia did not assume any responsibility for any independent verification of such
information nor has it undertaken an independent evaluation or appraisal of any of the assets or liabilities of SYS and its subsidiaries or Kratos and its subsidiaries or been furnished with any such
evaluation or appraisal. Wachovia also assumed that the forecasts, including the forecasts for the combined company following the merger provided by Kratos management, estimates, judgments, and all
assumptions expressed by management of Kratos, have been reasonably formulated and that they are the best currently available forecasts, estimates, judgments, and assumptions of Kratos as to the
expected future financial performance of SYS or Kratos, as the case may be. Wachovia assumed no responsibility for and expressed no view as to any such forecasts, estimates, judgments, or the
assumptions upon which they are based. In arriving at its opinion, Wachovia did not prepare or obtain any independent evaluations or appraisals of the assets or liabilities of SYS or Kratos, including
any contingent liabilities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
rendering its opinion, Wachovia assumed that the merger would be consummated on the terms described in the merger agreement, without waiver of any material terms or conditions, and
that in the course of obtaining any necessary legal, regulatory or third-party consents or approvals, no restrictions or conditions will be imposed that will have an adverse effect on the merger,
Kratos, SYS or other actions contemplated by the merger agreement. Wachovia's opinion was necessarily based on economic, market, financial and other conditions and the information made available to
Wachovia as of the date thereof. Wachovia did not consider, nor did Wachovia express any opinion with respect to, the price at which Kratos common stock would trade following the announcement of the
merger or the price at which such stock will trade following the consummation of the Merger. Further, Wachovia did not express any opinion as to the fairness or nature of the compensation to be
received by either the Kratos or SYS directors, officers, employees or other insiders, or class of such persons, in connection with the Merger relative to the exchange ratio. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following summaries of Wachovia's material financial analyses present some information in tabular format. In order to fully understand the financial analyses used by Wachovia, the
tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Accordingly, the analyses listed in the tables and
described below must be considered as a whole. Considering any portion of such analyses and the factors considered, without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying Wachovia's opinion. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>54</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B><I>Historical Trading Analysis:&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Wachovia reviewed general trading information concerning SYS and Kratos, including the stock price, average
stock price and volume over various periods and dates ending February&nbsp;19, 2008 and the stock trading history of SYS common stock and Kratos common stock. The table below illustrates the range
of stock prices over those periods: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="74%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Share Price</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="74%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>SYS</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Kratos</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>1-Day Prior</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.60</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.11</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>5-Day Average</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.59</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.10</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>20-Day Average</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.61</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.06</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>60-Day Average</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.85</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.09</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>1-Year Average</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.13</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.00</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>52-Week High</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.78</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.04</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>52-Week Low</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.35</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.07</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B><I>Historical Exchange Ratio Analysis:&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Wachovia analyzed the ratios of the daily closing prices of SYS common stock to those of Kratos common
stock over various periods and dates ending February&nbsp;19, 2008. The table below illustrates the average of those exchange ratios for those periods or the exchange ratio for such dates and the
premiums or discounts based on an implied exchange ratio of 1.2582 shares of Kratos common stock for each share of SYS common stock: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="69%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Exchange<BR>
Ratio</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Implied<BR>
Premium</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>1-Day Prior</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7583</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>65.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>5-Day Average</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7579</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>66.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>20-Day Average</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7817</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>60-Day Average</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8834</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>42.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>1-Year Average</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.1229</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>52-Week High</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9907</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(36.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>52-Week Low</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6622</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>90.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B><I>Comparable Companies Analysis:&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Using publicly available information, Wachovia analyzed certain trading multiples of selected publicly
traded Government Information Technology services companies that it believed were reasonably comparable to SYS and Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
companies included the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>CACI
International,&nbsp;Inc.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Dynamics
Research Corp.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>ManTech
International Corp.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>NCI,&nbsp;Inc.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SAIC,&nbsp;Inc.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SI
International,&nbsp;Inc.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SRA
International,&nbsp;Inc.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Stanley,&nbsp;Inc. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>55</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=65,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=777441,FOLIO='55',FILE='DISK112:[08ZAT1.08ZAT42501]DK42501A.;19',USER='KSOLTER',CD=';8-APR-2008;22:39' -->
<A NAME="page_dk42501_1_56"> </A>
<UL>
<UL>
</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
each of the comparable companies, Wachovia analyzed the following metrics: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Multiple
of enterprise value, defined as the market value of equity plus net debt plus preferred stock plus minority interest, to last twelve months, or LTM, revenue and
estimated revenue for calendar years ended 2008 and 2009; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Multiple
of enterprise value to LTM EBITDA and estimated EBITDA for the calendar years ended 2008 and 2009. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimates
for the comparable companies were as reported by First Call and Kratos management for SYS and Kratos. This analysis produced multiples of selected valuation data which Wachovia
compared to multiples for SYS based on the implied value of the merger consideration of 1.2582 Kratos shares and Kratos, in each case based on the closing price of shares of Kratos common stock on
February&nbsp;19, 2008. The following table presents, for the periods indicated the multiples implied by the ratio of the enterprise value to LTM revenue and EBITDA and calendar years ended 2008 and
2009 revenue and EBITDA estimates: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="88%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=7 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Comparable Company Multiple</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>SYS</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Kratos</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Mean</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Median</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>LTM&#151;Enterprise Value / Revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>CY08&#151;Enterprise Value / Revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>CY09&#151;Enterprise Value / Revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>LTM&#151;Enterprise Value / EBITDA</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>CY08&#151;Enterprise Value / EBITDA</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>CY09&#151;Enterprise Value / EBITDA</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None
of the companies utilized in the above analyses for comparative purposes is identical to SYS or Kratos. Accordingly, a complete analysis of the results of the foregoing calculations
cannot be limited to a quantitative review of such results and involves complex considerations and judgments concerning the differences in the financial and operating characteristics of the comparable
companies and other factors that could affect the public trading value of the comparable companies as well as the potential trading value of SYS or Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Precedent Transactions Analysis:&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Using publicly available information, Wachovia examined selected transactions announced since
January&nbsp;1, 2006 involving privately held and publicly traded Government Information Technology services companies it believed were reasonably comparable to SYS and Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
each of the selected precedent transactions, Wachovia analyzed the following metrics: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Multiple
of enterprise value to LTM revenue and estimated next twelve months, or NTM, revenue; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Multiple
of enterprise value to LTM EBITDA and estimated NTM EBITDA. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimates
for the selected precedent transactions were as available through First Call reports, SEC filings and press releases. This analysis produced multiples of selected valuation
data which Wachovia then compared to multiples for SYS based on the implied value of the merger consideration of 1.2582 shares of Kratos stock and Kratos based on the closing price of shares of Kratos
common stock on February&nbsp;19, 2008. The following table presents, for the periods indicated, the multiples for the selected </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>56</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=66,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=190377,FOLIO='56',FILE='DISK112:[08ZAT1.08ZAT42501]DK42501A.;19',USER='KSOLTER',CD=';8-APR-2008;22:39' -->
<A NAME="page_dk42501_1_57"> </A>
<BR>

<P style="font-family:times;"><FONT SIZE=2>precedent
transactions implied by the ratio of the enterprise value to LTM revenue and EBITDA and NTM revenue and EBITDA estimates: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="88%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=7 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Selected Transactions</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>SYS</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Kratos</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Mean</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Median</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>LTM&#151;Enterprise Value / Revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>NTM&#151;Enterprise Value / Revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>LTM&#151;Enterprise Value / EBITDA</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>NTM&#151;Enterprise Value / EBITDA</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>x</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2><B><I>Premiums Paid Analysis:&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Wachovia reviewed transactions involving publicly traded companies in the U.S. technology and services industry
ranging in value from $25&nbsp;million to $500&nbsp;million to determine the premium or discount paid by the acquiror relative to the closing market price of the target company's common shares for
one-day prior, one-week prior and one-month prior. Using publicly available information, Wachovia calculated, among other things, the high, low, mean and median
premiums paid in these selected transactions and
compared the implied value of the merger consideration of 1.2582 shares of Kratos stock to the closing price of shares of SYS common stock on February&nbsp;19, 2008, one-week prior and
one-month prior. The following table sets forth information concerning the stock price premiums implied by the Merger and the stock price premiums (and discounts) in the selected
transactions: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="54%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=7 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Selected Transactions</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="54%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>SYS</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Mean</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Median</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>One-Day Prior Premium</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>65.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(54.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>30.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>151.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>One-Week Prior Premium</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>60.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(46.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>151.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>One-Month Prior Premium</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(49.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>144.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2><B><I>Discounted Cash Flow Analysis:&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Wachovia estimated a range of values for Kratos common stock and SYS common stock based upon the discounted
present value of the projected after-tax cash flows of Kratos and SYS described in the respective financial forecasts provided by Kratos, for the nine months ending December&nbsp;31,
2008 through the year ending December&nbsp;31, 2012, and of the terminal values of Kratos and SYS based upon multiples of EBITDA and perpetuity growth rates. This analysis was based upon certain
assumptions described by, projections supplied by and discussions held with management of Kratos. In performing this analysis, Wachovia utilized discount rates for Kratos ranging from 11.0% to 13.0%
and for SYS ranging from 13.0% to 15.0%. The discount rates were selected based on weighted average cost of capital calculations for each of Kratos and SYS, respectively. Wachovia utilized terminal
multiples of EBITDA for Kratos and SYS ranging from 9.0 times to 11.0 times and perpetuity growth rates for Kratos and SYS ranging from 3.5% to 4.5%. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
analysis resulted in implied exchange ratios ranging from 0.6991x to 3.2768x. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally,
Wachovia analyzed implied exchange ratios assuming a constant Kratos stock price equal to the closing price of Kratos common stock on February&nbsp;19, 2008. This
analysis resulted in implied exchange ratios ranging from 0.6692x to 1.5326x. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Contribution Analysis:&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Wachovia analyzed the respective contributions of fiscal year 2007, estimated fiscal year 2008 and estimated fiscal
year 2009 revenues, EBITDA, Pro Forma EBIT and Pro Forma net income of Kratos and SYS to the combined company, based on the projected financial results of Kratos and SYS prepared by Kratos and the
implied exchange ratios resulting from this analysis. Pro Forma EBIT and net income excluded amortization of intangibles and non-recurring items. Wachovia's analysis resulted in a range of
implied exchange ratios from 0.3345x to 2.5321x. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>57</FONT></P>

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 </FONT> <FONT SIZE=2><B><I>Pro Forma Earnings Analysis:&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Wachovia analyzed the potential effect of the proposed merger on the pro forma earnings per share, or EPS, of
Kratos for the six months ending December&nbsp;31, 2008 and fiscal year 2009, assuming that the merger closed on June&nbsp;30, 2008. This analysis was based upon the respective financial forecasts
for Kratos and SYS provided by Kratos. This analysis was done on a GAAP as well as a pro forma basis. Pro Forma forecasts excluded amortization of intangibles and non-recurring items for
Kratos and SYS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
analysis indicated that the proposed Merger would be accretive to Kratos' pro forma six months ending December&nbsp;31, 2008 and fiscal year 2009 GAAP and Pro Forma EPS assuming
no synergies as a result of the transaction. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
summary above does not purport to be a complete description of the analyses performed by Wachovia, but describes, in summary form, the material elements of the analyses underlying
its opinion dated February&nbsp;20, 2008. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at
its opinion, Wachovia considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered by it. Wachovia believes that the
summary provided and the analyses described above must be considered as a whole and that selecting portions of these analyses, without considering all of them, would create an incomplete view of the
process underlying its analyses and opinion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
performing its analyses, Wachovia made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond
Kratos' and SYS's control. No company, transaction or business used in the analyses described above is identical to Kratos, SYS or the merger. Any estimates contained in Wachovia's analyses are not
necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by these estimates. The analyses performed were prepared solely as a
part of Wachovia's analysis of the fairness, from a financial point of view, to Kratos of the exchange ratio pursuant to the terms of the merger agreement and were conducted in connection with the
delivery by Wachovia of its opinion dated February&nbsp;20, 2008, to Kratos' board of directors. The exchange ratio was determined through negotiations between Kratos, SYS, members of their
respective senior management teams and respective advisors, and was approved by Kratos' board of directors. Wachovia did not recommend any specific consideration to Kratos or that any given
consideration constituted the only appropriate consideration for the merger. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Wachovia's
opinion was one of the many factors taken into consideration by Kratos' board of directors in making its determination to approve the merger. Wachovia's analyses summarized
above should not be viewed as determinative of the opinion of Kratos' board of directors with respect to Kratos' value or of whether Kratos' board of directors would have been willing to agree to a
different form of consideration. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Wachovia
Capital Markets, LLC is a nationally recognized investment banking and advisory firm and a subsidiary of Wachovia Corporation. Wachovia and its affiliates provide a full range
of financial advisory, securities and lender services for which it receives customary fees. Wachovia Capital Markets, LLC and its affiliates, including Wachovia Corporation and its affiliates, may
provide additional banking or other financial services, including, but not limited to, investment banking services to SYS or Kratos in the future for which Wachovia would also be paid fees and may
receive other compensation. In the ordinary course of its business, Wachovia and its affiliates may actively trade or hold the securities (including derivative securities) of Kratos for its own
account or for the account of its customers and, accordingly, may at any time hold a long or short position in such securities. Wachovia was previously engaged by Wireless Facilities,&nbsp;Inc.
(Kratos' former name), and received a fee for advising Wireless Facilities in the divestiture of its U.S. Engineering Business to LCC International in May 2007 and its </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>58</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>Wireless
Deployment Business to Platinum Equity in July 2007. In the ordinary course of business, Wachovia may provide in the future, equity or other research coverage of the securities of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to a letter agreement dated December&nbsp;3, 2007, Kratos engaged Wachovia as its exclusive financial advisor with respect to a possible transaction involving SYS. Pursuant to
the terms of the letter agreement, Kratos engaged Wachovia to deliver its opinion and has agreed to pay Wachovia a significant portion of its compensation as a transaction fee contingent upon
consummation of the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
has also agreed to reimburse Wachovia for its expenses incurred in performing its services, including the fees and expenses of Wachovia's counsel, and to indemnify Wachovia and
its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Wachovia or any of its affiliates against certain liabilities and expenses, including
certain liabilities under federal securities laws, related to or arising out of Wachovia's engagement and any related transactions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Opinion of Financial Advisor to the SYS Board of Directors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;19, 2008, at a meeting of SYS's Board held to evaluate the proposed merger, Imperial Capital delivered to SYS's Board an oral opinion,
confirmed by delivery of a written opinion, dated February&nbsp;19, 2008, to the effect that, as of that date and based on and subject to various assumptions,
matters considered and limitations described in its opinion, the exchange ratio in the merger was fair, from a financial point of view, to the holders of SYS common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
full text of Imperial Capital's opinion describes the documents reviewed, matters considered and limitations on the review undertaken by Imperial Capital. This opinion is attached as </FONT> <FONT SIZE=2><I>Annex&nbsp;E</I></FONT><FONT SIZE=2> and is
incorporated into this proxy statement by reference. </FONT><FONT SIZE=2><B>Imperial Capital's opinion is directed only to the
fairness, from a financial point of view, of the exchange ratio in the merger to the holders of SYS common stock. The opinion does not address the merits of the underlying decision by SYS to engage in
the transaction or the relative merits of any alternatives discussed by SYS's Board and does not constitute an opinion with respect to SYS's underlying business decision to effect the transaction, any
legal, tax or accounting issues concerning the transaction, or any terms of the transaction (other than the exchange ratio). The opinion does not constitute a recommendation as to any action SYS or
any shareholder of SYS should take in connection with the transaction or any aspect thereof. Holders of SYS common stock are encouraged to read this opinion carefully in its entirety. The summary of
Imperial Capital's opinion described below is qualified in its entirety by reference to the full text of its opinion.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
arriving at its opinion, Imperial Capital, among other things: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Analyzed
certain publicly available information of SYS that it believed to be relevant to its analysis, including SYS's annual reports on Form&nbsp;10-K for
the fiscal years ending June&nbsp;30, 2005, June&nbsp;30, 2006, and June&nbsp;30, 2007, and SYS's quarterly reports on Form&nbsp;10-Q for the quarters ending September&nbsp;30,
2007 and December&nbsp;31, 2007;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Analyzed
certain publicly available information about Kratos that Imperial believed to be relevant to its analysis, including the Kratos annual report on
Form&nbsp;10-K for the fiscal year ending December&nbsp;31, 2006 and the Kratos quarterly reports on Form&nbsp;10-Q for the quarters ending March&nbsp;31, 2007,
June&nbsp;30, 2007, and September&nbsp;30, 2007;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the Kratos internal draft income statements for the quarter and year ending December&nbsp;31, 2007;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
certain internal financial forecasts and budgets prepared and provided by the SYS and Kratos management including the Kratos pro&nbsp;forma model prepared by
management; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>59</FONT></P>

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<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Met
with and held discussions with certain members of the SYS and Kratos management to discuss the SYS and Kratos operations and future prospects;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
industry reports and publications;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
public information with respect to certain other public companies with business lines and financial profiles which Imperial deemed to be relevant;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the implied financial multiples and premiums paid in merger and acquisition transactions which Imperial deemed to be relevant;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
current and historical market prices of SYS and Kratos&nbsp;common stock, as well as the trading volume and public float of such common stock;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the letter of intent and term sheet sent to SYS by Kratos dated December&nbsp;21, 2007;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the draft definitive agreement, including material schedules and exhibits, dated February&nbsp;18, 2008 which is referred to in this section as the Merger
Agreement; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Conducted
such other financial studies, analyses and investigations and took into account such other matters as it deemed necessary, including its assessment of general
economic and monetary conditions. </FONT></DD></DL>
</UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
giving its opinion, Imperial Capital relied upon the accuracy and completeness of the foregoing financial and other information and did not assume any responsibility for independent
verification of such information or conduct or receive any current independent valuation or appraisal of any assets of SYS or Kratos or any appraisal or estimate of liabilities of SYS or Kratos. With
the consent of SYS's Board, Imperial Capital assumed that all financial forecasts had been reasonably prepared on bases reflecting the best currently available estimates and judgments of management of
SYS and Kratos as to the future financial performance of the companies. Imperial Capital also relied upon the assurances of management of both companies that they were unaware of any facts that would
make the information or financial forecasts provided to it incomplete or misleading. It assumed no responsibility for, and expressed no view as to, such financial forecasts or the assumptions on which
they are based. Imperial Capital's opinion was necessarily based on economic, market and other conditions as they existed and could be evaluated on the date of its opinion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
the direction of SYS's Board, Imperial Capital was not asked to, and it did not, offer any opinion as to the terms, other than the exchange ratio to the extent expressly specified in
Imperial Capital's opinion, of the merger agreement or any related documents or the form of the merger or any related transaction. Imperial Capital expressed no opinion as to what the value of
Kratos&nbsp;common stock would be when issued pursuant to the transaction or the prices at which SYS&nbsp;common stock or Kratos&nbsp;common stock will trade at any time. Imperial Capital
expressed no opinion as to the fairness of the amount or nature of any compensation to be received by any officers, directors or employees of any parties to the transaction or any class of such
persons. Imperial Capital assumed, with the consent of SYS's Board that (i)&nbsp;the final executed form of the Merger Agreement would not differ in any material respect from the draft that Imperial
Capital examined, (ii)&nbsp;the parties to the Merger Agreement would comply with all the material terms of the Merger Agreement, and (iii)&nbsp;the transaction would be consummated in accordance
with the terms of the Merger Agreement without any adverse waiver or amendment of any material term or condition thereof. Imperial Capital also assumed that all governmental, regulatory or other
consents and approvals necessary for the consummation of the transaction would be obtained without any material adverse effect on Kratos, SYS or the transaction. Except as described above, SYS's Board
imposed no other instructions or limitations on Imperial Capital with respect to the investigations made or the procedures followed by Imperial Capital in rendering its opinion. The issuance of
Imperial Capital's opinion was approved by an authorized committee of Imperial Capital. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>60</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with rendering its opinion to SYS's Board, Imperial Capital performed a variety of financial and comparative analyses that are summarized below. The following summary is
not a complete description of all analyses performed and factors considered by Imperial Capital in connection with its opinion. The preparation of a financial opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or summary description. With respect to the selected public companies analysis and the selected transactions analysis
summarized below, no company or transaction used as a comparison was either identical or directly comparable to SYS, Kratos or the merger. These analyses necessarily involve complex considerations and
judgments concerning financial and operating characteristics and other factors that could affect the public trading or acquisition values of the companies concerned. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Imperial
Capital believes that its analyses and the summary below must be considered as a whole and that selecting portions of its analyses and factors or focusing on information
presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying
Imperial Capital's analyses and opinion. Imperial Capital did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion, but rather
arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
estimates of the future performance of Kratos and SYS provided by management of Kratos and SYS in or underlying Imperial Capital's analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than those estimates. In performing its analyses, Imperial Capital considered industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Kratos and SYS. Estimates of the financial value of companies do not purport to be appraisals or necessarily reflect the prices at
which companies actually may be&nbsp;sold. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
exchange ratio in the transaction was determined through negotiation between Kratos and SYS, and the decision by SYS's Board to enter into the merger was solely that of SYS's Board.
Imperial Capital's opinion and financial analyses were only one of many factors considered by SYS's Board in its evaluation of the merger and should not be viewed as determinative of the views of
SYS's Board or management with respect to the merger or the exchange ratio. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a brief summary of the material financial analyses performed by Imperial Capital and reviewed with SYS's Board in connection with Imperial Capital's opinion relating to
the proposed merger. The financial analyses summarized below include information presented in tabular format. In order to fully understand Imperial Capital's financial analyses, the tables must be
read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative
description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Imperial Capital's financial analyses. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Contribution Analysis  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Imperial Capital reviewed and compared each party's relative financial contribution to the pro&nbsp;forma combined entity. For each party, Imperial Capital
considered the (1)&nbsp;pre-deal market capitalization as of February&nbsp;15, 2008, (2)&nbsp;pre-transaction enterprise value, (3)&nbsp;revenue, gross profit, and
EBITDA for the latest twelve-month period ending December&nbsp;31, 2007, and (4)&nbsp;revenue, EBITDA, and net income estimated for the 2008 calendar year. Financial data for SYS and
Kratos were based on the most recent available filings with the Securities and Exchange Commission and on projections </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>61</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>provided
by the SYS and Kratos management. This analysis indicated the following relative financial contribution of each party to the pro&nbsp;forma combined entity: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="77%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>SYS</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Kratos</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Pro Forma Equity Ownership per Proposed Deal</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
Pre-deal Market Cap</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
15.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
84.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
Pre-Transaction Enterprise Value</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
87.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
2007 Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
20.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
79.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
2007 Gross Profit</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
26.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
73.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
2007 EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
9.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
90.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
2008 Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
21.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
78.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
2008 EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
26.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
73.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2><BR>
2008 Net Income</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
34.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
65.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B><I>Premiums Paid Analysis  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Imperial Capital reviewed and compared premiums paid per share of stock in selected change of control transactions to the premium to be received by SYS on a
current, historical and volume weighted average basis. The implied per share consideration was calculated by multiplying the exchange ratio of 1.2582 by the Kratos closing stock price of $2.09 per
share on February&nbsp;15, 2008. The result, $2.63, was then compared to selected stock prices and volume weighted average prices from the previous six months to determine the implied per share
consideration's premium. This analysis gave the following results: </FONT></P>

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<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Premium</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Market Price as of 2/15/08</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>70.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><BR><FONT SIZE=2> 30-Day Prior</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
60.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><BR><FONT SIZE=2> 60-Day Prior</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
27.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><BR><FONT SIZE=2> 90-Day Prior</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
25.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
180-Day Prior</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
11.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><BR><FONT SIZE=2> 30-Day Volume Weighted Average Price</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
73.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><BR><FONT SIZE=2> 60-Day Volume Weighted Average Price</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
59.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="81%" style="font-family:times;"><BR><FONT SIZE=2> 90-Day Volume Weighted Average Price</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
43.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
180-Day Volume Weighted Average Price</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
26.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
results of this analysis were then compared to the Control Premium Studies conducted by FactSet Mergerstat,&nbsp;LLC which revealed an average control premium of 27.0% and a median
control premium of 22.1% for domestic deals completed during the first three quarters of 2007. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>62</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><B><I>Selected Public Companies Analysis  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Imperial Capital reviewed and compared selected financial information for SYS with corresponding financial information and multiples for the following publicly
traded companies relevant to SYS: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Large Caps<BR>
(&gt; $1&nbsp;billion)<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Medium Caps<BR>
($200&nbsp;million - $1&nbsp;billion)<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Small Caps<BR>
(&lt; $200&nbsp;million)<BR> </B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2>CACI International&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2>ICF International,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2>ATS Corporation</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
DynCorp International&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
MAXIMUS,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
Dynamics Research Corp.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
ManTech International Corp.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
MTC Technologies,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
Paradigm Holdings&nbsp;Inc.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
QinetiQ Group&nbsp;Plc</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
NCI,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
SM&amp;A</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
SAIC,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
SI International,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
TechTeam Global,&nbsp;Inc.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
SRA International&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
Stanley,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>
&#149;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2><BR>
VSE Corp.</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
each of the selected public companies, Imperial Capital considered, among other things, (1)&nbsp;market capitalization (computed using closing stock prices as of
February&nbsp;15, 2008), (2)&nbsp;enterprise values, (3)&nbsp;enterprise values as a multiple of the latest twelve month period and estimated 2008&nbsp;revenue, and (4)&nbsp;enterprise
values as a multiple of the latest twelve month period and estimated 2008&nbsp;earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA. Financial data for the
selected public companies were based on the most recent available filings with the Securities and Exchange Commission and on the Institutional Brokers' Estimate System's and First Call estimates.
Financial data for SYS and Kratos were based on the most recent available filings with the Securities and Exchange Commission and on estimates provided by SYS's and Kratos' managements. This analysis
indicated the following implied equity value per share ranges of SYS based on selected small cap company trading multiples applied to SYS's revenue and EBITDA: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Implied Equity Value per&nbsp;Share</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ROWSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Based on<BR> </B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Mid</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>2007 Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.31</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.70</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.09</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2><BR>
2008 Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.32</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.75</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.18</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2><BR>
2007 EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.44</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.49</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.54</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2><BR>
2008 EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.43</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.61</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.79</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
analysis also indicated the following implied equity value per share ranges of Kratos based on selected medium company trading multiples applied to Kratos' pro&nbsp;forma revenue
and EBITDA including Haverstick: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Implied Equity Value per&nbsp;Share</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ROWSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Based on<BR> </B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Mid</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>2007 Pro Forma Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.04</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.41</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.77</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2><BR>
2008 Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.86</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.25</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.64</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2><BR>
2007 Pro Forma EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.07</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.18</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.30</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2><BR>
2008 EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.00</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.13</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.25</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>63</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=73,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=968623,FOLIO='63',FILE='DISK112:[08ZAT1.08ZAT42501]DM42501A.;25',USER='KSOLTER',CD=';8-APR-2008;22:40' -->
<A NAME="page_dm42501_1_64"> </A>

<P style="font-family:times;"><FONT SIZE=2><B><I>Selected Transactions Analysis  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Imperial Capital reviewed and compared selected financial information for SYS with corresponding financial information for the following selected transactions
involving companies relevant to SYS that closed in&nbsp;2007: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="27%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Date Closed<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="33%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Target</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="35%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Buyer</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2>December 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2>Haverstick Consulting,&nbsp;Inc.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>Kratos Defense&nbsp;&amp; Security Solutions</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
November 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
Number Six Software,&nbsp;Inc.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
ATS Corp</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
November 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
Dragon Development Corporation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
CACI International</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
October 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
PA Corp</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
Quintegra Solutions&nbsp;Ltd</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
August 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
Potomac Management Group</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
ATS Corp</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
June 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
Wexford</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
CACI International</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
June 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
Z-Tech Corp.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
ICF International&nbsp;Inc.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
June 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
Karta Technologies&nbsp;Inc.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
NCI,&nbsp;Inc.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
June 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
Logtec,&nbsp;Inc.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
SI International,&nbsp;Inc.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
June 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
NewVectors</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
TechTeam Government Solutions</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
April 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
ITS Corp.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
QinetiQ Group&nbsp;PLC</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
January 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
VTC,&nbsp;LLC</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
Fortress America Acquisition Corp.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2><BR>
January 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2><BR>
Advanced Technology Systems Inc</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2><BR>
ATS Corp</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
its review of selected transactions, Imperial Capital considered the enterprise value implied in each of the selected transactions as a multiple of revenue and EBITDA for the latest
12&nbsp;months as of the time of the respective transaction, to the extent such data were publicly available. Imperial Capital then compared the multiples derived from the selected transactions with
the corresponding multiples implied in the merger for SYS based on the exchange ratio. Multiples for the selected transactions were based on information from Mergerstat, Mergermarket, Capital IQ and
company press releases. This analysis indicated the following implied equity value per share range of SYS based on selected M&amp;A transaction multiples applied to SYS's revenue and EBITDA: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Implied Equity Value per&nbsp;Share</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ROWSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Based on<BR> </B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Mid</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>2007 Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.53</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.92</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.32</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2><BR>
2007 EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.85</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.90</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.95</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
analysis indicated the following implied equity value per share range of Kratos based on selected transaction multiples applied to Kratos' pro&nbsp;forma revenue and EBITDA
including Haverstick: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Implied Equity Value per&nbsp;Share</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ROWSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Based on<BR> </B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Mid</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>2007 Pro Forma Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.53</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.89</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.26</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2><BR>
2007 Pro Forma EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.35</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.46</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.58</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>64</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=7,SEQ=74,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=995576,FOLIO='64',FILE='DISK112:[08ZAT1.08ZAT42501]DM42501A.;25',USER='KSOLTER',CD=';8-APR-2008;22:40' -->
<A NAME="page_dm42501_1_65"> </A>

<P style="font-family:times;"><FONT SIZE=2><B><I>Discounted Cash Flow Analysis  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Imperial Capital performed a discounted cash flow analysis of SYS using projections and financial information for the period ranging from the beginning of fiscal
year 2008 through the end of fiscal year 2012 (the "projection period") provided by SYS's management. Imperial Capital calculated the implied present values of free cash flows for SYS for the
projection period using discount rates ranging from 16.0% to 18.0% based on the weighted average cost of capital. Imperial Capital calculated the terminal values for SYS based on multiples of 6.5x to
7.5x. Due to SYS's projected growth in EBITDA and unlevered free cash flow through fiscal year 2012, Imperial Capital applied the multiples method to calculate the terminal value only. The estimated
terminal values were then discounted to implied present values using discount rates ranging from 16.0% to 18.0% based on the weighted average cost of capital. For each combination of discount rate and
terminal value multiple, Imperial Capital added the implied present value of free cash flows to the implied present value of the terminal value to arrive at implied enterprise value for SYS. For each
combination of discount rate and terminal value multiple, Imperial Capital then calculated the implied equity value of SYS as the implied enterprise value less the net debt as of December&nbsp;31,
2007. Implied equity value per share of SYS&nbsp;common stock was calculated using fully-diluted shares outstanding of SYS, as provided by management of SYS. This analysis resulted in a
range of implied equity values per share of SYS&nbsp;common stock of approximately $2.78 to&nbsp;$3.31. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Exchange Ratio Comparison  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Imperial Capital calculated the average equity valuation per share of SYS and Kratos based on an equal weighting of the various valuation methodologies. The
following represent the ranges calculated for&nbsp;SYS: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Method<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Premiums Paid Analysis</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.95</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.97</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Public Companies Analysis 2007 Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.31</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.09</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Public Companies Analysis 2007 EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.44</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.54</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Public Companies Analysis 2008 Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.32</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.18</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Public Companies Analysis 2008 EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.43</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.79</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Transaction Analysis 2007 Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
3.53</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
4.32</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Transaction Analysis 2007 EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.85</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.95</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2><BR>
Discounted Cash Flow Analysis</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.78</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
3.31</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2><BR>
Average</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.70</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.14</FONT></TD>
</TR>
</TABLE></DIV>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>65</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=8,SEQ=75,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=27670,FOLIO='65',FILE='DISK112:[08ZAT1.08ZAT42501]DM42501A.;25',USER='KSOLTER',CD=';8-APR-2008;22:40' -->
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<P style="font-family:times;"><FONT SIZE=2><A
NAME="page_do42501_1_66"> </A>


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 </FONT></P>

<!-- TOC_END -->

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;And the ranges calculated for Kratos: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="76%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Method<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Premiums Paid Analysis</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.64</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.67</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Public Companies Analysis 2007&nbsp;Pro&nbsp;Forma Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.04</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.77</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Public Companies Analysis 2007&nbsp;Pro&nbsp;Forma EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.07</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.30</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Public Companies Analysis 2008&nbsp;Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.86</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.64</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Public Companies Analysis 2008&nbsp;EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.00</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.25</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Transaction Analysis 2007&nbsp;Pro&nbsp;Forma Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.53</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
3.26</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2><BR>
Selected Transaction Analysis 2007&nbsp;Pro&nbsp;Forma EBITDA</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.35</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.58</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2><BR>
Average</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.78</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2.21</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Imperial
Capital reviewed and compared the exchange ratio in the transaction with exchange ratios calculated using the high and low ranges for SYS and Kratos with the following results: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="65%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="18%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Exchange Ratio</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%" style="font-family:times;"><FONT SIZE=2>Exchange Ratio in the Transaction</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2582</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%" style="font-family:times;"><FONT SIZE=2><BR>
SYS Low / Kratos Low</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
$1.70 / $1.78</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.9524</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%" style="font-family:times;"><FONT SIZE=2><BR>
SYS High / Kratos Low</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
$2.14 / $1.78</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.2011</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="62%" style="font-family:times;"><FONT SIZE=2><BR>
SYS Low / Kratos High</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
$1.70 / $2.21</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.7689</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%" style="font-family:times;"><FONT SIZE=2><BR>
SYS High / Kratos High</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
$2.14 / $2.21</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.9697</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the terms of the agreement with Imperial Capital, SYS agreed to pay Imperial Capital a transaction fee of $750,000 in connection with the sale of SYS and an opinion fee of $150,000
due upon the delivery of a fairness opinion regardless of the conclusions reached therein. In addition, SYS agreed to pay all fees, disbursements and out-of-pocket expenses incurred by Imperial
Capital in connection with its services in connection with the merger and to indemnify Imperial Capital and related parties against any liabilities arising out of or in connection with advice or
services rendered or to be rendered pursuant to the engagement letter agreement. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
selected Imperial Capital as its financial advisor based on its experience with merger transactions and familiarity with the company. Imperial Capital is a full-service investment
banking firm offering a wide range of advisory, finance and trading services. USBX and certain former USBX professionals, now employed by Imperial Capital, provided financial advisory and investment
banking services for SYS in the past, including advising SYS on its acquisition of Ai Metrix, Inc. in October 2006 and its acquisition of Reality Based Information Technology Services, Ltd. in April
2006. In the ordinary course of its business, Imperial Capital may actively trade the debt and equity securities of SYS and Kratos for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Composition of Kratos Board of Directors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The size and composition of the Kratos board of directors will not be affected by this transaction. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Interests of SYS Directors and Executive Officers in the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In considering SYS's unanimous determination that the merger is fair and advisable and recommendation that SYS's stockholders vote
"</FONT><FONT SIZE=2><B>FOR</B></FONT><FONT SIZE=2>" approval of the merger agreement, you should be </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>66</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<BR>

<P style="font-family:times;"><FONT SIZE=2>aware
that members of SYS's board of directors and members of SYS's management team have agreements or arrangements that provide them with interests in the merger that differ from and are in addition
to those of other SYS shareholders. The SYS board of directors was aware of these agreements and arrangements during its deliberations of the merits of the merger and in determining to recommend to
you that you vote "</FONT><FONT SIZE=2><B>FOR</B></FONT><FONT SIZE=2>" approval of the merger agreement. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Employment Agreement  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has required as a condition to the merger that Clifton L. Cooke, Jr., SYS's president and chief executive officer and a director, agree to enter into a
Kratos employment agreement providing for his continued employment with Kratos immediately prior to the merger which employment agreement will be effective immediately after the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Voting Agreements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's president and chief executive officer and its chief financial officer, who in the aggregate beneficially own approximately 9.1% of SYS's common stock as of
April&nbsp;7, 2008, have agreed with Kratos to vote their SYS shares in favor of the approval of the merger agreement. See </FONT><FONT SIZE=2><I>"Voting Agreements"</I></FONT><FONT SIZE=2> on
page&nbsp;89 of this document. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Treatment of SYS Options and Other Equity-Based Awards  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS has granted stock options to its employees, officers and directors under SYS's 1997 Incentive Stock Option and Restricted Stock Plan and the SYS 2003 Stock
Option Plan. As of April&nbsp;7, 2008, there are 2,117,100 options issued and outstanding under these plans. Of that amount 685,500 options are held by officers and directors. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
outstanding SYS stock options will become fully vested prior to the closing and may be exercised for SYS shares ("cashless exercise" being permissible) at or prior to closing in
accordance with the terms of the stock option plans, which shares would then be exchanged for Kratos shares in accordance with the exchange ratio. Any such stock option exercises may be subject to
withholding taxes as a result. No SYS stock options will be assumed by or converted into options of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2003, the SYS board of directors approved the SYS 2003 Employee Stock Purchase Plan. The purpose of the SYS 2003 Employee Stock Purchase Plan is to provide employees of SYS and
its designated subsidiaries with an opportunity to purchase SYS common stock. The 2003 Employee Stock Purchase Plan provides for enrollment on the first day of a six-month period in which
the employees can elect payroll deductions for the purchase of SYS common stock. The 2003 Employee Stock Purchase Plan allows employees to designate a portion of their base compensation to be used to
purchase SYS common stock at a purchase price per share at 85% of the lower of the fair market value on the first or last day of each offering period. Each offering period lasts six months. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
February&nbsp;20, 2008, the date of executing the merger agreement, SYS terminated the then current six month stock purchase period for its Employee Stock Purchase Plan, and
this Plan is not being assumed by Kratos. SYS employees who were enrolled in the Plan from the period January&nbsp;1, 2008 through February&nbsp;20, 2008 were eligible to purchase shares during
this stub period consistent with the provisions of the Plan. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>67</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth as of April&nbsp;7, 2008, the unvested SYS stock options held by SYS directors and executive officers which will vest upon the effective time of the
merger: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="78%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Unvested SYS<BR>
Stock Options</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Clifton L. Cooke, Jr.&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Edward M. Lake</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,100</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Michael W. Fink</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,500</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Thomas A. Page</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,200</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Alfred M. Gray</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,200</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>John R. Hicks</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,300</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Gail K. Naughton</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,300</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Philip P. Trahanas</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,500</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Charles E. Vandeveer</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,500</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B>Subordinated Convertible Notes  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS has $3,125,000 of convertible notes payable outstanding, which we refer to as the Notes. The Notes are unsecured and subordinate to its bank debt, bear
interest at 10% per annum payable quarterly, are due February&nbsp;14, 2009 and are convertible at any time into shares of common stock at a
conversion rate of $3.60 per share. The Notes are being assumed by Kratos subject to their existing terms and conditions. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following
the merger, the Notes will not be convertible into SYS common stock. Instead, they will be convertible into the merger consideration as if they had been converted into SYS
stock immediately prior to the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
officers and directors of SYS hold $975,000 of these notes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Warrants  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following SYS warrants are outstanding: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Exercisable
into 313,401 shares of common stock at $2.50 per share that were issued in June&nbsp;2005 in conjunction with the sale of common stock and expire in
June&nbsp;2010
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Exercisable
into 50,000 shares of common stock at $3.85 per share that were issued in September&nbsp;2005 in conjunction with the acquisition of technology from Lomasoft
and expire in September 2010.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Exercisable
into 110,000 shares of common stock at $4.00 per share that were issued in October&nbsp;2005 to the investment bankers that assisted with a private offering of
SYS's common stock and expire October 2010.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Exercisable
into 20,000 shares of common stock at $2.44 per share that were issued in April&nbsp;2006 related to the acquisition of Logic Innovations and expire in April
2011
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Exercisable
into 15,000 shares of common stock at $2.25 per share that were issued on September&nbsp;18, 2007 related to consulting services and expire on
September&nbsp;18, 2012 </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders
of the foregoing warrants will, following the merger, be entitled to receive upon exercise of such warrants, the number of shares of Kratos common stock that they would have
received pursuant to the merger had they exercised such warrants immediately prior to the merger. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>68</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2><B>Directors and Officers of SYS after the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The directors of Merger Sub will be the initial directors of SYS as the surviving corporation of the merger, and will serve until their successors have been duly
elected or appointed and qualified, or until their earlier death, resignation or removal. The officers of Merger Sub will be the initial officers of SYS as the surviving corporation of the merger,
subject to the authority of the board of directors of the surviving corporation, as provided by California law and the bylaws of the surviving corporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Indemnification and Insurance  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The merger agreement provides that for six years after the effective time of the merger and to the fullest extent permitted by law, Kratos will cause the
surviving corporation to honor all rights to indemnification for acts or omissions prior to the effective time of the merger existing in favor of SYS directors or officers as provided in SYS's
organizational documents and its indemnification agreements with such individuals. The merger agreement also provides that, prior to the effective time of the merger, SYS will purchase
six-year "tail" officers' and directors' liability insurance policies on terms and conditions no less favorable than SYS's existing directors' and officers' liability insurance. If SYS
cannot purchase these "tail" policies for 200% or less of the annual premium paid by SYS for its existing insurance, SYS will purchase as much insurance coverage as can be obtained within the 200%
cap. Kratos and the surviving corporation are obligated to maintain such tail policies in full force and effect and continue to honor their respective obligations thereunder for the full term thereof. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Potential Change of Control or Severance Payments  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From and after the effective time of the merger, each of SYS's executive officers listed in the chart below may become eligible to receive Change of Control or
severance payments for a period ranging from twelve months to twenty-four months, based on the terms of their existing
employment agreements, which we refer to as the Agreements and their base salary, if terminated for any of the following reasons: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Their
position or duties are modified in a way which materially reduces their responsibilities or the level of management to which they report;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>A
reduction in level of compensation as of the date of a change of control (including base salary and fringe benefits);
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>A
relocation of their place of employment by more than 50&nbsp;miles, provided and only if such change, reduction, or relocation is effected without the employee's express
consent. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
the foregoing and pursuant to the Agreements, if any amounts due to any such officer pursuant to their agreement are determined to be "Parachute Payments" as such term is
defined in Section&nbsp;280G of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, and the regulations promulgated thereunder, then the total compensation paid to such
officer together with any other payment or the value of any benefit received or to be received by them which is treated as a Parachute Payment will not exceed 2.99 times such officer's Base Amount (as
such term is defined in Section&nbsp;280G of the Code). In the event a reduction of a change of control or severance payment is required such officer may select the compensation which will be
reduced in order to fall within the 2.99 times Base Amount limitation. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>69</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
and after the effective time of the merger, each of SYS's executive officers listed below may become eligible to receive severance payments subject to the parachute payment
provision in their agreements as follows: </FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="43%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Title</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Approximate<BR>
Amount of Potential<BR>
Change of Control<BR>
or Severance Payment</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Edward M. Lake</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="36%" style="font-family:times;"><FONT SIZE=2>Chief Financial Officer</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>138,250</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Michael W. Fink</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="36%" style="font-family:times;"><FONT SIZE=2>Secretary and Sr. Vice President</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>262,500</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, to these executive officers certain other SYS employees have employment agreements with similar terms and conditions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of April&nbsp;7, 2008 directors and executive officers of SYS beneficially owned 4,870,433 shares of SYS common stock, which represented approximately 23.7% of the shares of SYS
common stock then issued and outstanding. SYS's president and chief executive officer, and chief financial officer, who in the aggregate beneficially own approximately 9.1% of SYS common stock as of
April&nbsp;7, 2008, have agreed with Kratos to vote their shares of SYS's common stock to approve the merger agreement. For more information see "SYS Voting Agreement" at </FONT> <FONT SIZE=2><I>Annex&nbsp;C.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Certain Arrangements between SYS and its Executive Officers, Directors and Affiliates  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;6, 2007, the SYS Board approved an Incentive Compensation Plan as proposed by the Compensation and Nominating Committee. The Incentive
Compensation Plan was established in the amount of $1.65&nbsp;million to be allocated to certain named executive officers and members of management in the event of the acquisition of SYS within
certain financial parameters and subject to further specificity as to the allocation of the Incentive Compensation Plan Amount. On February&nbsp;19, 2008, the SYS Board reviewed a preliminary
proposed allocation of the Incentive Compensation Plan and authorized Clifton L. Cooke to make a final allocation recommendation to the Compensation and Nominating Committee and the SYS Board after
taking into consideration any other retention or bonus arrangements being considered by Kratos and SYS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
March&nbsp;20, 2008, the Compensation and Nominating Committee met and approved a final allocation. Listed in the table below are the amounts approved for distribution upon closing
of the merger for the SYS named executive officers which in total amounts to $1.325&nbsp;million of the $1.65&nbsp;million approved: </FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="39%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="33%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Title</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amount of Incentive<BR>
Compensation</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Clifton L. Cooke</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2>President and Chief Executive Officer</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>700,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Edward M. Lake</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2>Chief Financial Officer</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>500,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Michael W. Fink</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2>Secretary and Sr. Vice President</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="20%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>125,000</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
remaining $0.325&nbsp;million has been allocated to four other members of the management team. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It
should be further emphasized that the Incentive Compensation Plan has no impact on the consideration to be received by the SYS shareholders as there are no requirements pursuant to
the merger agreement to deliver a specified amount of working capital on the closing balance sheet. The fixed exchange ratio was based on a fixed enterprise value of SYS less the subordinated
convertible debt that is being assumed by Kratos. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>70</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Accounting Treatment  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The merger will be accounted for as an acquisition of SYS by Kratos under the purchase method of accounting in accordance with U.S. generally accepted accounting
principles. Under the purchase method of accounting, the assets and liabilities of the acquired company are, as of completion of the merger, recorded at their respective fair values and added to those
of the acquiror, including an amount for goodwill representing the difference between the purchase price and the fair value of the identifiable net assets. Financial statements of Kratos issued after
the merger will reflect only the operations of SYS after the merger and will not be restated retroactively to reflect the historical financial position or results of operations of SYS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
unaudited pro forma condensed combined financial statements contained in this Proxy Statement were prepared using the purchase method of accounting. The final allocation of the
purchase price will be determined after the merger is completed and after completion of an analysis to determine the fair value of SYS's assets and liabilities. Accordingly, the final purchase
accounting adjustments may be materially different from the unaudited pro forma adjustments. Any decrease in the fair value of the assets or increase in the fair value of the liabilities of SYS as
compared to the unaudited pro forma information included in this Proxy Statement will have the effect of increasing the amount of the purchase price allocable to goodwill. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Restrictions on Sales of Shares of Kratos Common Stock Received in the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos shares of common stock issued in the merger will not be subject to any restrictions on transfer arising under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, except for Kratos shares issued to any SYS shareholder who may be deemed to be an "affiliate" of Kratos after completion of the merger. Former SYS
shareholders who were affiliates of SYS at the time of the SYS special meeting and who are not affiliates of Kratos after the completion of the merger may sell their Kratos shares at any time. Former
SYS shareholders who are or become affiliates of Kratos after completion of the merger will remain or be subject to the volume and sale limitations of Rule&nbsp;144 under the Securities Act until
they are no longer affiliates of Kratos. This Proxy Statement does not cover resales of Kratos common stock received by any person upon completion of the merger, and no person is authorized to make
any use of this Proxy Statement in connection with any resale. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Dissenters' Rights and Appraisal Rights  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos Stockholders  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Section&nbsp;262 of the Delaware General Corporation Law, Kratos stockholders are not entitled to exercise dissenters' rights or appraisal rights or
to demand payment for their shares of Kratos common stock under applicable law as a result of the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS Shareholders  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summarizes Chapter&nbsp;13 of the California General Corporation Law, which sets forth the procedures for SYS shareholders to dissent from the
merger and to demand statutory dissenters' rights under the California General Corporation Law. This summary does not purport to be a complete statement of the provisions of California law relating to
the rights of dissenting SYS shareholders and is qualified in its entirety by reference to Sections&nbsp;1300 through 1313 of the California General Corporation Law, the full text of which is
attached as </FONT><FONT SIZE=2><I>Annex&nbsp;F </I></FONT><FONT SIZE=2>to this Proxy Statement. Failure to follow the following procedures exactly could result in the loss of dissenters' rights. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
SYS shareholders approve the terms of the merger by a majority of the outstanding shares entitled to vote thereon and the merger agreement is not abandoned or terminated, SYS
shareholders </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>71</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>who
vote against the merger may, by complying with Sections&nbsp;1300 through 1313 of the California General Corporation Law, be entitled to dissenters' rights as described therein. To exercise
dissenters' rights, an SYS shareholder must comply with all of the procedures required by California law. The holders of SYS common stock who do exercise their dissenters' rights with respect to the
approval of the terms of the merger are referred to herein as Dissenting Shareholders, and the shares of stock with respect to which they exercise dissenters' rights are referred to herein as
Dissenting Shares. If an SYS shareholder has a beneficial interest in SYS common stock that is held of record in the name of another person, such as a trustee or nominee, and such shareholder desires
to perfect any dissenters' rights he, she or it may have, such beneficial shareholder must act promptly to cause the holder of record to follow the steps summarized below timely and properly. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Dissenters' rights cannot be validly exercised by persons other than SYS shareholders of record, regardless of the beneficial ownership of the
shares.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Any SYS shareholder who holds his, her or its shares in a brokerage account or other nominee form and who wishes to exercise dissenters' rights is urged to
consult with his, her or its broker to determine appropriate procedures for exercising dissenters' rights by such nominee.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Any SYS shareholder who wishes to exercise dissenters' rights or who wishes to preserve his, her or its right to do so should review this section and  </B></FONT><FONT SIZE=2><B><I>Annex&nbsp;F</I></B></FONT><FONT SIZE=2><B>
(sections&nbsp;1300 through 1313 of the California General Corporation Law) carefully and should consult his, her or its legal advisor,
since failure to timely comply with the procedures set forth therein will result in the loss of such rights.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Dissenters' Rights Under California Law  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order for any SYS shareholder who holds freely transferable shares (i.e.,&nbsp;shares with respect to which there exist no restrictions on transfer imposed
by SYS or by any law or regulation) to receive dissenters' rights, at least 5% of the outstanding shares of SYS common stock must satisfy each of the following requirements to qualify as Dissenting
Shares under the California General Corporation Law: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
SYS common stock must have been outstanding on [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;], 2008 the record date;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
SYS common stock must have been voted against the merger; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>no
later than the date of SYS's special meeting, the holder of such SYS common stock must make a written demand that SYS repurchase his Dissenting Shares at fair market
value (as described below). </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
above requirements having been met, the holder of such SYS common stock must submit certificates for endorsement upon notice of approval of the merger agreement (as described below). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order for any SYS shareholder who holds shares with respect to which there exists any restriction on transfer imposed by SYS or by any law or regulation, such shareholder must meet
the bullet point requirements listed above to receive dissenters' rights with respect to such transfer-restricted shares, but no minimum number of outstanding shares are required to
perfect dissenters' rights. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Demand for Repurchase of Shares  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Sections&nbsp;1300 through 1313 of the California General Corporation Law, holders of Dissenting Shares may require SYS to repurchase their
Dissenting Shares at a price equal to the fair market value of such shares determined as of the day before the first announcement of the terms of the merger, excluding any appreciation or depreciation
as a consequence of the proposed merger, but adjusted for any stock split, reverse stock split or stock dividend that becomes effective thereafter. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>72</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
vote against the merger does not in and of itself constitute a demand for appraisal under the California General Corporation Law. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
later than the date of SYS's special meeting, a Dissenting Shareholder must demand that SYS repurchase such shareholder's Dissenting Shares in a statement setting forth the number and
class of Dissenting Shares held of record by such Dissenting Shareholder, that the Dissenting Shareholder demands that SYS repurchase such Dissenting Shares, and a statement of what the Dissenting
Shareholder claims to be the fair market value of the Dissenting Shares as of the day before the announcement of the proposed merger. The statement of fair market value in such demand by the
Dissenting Shareholder constitutes an offer by the Dissenting Shareholder to sell the Dissenting Shares at such price. An SYS shareholder who elects to exercise dissenters' rights pursuant to
Chapter&nbsp;13 should mail or deliver the written demand to: </FONT></P>

<UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>SYS<BR>
5050 Murphy Canyon Road, Suite&nbsp;200<BR>
San Diego, CA 92123<BR>
Attention: Michael W. Fink, Corporate Secretary </FONT></P>

</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the shares are owned of record by a person in a fiduciary capacity, such as a trustee, guardian or custodian, the demand should be executed in that capacity. If the shares are owned
of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all owners. An authorized agent, including an agent for two or more
joint owners, may execute a demand that SYS repurchase such shares on behalf of an SYS shareholder; however, the agent must identify the record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is acting as an agent for such owner or owners. A record holder, such as a broker who holds shares as nominee for several beneficial owners, may exercise dissenters'
rights with respect
to the shares held for one or more beneficial owners while not exercising these rights with respect to the shares held for one or more other beneficial owners. In this case, the written demand should
set forth the number of shares as to which appraisal is sought, and, where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record
owner. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Submission of Certificates for Endorsement  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Next, the Dissenting Shareholder must affirmatively vote his, her or its shares against the approval of the terms of the merger at SYS's special meeting. If a
Dissenting Shareholder fails to vote at all, abstains from voting on the proposal regarding the terms of the merger or votes "FOR" that proposal at SYS's special meeting, he, she or it will lose the
right to payments as a Dissenting Shareholder and such shareholder will be paid the merger consideration described in the merger agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After
SYS's special meeting, if SYS shareholders have approved the terms of the merger and, in the case of freely transferable shares, at least 5% of the SYS shareholders have properly
delivered demands for payment to SYS and voted against the approval of the terms of the merger, SYS is required, within ten days, to mail to each appropriately Dissenting Shareholder notice of
approval of the terms of the merger, a statement of the price determined by SYS to represent the fair market value of Dissenting Shares (which will constitute an offer by SYS to purchase such
Dissenting Shares at such stated price), and a description of the procedures such holders should follow in order to exercise their rights as Dissenting Shareholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Within
30&nbsp;days after the notice of approval of the terms of the merger is mailed to shareholders, the shareholder must also submit to SYS, for endorsement as Dissenting Shares,
the stock certificates representing the SYS shares as to which the Dissenting Shareholder is exercising dissenters' rights. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>73</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><I>Payment for Dissenting Shares  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If upon the Dissenting Shareholder's surrender of the certificates representing the Dissenting Shares, SYS and a Dissenting Shareholder agree upon the price to be
paid for the Dissenting Shares and agree that such shares are Dissenting Shares, then the agreed price is required by law to be paid to the Dissenting Shareholder with interest thereon at the legal
rate on judgments from the date of the agreement within the later of 30&nbsp;days after the date of such agreement or 30&nbsp;days after any statutory or contractual conditions to the consummation
of the merger are satisfied or waived. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
SYS denies that shares are Dissenting Shares or the SYS shareholder fails to agree with SYS as to the fair market value of the shares, then, within the time period provided by
Section&nbsp;1304(a) of the California General Corporation Law, any SYS shareholder who has made a valid written demand and has not voted in favor of approval of the terms and conditions of the
merger may file&nbsp;a complaint in the Superior Court in the proper California county requesting a determination as to whether the shares are Dissenting Shares or as to the fair market value of the
holder's shares, or both, or may intervene in any pending action brought by any other SYS shareholder. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
the trial of the action, the court determines the issues. If the status of the shares as Dissenting Shares is in issue, the court first resolves that issue. If the fair market value
of the Dissenting Shares is in issue, the court determines, or appoints one or more impartial appraisers to determine, the fair market value of the shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the court appoints an appraiser or appraisers, they proceed to determine the fair market value per share. Within the time fixed by the court, the appraisers, or a majority of the
appraisers, make and file&nbsp;a report in the office of the clerk of the court. Thereafter, on the motion of any party, the report is submitted to the court and considered on such evidence as the
court considers relevant. If the court finds the report reasonable, the court may confirm it. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the single appraiser or a majority of the appraisers fails to make and file&nbsp;a report within 10&nbsp;days after the date of their appointment or within such further time as
the court allows, or if the court does not confirm the report, the court determines the fair market value of the Dissenting Shares. Subject to Section&nbsp;1306 of the California General Corporation
Law, judgment is rendered against the corporation for payment of an amount equal to the fair market value of each Dissenting Share multiplied by the number of Dissenting Shares that any dissenting
shareholder who is a party, or who has intervened, is entitled to require the corporation to purchase, with interest at the legal rate from the date on which the judgment is entered. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
costs of the action, including reasonable compensation to the appraisers to be fixed by the court, is assessed or apportioned as the court considers equitable. However, if the price
determined by the court is more than 125% of the price offered by the corporation, the corporation pays the costs (including, in the discretion of the court, attorneys' fees, fees of expert witnesses
and interest at the legal rate on judgments from the date the shareholder made the demand and submitted shares for endorsement). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
as expressly limited by Chapter&nbsp;13 of the California General Corporation Law, holders of Dissenting Shares continue to have all the rights and privileges incident to their
shares until the fair market value of their shares is agreed upon or determined. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
federal income tax purposes, SYS shareholders who receive cash for their shares of SYS common stock after exercising dissenters' rights will recognize taxable gain or loss. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
an SYS shareholder fails to perfect his, her or its dissenters' rights or effectively withdraws or loses such rights, such holder's SYS common stock will thereupon be deemed to have
been canceled and converted as set forth in the merger agreement. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>74</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Failure to follow the steps required by Chapter&nbsp;13 of the California General Corporation Law for perfecting dissenters' rights may result in the loss of
dissenters' rights, in which event you will be entitled to receive the consideration with respect to your Dissenting Shares in accordance with the merger agreement. In view of the complexity of the
provisions of Chapter&nbsp;13 of the California General Corporation Law, if you are an SYS shareholder and are considering exercising your dissenters' rights under the California General Corporation
Law, you should consult your own legal advisor.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Listing of Kratos Common Stock on The Nasdaq Global Select Stock Market  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has agreed that, prior to the completion of the merger, it will cause the shares of Kratos common stock to be issued in the merger to be approved for
listing on The Nasdaq Global Select Stock Market. Such approval is a condition to the completion of the merger. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>75</FONT></P>

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<A NAME="toc_do42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>General.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following general discussion summarizes the material United States federal income tax consequences of the merger to Kratos, Merger Sub, SYS and to holders of
common stock of SYS who are "United States persons," as defined for United States federal income tax purposes and who hold their SYS common stock as a capital asset within the meaning of
Section&nbsp;1221 of the Code. For United States federal income tax purposes, a "United States person" is: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a
United States citizen or resident of the United States;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a
corporation, partnership or other entity created or organized in the United States or under the laws of the United States, or any state within the United States;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>an
estate whose income is includible in gross income for United States federal income tax purposes regardless of its source; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a
trust, whose administration is subject to the primary supervision of a United States court and that has one or more U.S. persons who have the authority to control all
substantial decisions of the trust. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
term "non-United States person" means a person or holder other than a "United States person." </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
section does not discuss all of the United States federal income tax considerations that may be relevant to a particular shareholder in light of his or her individual circumstances
or to shareholders subject to special treatment under the federal income tax laws, including, without limitation: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>brokers
or dealers in securities or foreign currencies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>shareholders
who are subject to the alternative minimum tax provisions of the Code;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>tax-exempt
organizations;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>shareholders
who are "non-United States persons;"
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>expatriates;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>shareholders
that have a functional currency other than the United States dollar;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>banks,
mutual funds, financial institutions or insurance companies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>shareholders
who acquired SYS common stock in connection with stock option or stock purchase plans or in other compensatory transactions;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>shareholders
who hold SYS common stock as part of an integrated investment, including a straddle, hedge, or other risk reduction strategy, or as part of a conversion
transaction or constructive sale;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>shareholders
who acquired their shares through SYS's 401(k) plan, deferred compensation plan or other retirement plan; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>shareholders
whose SYS common stock is "qualified small-business stock" for purposes of Section&nbsp;1202 of the Code. </FONT></DD></DL>
</UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
ruling has been or will be sought from the Internal Revenue Service as to the United States federal income tax consequences of the merger, and the following summary is not binding on
the Internal Revenue Service or the courts. This discussion is based upon the Code, regulations, judicial authority, rulings and decisions in effect as of the date of this Proxy Statement, all of
which are subject to change, possibly with retroactive effect. This summary does not address the tax consequences of the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>76</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>merger
under state, local and foreign laws or under United States federal tax law other than income tax law. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SYS shareholders are strongly urged to consult their tax advisors as to the specific tax consequences to them of the merger, including any applicable federal,
state, local and foreign tax consequences.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It
is a condition to the obligation of Kratos to consummate the merger that Kratos receive an opinion from its counsel, DLA Piper US&nbsp;LLP, and it is a condition to the obligation
of SYS to consummate the merger that SYS receive an opinion from its counsel, Luce, Forward, Hamilton&nbsp;&amp; Scripps&nbsp;LLP, in each case, to the effect that, based upon certain facts,
representations and assumptions, the merger will constitute a "reorganization" within the meaning of Section&nbsp;368(a) of the Code and such opinions shall not have been withdrawn; provided,
however, that if the counsel to either Kratos or SYS does not render such opinion, this condition shall be deemed to be satisfied if counsel to the other party renders the opinion to both parties that
the merger will constitute a tax-free reorganization within the meaning of Section&nbsp;368(a) of the Code. The issuance of the opinions is conditioned on, among other things, the
receipt by DLA Piper US&nbsp;LLP and Luce, Forward, Hamilton&nbsp;&amp; Scripps&nbsp;LLP, of representation letters from each of Kratos, Merger Sub and SYS, in each case, in form and substance
reasonably satisfactory to DLA Piper US&nbsp;LLP and Luce, Forward, Hamilton&nbsp;&amp; Scripps&nbsp;LLP. An opinion of counsel represents that counsel's best legal judgment and is not binding on
the Internal Revenue Service or any court. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following summary assumes that the merger will be completed as described in the merger agreement and this Proxy Statement and that the merger will constitute a "reorganization"
within the meaning of Section&nbsp;368(a) of the Code. </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS
shareholders will not recognize any gain or loss upon the receipt of Kratos common stock in exchange for SYS common stock in connection with the merger, except to the
extent of cash received in lieu of a fractional share of Kratos common stock, as discussed below;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>cash
payments received by an SYS shareholder for a fractional share of Kratos common stock will be treated as if such fractional share had been issued in connection with the
merger and then redeemed by Kratos for cash. SYS shareholders will recognize capital gain or loss with respect to such
cash payment, measured by the difference, if any, between the amount of cash received and the tax basis in such fractional share;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
aggregate tax basis of the Kratos common stock received by an SYS shareholder in connection with the merger will be the same as the aggregate tax basis of the SYS common
stock surrendered in exchange for Kratos common stock, reduced by any amount allocable to a fractional share of Kratos common stock for which cash is received;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
holding period of the Kratos common stock received by an SYS shareholder in connection with the merger will include the holding period of the SYS common stock
surrendered in connection with the merger; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos,
Merger Sub and SYS will not recognize gain or loss as a result of the merger. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Backup Withholding.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are a non-corporate holder of SYS common stock you may be subject to information reporting and a 28% backup withholding on any cash payments
received in lieu of a fractional share interest in Kratos common stock. You will not be subject to backup withholding, however, if you: </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>furnish
a correct taxpayer identification number and certify that you are not subject to backup withholding on the substitute Form&nbsp;W-9 or successor form included in the letter of
transmittal to be </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>77</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>delivered
to you following the completion of the merger (or the appropriate Form&nbsp;W-8, as applicable); or </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>are
otherwise exempt from backup withholding. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
amounts withheld under the backup withholding rules will be allowed as a refund or credit against your United States federal income tax liability, provided you furnish the required
information to the Internal Revenue Service. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Tax Return Reporting Requirements.  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you receive Kratos common stock as a result of the merger, you will be required to retain records pertaining to the merger, and you will be required to file
with your United States federal income tax return for the year in which the merger takes place a statement setting forth certain facts relating to the merger as provided in Treasury Regulations
Section&nbsp;1.368-3. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>The preceding discussion does not purport to be a complete analysis or discussion of all potential tax effects relevant to the merger. SYS shareholders are urged
to consult their own tax advisers as to the specific consequences of the merger to them, including tax return reporting requirements, the applicability and effect of federal, state, local, foreign and
other tax laws and the effects of any proposed changes in the tax laws.</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>78</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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<A NAME="toc_dq42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>THE MERGER AGREEMENT    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>The following discussion summarizes material provisions of the Agreement and Plan of Merger and Reorganization, which we refer to as the
merger agreement, a copy of which is attached as Annex&nbsp;A to this Proxy Statement and is incorporated by reference herein. The rights and obligations of the parties are governed by the express
terms and conditions of the merger agreement and not by this summary. This summary is not complete and is qualified in its entirety by reference to the complete text of the merger agreement. We urge
you to read the merger agreement carefully in its entirety, as well as this Proxy Statement, before making any decisions regarding the merger.  </I></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>The representations and warranties described below and included in the merger agreement were made by Kratos and SYS to each other as of
specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the merger agreement and may be subject to important qualifications and limitations
agreed to by Kratos and SYS in connection with negotiating its terms, including, but not limited to, the qualifications and limitations listed in the disclosure schedules to the merger agreement.
Moreover, the representations and warranties may be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders, or may have been used
for the purpose of allocating risk between Kratos and SYS rather than establishing matters as facts. The merger agreement is described in this Proxy Statement and included as Annex&nbsp;A only to
provide you with information regarding its terms and conditions, and not to provide any other factual information regarding Kratos, SYS or their respective businesses. Accordingly, you should not rely
on the representations and warranties in the merger agreement as characterizations of the actual state of facts about Kratos or SYS, and you should read the information provided elsewhere in this
Proxy Statement, and in the documents which are incorporated by reference as exhibits to the registration statement of which this Proxy Statement is a part, for information regarding Kratos and SYS
and their respective businesses. See "Where You Can Find More Information" beginning on page 215 of this Proxy Statement.  </I></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>The Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, Merger Sub will merge with and into SYS, and SYS will survive the
merger as a wholly owned subsidiary of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Closing and Effective Time of the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of California or at such later time as may be
agreed upon by SYS and Kratos and as specified in the certificate of merger. The filing of the certificate of merger will occur no later than three business days after the conditions to completion of
the merger have been satisfied or waived. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Directors and Executive Management Following the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos President and CEO Eric DeMarco will serve as President and CEO of the combined company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
board of directors of Kratos will remain unchanged following the merger. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Company Locations Following the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos' corporate headquarters will remain in San Diego, California, and Kratos will maintain a significant presence in Washington,&nbsp;D.C.; Marietta,
Georgia; Newport, Delaware; Houston, Texas; Huntsville, Alabama; Alexandria, Virginia; Indianapolis, Indiana and various other locations in the United&nbsp;States. For further information please see
"Properties" beginning on page&nbsp;94. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>79</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Consideration to be Received in the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS Common Stock  </I></B></FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>SYS Common Stock.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;At the effective time of the merger, each outstanding share of SYS common stock will be
converted into the right to receive 1.2582 shares of Kratos common stock, together with any cash paid in respect of fractional shares.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Fractional Shares.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Holders of SYS common stock will not receive any fractional Kratos shares in the merger.
Instead, the total number of Kratos shares that each holder of SYS common stock will receive in the merger will be rounded down to the nearest whole number, and Kratos will pay cash for any resulting
fractional share that an SYS shareholder otherwise would be entitled to receive. The amount of cash payable for a fractional share of Kratos common stock will be determined by multiplying the fraction
by the average closing price for Kratos common stock on The Nasdaq Global Select Stock Market for the three days before the date the merger becomes effective. </FONT></DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2><I>Example: If you currently own 25 shares of SYS common stock, absent the treatment of the fractional shares described above, you would be entitled to receive
(25&nbsp;&times;&nbsp;1.2582) or 31.455 shares of Kratos common stock. Since fractional shares will not be issued, you will be entitled to 31 shares of Kratos common stock and a check for
the market value of 0.455 shares of Kratos common stock based on its average closing price during the three days prior to the date the merger becomes effective.</I></FONT></P>

</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B><I>Treatment of SYS Options  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the effective time of the merger, each option to purchase shares of SYS common stock that is outstanding and unexercised immediately prior to the date the
merger becomes effective will cease to represent a right to acquire SYS common stock and will be cancelled. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Adjustments to the Exchange Ratio  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The exchange ratio will be appropriately adjusted to reflect fully the effect of any stock split, reverse stock split, stock dividend, reorganization,
recapitalization, reclassification or other like change with respect to Kratos common stock or SYS common stock prior to the effective time of the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Procedures for Exchange of Certificates  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos will appoint an exchange agent for the purpose of exchanging certificates and uncertificated shares of SYS common stock. As soon as reasonably practicable
after the effective time of the merger, but in any event, within five business days thereof, the exchange agent will mail transmittal materials to each holder of record of SYS shares of common stock,
advising such holders of the procedure for surrendering their share certificates and/or uncertificated shares to the exchange agent. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
holder of a share of SYS common stock that has been converted into a right to receive the applicable merger consideration (including cash for fractional shares) will receive the
applicable merger consideration upon surrender to the exchange agent of the applicable SYS common stock certificate or uncertificated shares, together with a letter of transmittal covering such shares
and such other documents as the exchange agent may reasonably require. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After
the effective time, each certificate that previously represented shares of SYS common stock will represent only the right to receive the applicable merger consideration as
described above under "&#151;Consideration to be Received in the Merger," including cash for any fractional shares of Kratos common stock. In addition, SYS will not register any transfers of
the shares of SYS common stock after the effective time of the merger. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>80</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders
of SYS common stock should not send in their SYS stock certificates until they receive and complete and submit a signed letter of transmittal sent by the exchange agent with
instructions for the surrender of SYS stock certificates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
and Kratos are not liable to holders of shares of SYS common stock for any amount delivered to a public official under applicable abandoned property, escheat or similar laws. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
stockholders need not exchange their stock certificates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Representations and Warranties  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The merger agreement contains a number of representations and warranties made by Kratos and SYS to each other. The representations and warranties are subject in
some cases to specified exceptions and qualifications. The parties' reciprocal representations and warranties relate to, among other things: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>organization,
capital structure, corporate power and authority and execution and delivery of the merger agreement;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>consents
and approvals of third parties, and permissions and authorizations of governmental entities, required in connection with the merger agreement and the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>subsidiaries;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
approval of the merger agreement and the merger by the parties' respective boards of directors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
stockholder votes required to approve the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>documents
filed with the SEC and the accuracy of information contained in those documents;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>financial
statements and internal controls;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>compliance
with applicable legal requirements;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>properties
and assets;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>intellectual
property;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>filing
of tax returns, payment of taxes and other tax matters;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>employee
benefit plans and the Employee Retirement Income Security Act of 1974;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>environmental
matters;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>insurance
matters;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>legal
proceedings;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>labor
and employment matters;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>absence
of undisclosed liabilities;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>interests
of officers and directors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>compliance
with export controls laws;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>compliance
with international trade laws;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>brokers
used in connection with the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
absence of any material adverse effect or certain other changes or events since December&nbsp;28, 2007; and </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>81</FONT></P>

<HR NOSHADE>
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<UL>
<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
receipt of fairness opinions from the parties' financial advisors. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to the foregoing, the merger agreement contains representations and warranties made by SYS to Kratos regarding: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS's
products and product warranties;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>certain
material contracts;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
absence of any stockholders rights plan; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>brokers
used in connection with the merger. </FONT></DD></DL>
</UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2><B>Conduct of Business Pending the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the merger agreement, each of SYS, Kratos and each of their respective subsidiaries are required to carry on their respective businesses in the ordinary
course consistent with past practice, pay their debts and taxes when due and use commercially reasonable efforts, consistent with past practices, to maintain and preserve their business organization,
assets and properties, keep available the services of their present officers and employees and preserve their advantageous business relationships with customers, strategic partners, suppliers,
distributors and others having business dealings with them. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, each of SYS and Kratos and each of their respective subsidiaries may not, among other things and subject to certain exceptions, without the consent of the other party: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>amend
its charter or bylaws except as provided for in the merger agreement (a)&nbsp;with respect to Kratos, except as required by the SEC or The Nasdaq Global Select Stock
Market or as would not have a material adverse effect upon Kratos and would not materially restrict the operations of Kratos, and (b)&nbsp;with respect to SYS, except as required by the SEC or
American Stock Exchange.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>merge
with or acquire any business or material assets;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>make
any changes in accounting methods, principles or practices, except as required by a change in generally accepted accounting principles or legal requirements; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>make
or rescind any material tax election, settle any proceeding related to taxes, enter into tax agreements with a governmental entity, or except as required by law, change
any of its methods of reporting income or deductions for federal income tax purposes. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, SYS each of its subsidiaries may not, among other things and subject to certain exceptions, without the consent of Kratos: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>declare
or pay any dividends on or make other distributions in respect of its capital stock;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>split,
combine or reclassify any of its capital stock;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>issue
or sell any shares of its capital stock or other voting securities, or any securities convertible into or exercisable or exchangeable for, or any rights, warrants or
options to acquire, any such shares or voting securities, or enter into any agreement with respect to any of the foregoing, other than (a)&nbsp;with respect to SYS, the issuance of common stock
required to be issued upon the exercise or settlement of SYS options, restricted stock units or other equity-based awards outstanding on the date of the merger agreement in accordance with the terms
of the applicable award;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>purchase
or redeem any shares of capital stock or any other of its securities;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>sell
or lease any of its properties or assets, other than as part of sales of products, inventory and other properties and assets in the ordinary course of business
consistent with past practice; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>82</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<UL>
<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>adopt
or implement any stockholder rights plan;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>except
for certain permitted confidentiality agreements, enter into any agreement with respect to any merger, consolidation or disposition of all or substantially all of the
assets of SYS and its subsidiaries;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>incur
any indebtedness for borrowed money, issue any guarantees, issue or amend any debt securities, make any loans or, other than in the ordinary course of business
consistent with past practice, enter into any hedging arrangements;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>make
any capital expenditures in an amount in excess of $250,000 in the aggregate other than in the ordinary course of business consistent with past practices;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>change
any assumption underlying or method of calculating any bad debt, contingency or other reserve, except as required by a change in generally accepted accounting
principles or legal requirements;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>pay
or settle any claims or obligations in excess of $250,000 in the aggregate except in the ordinary course of business consistent with past practice or, except as
otherwise permitted by the merger agreement, waive or release any material benefit under or fail to enforce any confidentiality, standstill or similar agreements;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>amend
or terminate any material contract other than in the ordinary course of business consistent with past practice;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>enter
into any material contract or agreement or license any material intellectual property and/or technology to or from any third party, in each case other than in the
ordinary course of business consistent with past practice;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>except
as required by law or pursuant to existing benefits plans, (a)&nbsp;enter into, amend or terminate any employee benefits plan; (b)&nbsp;increase the compensation
or fringe benefits of any director, officer, employee, or consultant, (c)&nbsp;amend or accelerate the payment or vesting of any granted stock option, restricted stock unit or other benefits,
(d)&nbsp;pay any benefit not required by any employee benefit plan, or (e)&nbsp;grant awards under any bonus or compensation plan, except for the grant to new hires of options to purchase SYS
common stock;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>initiate
or settle any material litigation or arbitration;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>open
or close any facility or office;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>fail
to maintain insurance at levels substantially comparable to levels existing as of the date of the merger agreement; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>fail
to pay accounts payable and other obligations in the ordinary course of business consistent with past practice, except with respect any amounts disputed in good faith
by the company. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Reasonable Best Efforts; Other Agreements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Reasonable Best Efforts  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos and SYS have each agreed to use their reasonable best efforts to take all actions necessary, proper or advisable under the merger agreement and applicable
laws, rules and regulations to complete the merger and the other transactions contemplated by the merger agreement as promptly as practicable. Notwithstanding the foregoing, Kratos is not required to
agree to or carry out any divestiture, sale, license or imposition of any material limitation on the ability of Kratos to conduct its business or to hold or exercise full ownership of the SYS shares,
except in each case as would not involve any assets that are material to Kratos and its subsidiaries, taken as a whole. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>83</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2><B><I>Proxy Statement; Stockholders' Meetings  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos and SYS have agreed to cooperate in preparing and filing with the SEC this Proxy Statement and the registration statement of which it forms&nbsp;a part.
Each has agreed to use its commercially reasonable efforts to resolve any SEC comments relating to this Proxy Statement and to have the registration statement of which it forms&nbsp;a part declared
effective, and will cause this Proxy Statement to be mailed to its respective stockholders as early as practicable after it is declared effective. Each has
also agreed to hold a stockholders' meeting as promptly as possible after the registration statement is declared effective and in any event within 45&nbsp;days of such declaration. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Listing on The Nasdaq Global Select Stock Market  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has agreed that, if required by the rules of The Nasdaq Global Select Stock Market, it will file with The Nasdaq Global Select Stock Market a notification
form to list the additional shares to be issued to SYS's stockholders in connection with the merger. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Other Agreements  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The merger agreement contains certain other agreements, including agreements relating to access to information and cooperation between Kratos and SYS during the
pre-closing period, public announcements and certain tax matters. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Conditions to Completion of the Merger  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each party's obligation to effect the merger is subject to the satisfaction or waiver of various conditions, which include the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>receipt
of the approvals of the holders of SYS and Kratos capital stock required for the completion of the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
receipt of such additional governmental authorizations, consents, orders and approvals as may be required in connection with the merger, subject to certain exceptions;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
effectiveness of the registration statement of which this Proxy Statement is a part, and the registration statement not being subject to any stop order or threatened
stop order;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
absence of any order, preliminary or permanent injunction or other decree issued by any court of competent jurisdiction or other legal restraint making the merger
illegal or otherwise preventing the consummation of the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
receipt from each party's counsel of a written opinion to the effect that the merger will be treated for U.S. federal income tax purposes as a reorganization within the
meaning of Section&nbsp;368(a) of the Code;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
other party's representations and warranties being true and correct on the date of the merger agreement and on the date on which the merger is to be completed as if made
as of that date or, if these representations and warranties expressly relate to an earlier date, then as of that specified date, in each case other than any failures to be true and correct that,
individually or in the aggregate, have not had and would not reasonably be likely to have a material adverse effect on the other party, except for SYS's representations and warranties relating to its
capitalization, which must be true and correct in all material respects;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
other party having performed its obligations under the merger agreement in all material respects;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>with
respect to the Kratos obligation to complete the merger, that: (a)&nbsp;Clifton L. Cooke, Jr. enter into an employment agreement with Kratos; (b)&nbsp;SYS deliver
written resignation of all </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>84</FONT></P>

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<UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>officers
and directors of SYS effective as of the Effective Time; and (c)&nbsp;there is not any action or proceeding by any governmental entity seeking to restrain, prohibit or otherwise interfere
with the ownership or operation by Kratos or its subsidiaries of the business of SYS or of Kratos or its subsidiaries or to compel Kratos or its subsidiaries to dispose of or hold separate all or any
material portion of SYS's business or assets or of Kratos or its subsidiaries, except in each case for any action or proceeding seeking a remedy that Kratos would be required to agree to under the
merger agreement; and </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>with
respect to the SYS obligation to complete the merger, that the shares of Kratos common stock to be issued in the merger have been authorized for listing on The Nasdaq
Global Select Stock Market. </FONT></DD></DL>
</UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
merger agreement provides that certain of the conditions described above may be waived by Kratos or SYS. Neither Kratos nor SYS currently expects to waive any material condition to
the completion of the merger. If either Kratos or SYS determines to waive any condition to the merger that would result in a material adverse change in the terms of the merger to SYS or Kratos
stockholders, including any change in the tax consequences of the transaction to SYS shareholders, proxies will be resolicited from the Kratos or SYS shareholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
merger agreement provides that none of the following shall be deemed to constitute a "material adverse effect" or be taken in account in determining whether one has occurred, other
than in the case of an event or development that would have a material adverse effect on a party's ability to consummate the merger: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
in economic conditions in any country in which the companies operate, except to the extent those changes have a materially disproportionate effect on the affected
party and its subsidiaries as compared to similarly situated companies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>conditions
affecting the industries or industry sectors in which the affected party operates, except to the extent those changes or events have a materially disproportionate
effect on the affected party and its subsidiaries as compared to other companies in the same industries or industry sectors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
arising out of the announcement, pendency or consummation of the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
in the market price or trading volume of the affected party's stock;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes
in generally accepted accounting principles or legal requirements applicable to the affected party and its subsidiaries, except to the extent those changes have a
materially disproportionate effect on the affected party and its subsidiaries as compared to other companies affected by such changes; </FONT></DD></DL>
</UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2><B>No Solicitation; Changes in Recommendations  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the merger agreement SYS has agreed that its board will recommend that SYS's stockholders adopt and approve the merger agreement and that it will not directly
or indirectly: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>solicit,
initiate, encourage or knowingly or intentionally encourage or facilitate any "acquisition proposal," as described below;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>enter
into or participate in any discussions or negotiations regarding, or furnish to any person any non-public information in connection with, or participate
in, any acquisition proposal; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>withdraw,
qualify or modify its recommendation to SYS's stockholders in a manner adverse to Kratos. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>85</FONT></P>

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<UL>
<UL>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However,
at any time before the date that the vote required to be obtained from its stockholders in connection with the merger has been obtained, SYS and its board of directors may: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>furnish
non-public information to and participate in discussions or negotiations with a third party in response to an unsolicited bona fide written acquisition
proposal by such person, if the SYS board of directors, after consultation with outside legal counsel and financial advisors, determines in good faith that such acquisition proposal constitutes or is
reasonably likely to result in a "superior proposal," as described below, and prior to providing any non-public information to such person SYS enters into a confidentiality agreement with
such person on terms no less restrictive of the third party than the confidentiality agreement between Kratos and SYS; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>withdraw,
qualify or modify its recommendation of the merger in response to (i)&nbsp;an unsolicited acquisition proposal that the SYS board of directors, after
consultation with outside legal counsel and financial advisors, determines in good faith constitutes a superior proposal or (ii)&nbsp;a material development or change in circumstances that was not
known to or reasonably foreseeable by the SYS board of directors as of the date of the merger agreement, in each case if and only if the SYS board of directors, after consultation with its outside
legal counsel and financial advisors, determines in good faith that failure to effect a recommendation change would result in a breach of its fiduciary duties under applicable law; and provided that
the SYS board of directors may not change its recommendation unless the board follows certain notice provisions and engages in good faith negotiations with Kratos to amend the merger agreement in such
a way as to make the acquisition proposal no longer be a superior proposal (in the case of clause&nbsp;(i)) or obviate the need for a change of recommendation (in the case of clause&nbsp;(ii)). </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
merger agreement also provides that SYS must notify Kratos of any acquisition proposal received by, any information related to an acquisition proposal requested from, SYS or any
request or inquiry with respect to an acquisition proposal. SYS must keep Kratos reasonably informed in all material respects of the status and terms of any such acquisition proposal, the status and
nature of all information requested and delivered, and the status and terms of any counterproposals or such discussions or negotiations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Termination  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, the merger agreement may be terminated and the merger may be abandoned at any time prior to the completion of the merger (including after stockholder
approval): </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
mutual written consent of Kratos and SYS;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
either Kratos or SYS, if:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
merger is not consummated on or before August&nbsp;20, 2008; except that such right is not available to any party whose failure to comply with the merger agreement has
been the cause of, or resulted in, such failure and provided that this date (referred to herein as the "outside date") may be extended to February&nbsp;20, 2009;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a
governmental entity issues an order, decree or ruling or takes any other nonappealable final action permanently restraining, enjoining or otherwise prohibiting the merger;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
required Kratos or SYS shareholder vote has not been obtained at the applicable stockholder meeting, or any adjournment or postponement thereof, to approve the Kratos
voting proposal (except that this right is not available to any party who is in material breach of or has materially failed to fulfill its obligations under the merger agreement); or </FONT></DD></DL>
</DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>86</FONT></P>

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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
other party breaches any of its agreements or representations in the merger agreement in such a way as would cause one or more of the conditions to closing not to be
satisfied, and such breach is either incurable or is not cured after 30&nbsp;days' written notice;
<BR><BR></FONT></DD></DL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
Kratos, if:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
SYS board of directors fails to recommend that its shareholders vote in favor or the merger proposal or withdraws, qualifies, modifies or publicly proposes to withdraw,
qualify or modify its recommendation as to the merger proposal;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
SYS board of directors or any committee thereof approves or recommends an alternative acquisition proposal;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS
enters into an alternative acquisition agreement relating to an acquisition, as defined in the Merger Agreement;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
SYS board of directors or any committee thereof fails to reconfirm its recommendation as to the merger proposal within ten business days after Kratos requests in writing
that SYS's board of directors do so, provided such request by Kratos may only be made in the event SYS has received an alternative acquisition proposal or amendment thereto;&nbsp;or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS
willfully breaches its covenants with respect to non-solicitation of an alternative acquisition proposal or its obligations to call its shareholders meeting
and mail this Proxy Statement to its shareholders.
<BR><BR></FONT></DD></DL>
</DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>by
SYS to accept a proposal from a third party to acquire SYS that SYS's board of directors determines to be superior to the terms of Kratos' proposed acquisition of SYS, if
SYS's board of directors changes or withdraws its recommendation of the merger in response to such superior proposal and pays the applicable termination fee (as described below). </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Termination Fees and Expenses  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the merger agreement, SYS is required to pay a termination fee of $2,394,000 dollars to Kratos in the event the merger agreement is terminated: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>By
Kratos, if:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
SYS board of directors fails to recommend that its shareholders vote in favor or the merger proposal or withdraws, qualifies, modifies or publicly proposes to withdraw,
qualify or modify its recommendation as to the merger proposal;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
SYS board of directors or any committee thereof approves or recommends an alternative acquisition proposal;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS
enters into an alternative acquisition agreement relating to an acquisition, as defined in the Merger Agreement;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
SYS board of directors or any committee thereof fails to reconfirm its recommendation as to the merger proposal within ten business days after Kratos requests in writing
that SYS's board of directors do so, provided such request by Kratos may only be made in the event SYS has received an alternative acquisition proposal or amendment thereto;&nbsp;or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>SYS
willfully breaches its covenants with respect to non-solicitation of an alternative acquisition proposal or its obligations to call its shareholders meeting
and mail this Proxy Statement to its shareholders. </FONT></DD></DL>
</DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>87</FONT></P>

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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>By
SYS, if its board of directors or any committee thereof has made an adverse recommendation change and SYS enters into an alternative acquisition agreement which was the
subject of such adverse recommendation change. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Whether
or not the merger is completed, all costs and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by
the party incurring those costs or expenses, except that Kratos and SYS will share equally the expenses incurred in connection with the printing and mailing of this Proxy Statement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Effect of Termination  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the merger agreement is terminated as described in "&#151;Termination" above, the agreement will be void, and there will be no liability or obligation
of any party except that: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>each
party will remain liable for any willful breach of the merger agreement, fraud or knowing misrepresentation; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>designated
provisions of the merger agreement, including the provisions relating to confidential treatment of information and the allocation of fees and expenses (including,
if applicable, the termination fees described above) will survive termination. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Employee Matters  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The merger agreement provides that, with respect to SYS employees who remain employed for at least 180&nbsp;days following completion of the merger, to the
extent permissible, Kratos will treat the service of such employees prior to the completion of the merger as service rendered to Kratos for purposes of vesting, eligibility and minimum waiting periods
under Kratos' benefit plans. Kratos will assume and perform SYS's employment and change of control severance agreements. Kratos will also use commercially reasonable efforts to provide that no new
employee from SYS will be excluded under its benefit plans due to waiting period or pre-existing condition limitations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Indemnification and Insurance  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The merger agreement provides that for six years after the effective time of the merger and to the fullest extent permitted by law, Kratos will cause the
surviving corporation to honor all rights to indemnification for acts or omissions prior to the effective time of the merger existing in favor of SYS directors or officers as provided in SYS's
organizational documents and its indemnification agreements with such individuals. The merger agreement also provides that, prior to the effective time of the merger, SYS will purchase
six-year "tail" officers' and directors' liability insurance policies on terms and conditions no less favorable than SYS's existing directors' and officers' liability insurance. If SYS
cannot purchase these "tail" policies for 200% or less of the annual premium paid by SYS for its existing insurance, SYS will purchase as much insurance coverage as can be obtained within the 200%
cap. Kratos and the surviving corporation are obligated to maintain such tail policies in full force and effect and continue to honor their respective obligations thereunder for the full term thereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Amendment; Extension and Waiver  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to applicable law: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
merger agreement may be amended by the parties in writing at any time. However, after approval by Kratos' and SYS's stockholders of the transactions contemplated by the
merger
agreement, the merger agreement may not be amended in a manner that would require further approval by either party's stockholders unless the parties obtain such approval; and </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>88</FONT></P>

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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>at
any time before the completion of the merger, a party may extend the time for performance of any of the obligations or other acts of the other party to the merger
agreement, waive any inaccuracies in the representations and warranties of the other party or waive compliance by the other party with any agreement or condition in the merger agreement. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Governing Law  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The merger agreement is governed by and will be construed in accordance with the laws of the State of Delaware. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Voting Agreements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos Voting Agreement  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contemporaneously with the execution and delivery of the merger agreement, certain directors and executive officers of Kratos concurrently entered into voting
agreements with SYS, in the form attached as </FONT><FONT SIZE=2><I>Annex&nbsp;B</I></FONT><FONT SIZE=2> to this Proxy Statement, the form of which is incorporated by reference into this Proxy
Statement. According to the Kratos voting agreement, Kratos signatories in their individual capacity have agreed to vote in favor of the Share Issuance. The Kratos voting agreements apply to all
shares of Kratos common stock held by the signatories at the record date for the relevant Kratos stockholder meeting. The Kratos voting agreements restrict the transfer of shares by the signatories,
except under certain limited conditions. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>SYS Voting Agreement  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contemporaneously with the execution and delivery of the merger agreement, certain executive officers of SYS concurrently entered into voting agreements with
Kratos, in the forms attached as </FONT><FONT SIZE=2><I>Annex&nbsp;C</I></FONT><FONT SIZE=2> to this Proxy Statement. The forms of each voting agreement are incorporated by reference into this
Proxy Statement. All signatories of the voting agreements have agreed to vote in favor of the merger agreement and against any other proposal or offer to acquire SYS. The voting agreements apply to
all shares of SYS common stock held by the signatories at the record date for the SYS shareholder meeting. The voting agreements restrict the transfer of shares by the signatories, except under
certain limited conditions. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>89</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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<A NAME="toc_ds42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>INFORMATION ABOUT THE COMPANIES    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ds42501_kratos"> </A>
<A NAME="toc_ds42501_2"> </A></FONT> <FONT SIZE=2><B><I>KRATOS    <BR>    </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos was initially incorporated in the state of New York on December&nbsp;19, 1994, commenced operations in March 1995 and was reincorporated in Delaware in
1997. Kratos is an innovative provider of mission critical engineering, IT services and warfighter solutions. Kratos works primarily for the U.S. government and government agencies, but it also
performs work for state and local agencies and commercial customers. Kratos' principle services are related to, but are not limited to, Command, Control, Communications, Computing, Combat Systems
Intelligence, Surveillance and Reconnaissance, which we refer to as C5ISR, weapons systems lifecycle support and extension, military weapon range operations and technical services, missile and rocket
and weapons system test and evaluation, mission launch services, public safety, security and surveillance systems, advanced network engineering and information technology services, advanced IT
services, security and surveillance systems, and critical infrastructure design and integration services. Kratos offers its customers solutions and expertise to support their mission-critical needs by
leveraging its skills across its core service areas. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
derives a substantial portion of its revenue from contracts performed for federal government agencies, with the majority of its revenue currently generated from the delivery of
mission-critical warfighter solutions, advanced engineering services, system integration and system sustainment services to defense and other non-DoD (Department of Defense) and civilian
government agencies. Kratos believes its diversified and stable client base, strong client relationships, broad array of contracts, considerable employee base possessing government security
clearances, extensive list of past performance qualifications, and significant management and operational capabilities position it for continued growth. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Competitive Strengths  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos is well positioned to meet the rapidly evolving needs of federal government agencies for high-end engineering services, IT solutions and other
technical operations because it possesses the following key business strengths and performance qualifications: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Significant and Highly Specialized Experience  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through the existing customer engagements and with the government-focused acquisitions it has completed over the past several years, Kratos has amassed
significant and highly specialized experience in areas directly related to weapon systems life cycle extension and sustainment; missile, rocket and weapons test and evaluation; C5ISR; military range
operations and technical services and other highly differentiated services and solutions. This collective experience, or 'past performance qualifications,' is a requirement of the majority of contract
vehicles and customer engagements Kratos is involved in. Kratos believes this to be a significant barrier to entry and lends itself to advantageous positioning for long-term success. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>In-Depth Understanding of Client Missions  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has a history of providing mission-critical services and solutions to its clients, enabling the it to develop an in-depth understanding of
customer missions and technical needs. In addition, a significant number of Kratos employees are located at client sites, allowing for valuable strategic insight into clients' ongoing and future
program requirements. Additionally, Kratos' in-depth understanding of its client missions, in conjunction with the strategic location of its employees, enables Kratos to offer technical
solutions tailored to clients' specific requirements and consistent with their evolving mission objectives. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>90</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B><I>Diverse Base of Key Contract Vehicles  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of its business development focus on securing key contracts, Kratos is a preferred contractor on numerous multi-year
government-wide acquisition contracts and multiple award contracts that provide Kratos with the opportunity to bid on hundreds of millions of dollars of business against a discrete number
of other pre-qualified companies each year. These contracts include Seaport-e, GSA, Passive RFID EPC-1, PES, IT, LOG World, Mobis Millennia Lite, AMCOM Express,
Consolidated Acquisition of Professional Services, referred to as CAPS, Support Services for Aviation, Air Defense and Missile Systems, Systems Engineering and Technical Assistance Contract, and
Specialized Engineering, Development and Test Articles/Models. While the federal government is not obligated to make any awards under these vehicles, Kratos believes that holding preferred positions
on these contract vehicles provides an advantage when seeking to expand the level of services it provides to clients. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Strategic Geographic Locations and BRAC  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The federal government's Base Realignment and Closure, referred to as BRAC, Act of 2005 is the congressionally authorized process the Department of Defense has
implemented to reorganize its base structure to more efficiently and effectively support U.S. armed forces, increase operational readiness and facilitate new ways of doing business. As a result of the
DoD's BRAC transformation, Kratos has concentrated its business strategy on building a significant presence in key BRAC receiving locations where the federal government is relocating its personnel as
well as related technical and professional services. As Kratos continues to entrench in these key locations, it expects this to be a significant competitive advantage. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Highly Skilled Employees and an Experienced Management Team  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos delivers its services through a highly skilled workforce of approximately 1,500 full-time, part-time and on-call
employees in its on-going business. Kratos' senior managers have over 125&nbsp;years of collective experience with federal government agencies, the U.S. military, and Federal Government
contractors. Members of the Kratos Management Team have significant experience growing businesses organically, as well as through acquisitions. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
cumulative experience and differentiated expertise of Kratos' personnel in its core focus areas of C5ISR, weapons systems lifecycle extension and maintenance, missile and rocket test
and evaluation, along with its sizable employee base with government security clearances, allows Kratos to qualify for and bid on larger projects in the prime contracting role. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Services and Solutions  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos provides a range of integrated engineering, war fighter, security and information technology services and solutions by leveraging its core service
offerings: weapon systems life cycle support and extension; C5ISR; military range operations and technical services; missile and rocket test and evaluation; security systems integration; and advanced
network engineering and IT services. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Weapon Systems Life Cycle Support and Extension  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos provides weapon systems life cycle support and extension services for the DoD and foreign governments. These services focus on maintaining, testing and
repairing certain weapons systems for the war fighter. </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B><I>C5ISR (Command, Control, Communications, Computing, Combat Systems, Intelligence, Surveillance and Reconnaissance)  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the area of C5ISR, Kratos is involved in a wide range of services, including the installation, upgrade and maintenance of command, control, combat and
surveillance systems for customers such as Joint Inter Agency Task Force-south and the Naval Undersea Warfare Center, which we refer to as NUWC. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Military Range Operations and Technical Services  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A key area of differentiation for Kratos is within the range and technical service areas. Kratos has resources strategically located at virtually all major range
locations throughout the United States, including NAWC Pt. Mugu, Hawaii Pacific Missile Range, Fort Bliss, Texas, and White Sands Missile Range, New Mexico. The services of Kratos include aerial
targets operations and maintenance, surface targets operations and maintenance, missile systems operations and maintenance, range operations planning and support, hazardous materials management,
supply and logistics support, and manufacturing. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Missile and Rocket Test and Evaluation  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through the acquisition of Haverstick Consulting,&nbsp;Inc., Kratos acquired expertise in the area of missile and rocket test and evaluation services. This
includes exclusive rights to the design and manufacture of the motor on the Oriole Rocket System and ancillary hardware for sounding rockets, suborbital research and target services. Additionally,
this area of business develops and produces low-cost ballistic missile defense targets. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Security Systems Integration  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has broad experience integrating security services and solutions across a number of network and communications platforms. In particular, the
non-federal business of Kratos has long-standing experience and has developed significant customer relationships by providing best-in-class systems
integration services on a variety of platforms including digital (IP) surveillance and security, building automation systems and controls, fire and life safety systems, access control and perimeter
protection, and service and maintenance of the aforementioned systems. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Advanced Engineering&nbsp;&amp; IT Services  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos offers a full lifecycle of network engineering services to clients from the initial analysis of the requirements and design of the network through
implementation and testing of the solution, including the design of disaster recovery contingency plans. Kratos' network engineering capabilities include architecture development, design,
implementation, configuration, and operation of Local Area Networks (LAN), Metropolitan Area Networks (MAN) and Wide Area Networks (WAN). Kratos has extensive experience providing the following
network engineering services for federal government clients which allows it to rapidly identify potential bottlenecks, security threats and vulnerabilities, and address these potential issues with
cost-effective solutions in design, architecture, testing system, integration, deployment, security assessments, recovery plans, and certification. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
has comprehensive experience providing engineering services at any phase of a project lifecycle including program management, engineering design, systems engineering, C5I System
INCO, operations and maintenance, integrated logistics, test and evaluation, security/building mapping, propulsion research and development, advanced telecommunications, and warfare systems training. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to these services, Kratos also offers a range of IT services and solutions from conceptual network planning to system service and maintenance. Kratos has extensive experience </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>92</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>building
complex and secure networks for the federal government, and it possesses in-depth experience with network operations centers. Key services include network operations centers, help
desks, system maintenance, system upgrades, configuration management, data warehousing, COTS selection and integration, and high performance computing. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Corporate Strategy  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From a strategic perspective, the objective of Kratos is to aggressively grow its business as a leading provider of highly-differentiated services in its core
areas of focus as noted above by delivering comprehensive, high-end engineering services, technical solutions and information technology services to federal government agencies while
improving overall profitability. To achieve this objective, Kratos intends to: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Accelerate Internal Growth  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos is focused on accelerating its internal growth rate by capitalizing on its current contract base, expanding services provided to existing clients,
expanding the client base and offering new, complementary services. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Pursue Strategic Acquisitions  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos intends to supplement its organic growth by identifying, acquiring and integrating businesses that meet its primary objective of providing enhanced
capabilities in order to pursue a broader cross section of the DoD, DHS and other government markets, complement and broaden the existing client base and expand primary service offerings. The senior
management team of Kratos brings significant acquisition experience. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;31, 2007, Kratos completed the acquisition of Haverstick Consulting,&nbsp;Inc., an Indianapolis, Indiana based privately-held provider of rocket and
missile test and evaluation, weapons systems support, and professional services to the U.S. Army, U.S. Air Force, U.S. Navy, NASA, and other federal, state and local agencies. In addition, on
February&nbsp;20, 2008, Kratos entered into a
definitive merger agreement with San Diego-based C5ISR and net-centric warfare solutions provider SYS (AMEX:SYS) in a stock-for-stock transaction. These
acquisitions will significantly broaden the Kratos portfolio of customers, contract vehicles and past performance qualifications. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Customers  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A representative list of Kratos' customers within the Kratos Government Solutions (KGS) segment during 2007 included the U.S. Air Force, U.S. Army, U.S. Navy,
Missile Defense Agency, the Department of Homeland Security, NASA, FMS and the U.S. Southern Command. In the Kratos Public Safety and Security (PSS) segment, customers in 2007 included General
Electric, Atlanta's Hartsfield-Jackson Airport, Lockheed Martin, the City of Houston, Texas, and the Toyota Center. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Employees  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, including the employees from the Haverstick Consulting acquisition, Kratos employed approximately 1,500 full-time,
part-time and on-call employees. Kratos has one collective bargaining unit of approximately 22 employees which is represented by the International Association of
Machinists&nbsp;&amp; Aerospace Workers, AFL-CIO, White Sands Local Lodge 2515, Alamogordo, New Mexico. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>93</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Properties  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal executive offices for all business segments are located in approximately 93,000 square feet of office space in San Diego, California. The lease for
such space expires in April 2010. Other corporate resource offices are located in the following locations: Washington, D.C.; Marietta, Georgia; Newport, Delaware; Houston, Texas; Huntsville, Alabama;
Alexandria, Virginia; and Indianapolis, Indiana. We also lease office space to provide local support services to our customers in various regions throughout the United States. The leases on these
spaces expire at various times through August 2016. We continually evaluate our current and future space capacity in relation to current and projected future staffing levels. We believe that our
existing facilities are suitable and adequate to meet our current business requirements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Legal Proceedings  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>IPO Securities Litigation  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning in June 2001, Kratos and certain of its officers and directors were named as defendants in several parallel class action shareholder complaints filed in
the United States District Court for the Southern District of New York, now consolidated under the caption, </FONT><FONT SIZE=2><I>In re Wireless Facilities,&nbsp;Inc. Initial Public Offering
Securities Litigation</I></FONT><FONT SIZE=2>, Case No.&nbsp;01-CV-4779. In the amended complaint, the plaintiffs allege that Kratos, certain of its officers and directors,
and the underwriters of Kratos' initial public offering, or IPO, violated section&nbsp;11 of the Securities Act of 1933 and section&nbsp;10(b) of the Securities Exchange Act of 1934 based on
allegations that the Kratos registration statement and prospectus failed to disclose material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO
underwriters. The plaintiffs seek unspecified monetary damages and other relief. Similar complaints were filed in the same court against hundreds of other public companies, which we refer to as the
Issuers, that conducted IPOs of their common stock in the late 1990s and 2000. We refer to these cases as the IPO Cases. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2004, the Issuers, including Kratos, executed a settlement agreement with the plaintiffs that would, among other things, result in the dismissal with prejudice of all claims
against the Issuers and their officers and directors and the assignment of certain potential Issuer claims to the plaintiffs. On February&nbsp;15, 2005, the court issued a decision certifying a
class action for settlement purposes and granting preliminary approval of the settlement subject to modification of certain bar orders contemplated by the settlement. On August&nbsp;31, 2005, the
court reaffirmed class certification and preliminary approval of the modified settlement in a comprehensive Order. On February&nbsp;24, 2006, the court dismissed litigation filed against certain
underwriters in connection with certain claims to be assigned under the settlement. On April&nbsp;24, 2006, the court held a Final Fairness Hearing to determine whether to grant final approval of
the settlement. On December&nbsp;5, 2006, the Second Circuit Court of Appeals vacated the lower court's earlier decision certifying as class actions the six IPO Cases designated as "focus cases."
Thereafter, the District Court ordered a stay of all proceedings in all of the IPO Cases pending the outcome of plaintiffs' petition to the Second Circuit for rehearing en banc and resolution of the
class certification issue. On April&nbsp;6, 2007, the Second Circuit denied plaintiffs' rehearing petition, but clarified that the plaintiffs may seek to certify a more limited class in the District
Court. Accordingly, the stay remains in place and the plaintiffs and Issuers have stated that they are prepared to discuss how the settlement might be amended or renegotiated to comply with the Second
Circuit's decision. Plaintiffs filed amended complaints in the six focus cases on or about August&nbsp;14, 2007. On September&nbsp;27, 2007, Plaintiffs filed a motion for class certification in
the six focus cases. On November&nbsp;13, 2007, the Issuer Defendants filed a motion to dismiss the amended complaints in the six focus cases. On November&nbsp;14, 2007, the Underwriter Defendants
filed a motion to dismiss the amended complaints in the six focus cases. The court has not yet set a deadline for the plaintiffs to file amended complaints in the other IPO lawsuits. Due to the
inherent uncertainties of litigation, and because the settlement may not receive final approval from the Court, the ultimate outcome of this </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>94</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>matter
cannot be predicted. In accordance with FASB No.&nbsp;5, </FONT><FONT SIZE=2><I>"Accounting for Contingencies"</I></FONT><FONT SIZE=2> Kratos believes any contingent liability related to
this claim is not probable or estimable and therefore no amounts have been accrued in regards to this matter. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>2004 Securities Litigation  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2004, following its announcement on August&nbsp;4, 2004 that Kratos intended to restate its financial statements for the fiscal years ended
December&nbsp;31, 2000, 2001, 2002 and 2003, Kratos and certain of its current and former officers and directors were named as defendants, which we refer to as the Defendants, in several securities
class action lawsuits filed in the United States District Court for the Southern District of California. These actions were filed on behalf of those who purchased, or otherwise acquired, Kratos'
common stock between April&nbsp;26, 2000 and August&nbsp;4, 2004. The lawsuits generally allege that, during that time period, Defendants made false and misleading statements to the investing
public about Kratos' business and financial results, causing its stock to trade at artificially inflated levels. Based on these allegations, the lawsuits allege that Defendants violated the Securities
Exchange Act of 1934, and the plaintiffs seek unspecified damages. These actions have been consolidated into a single action&#151;</FONT><FONT SIZE=2><I>In re Wireless Facilities,&nbsp;Inc.
Securities Litigation,</I></FONT><FONT SIZE=2> Master File No.&nbsp;04CV1589-JAH. Plaintiffs filed a First Amended Consolidated Class Action Complaint on April&nbsp;1, 2005. Defendants
filed their motion to dismiss this first amended complaint on April&nbsp;14, 2005. The plaintiffs then requested leave to amend their first amended complaint. The plaintiffs filed their Second
Amended Complaint on June&nbsp;9, 2005, this time on behalf of those who
purchased, or otherwise acquired, Kratos' common stock between May&nbsp;5, 2003 and August&nbsp;4, 2004. Defendants filed their motion to dismiss this Second Amended Complaint on July&nbsp;14,
2005. The motion to dismiss was taken under submission on October&nbsp;20, 2005 and on March&nbsp;8, 2006, the Court granted the Defendants' motion. However, plaintiffs were granted the right to
amend their complaint within 45&nbsp;days and subsequently filed their Third Amended Consolidated Class Action Complaint on April&nbsp;24, 2006. Defendants filed a motion to dismiss this complaint
on June&nbsp;8, 2006. On May&nbsp;7, 2007, the Court denied the Defendants' motion to dismiss. Defendants' filed their answer to the plaintiffs' complaint on July&nbsp;13, 2007. In February
2008, following a voluntary mediation of the matter, the parties reached a tentative agreement to settle the class action. Under the tentative settlement, plaintiffs and the class will dismiss all
claims, with prejudice, in exchange for a cash payment in the total amount of $12&nbsp;million. The Kratos directors' and officers' liability insurers will pay the settlement amount in accordance
with the Kratos insurance policies, less any applicable retention or co-insurance obligations that are expected to be paid directly by Kratos. Kratos estimates that the amount of its
payment toward the settlement will be approximately $2.4&nbsp;million. Kratos has accrued approximately $2.4&nbsp;million as of December&nbsp;31, 2007 related to this matter. The parties
currently are in the process of documenting their agreement and then will seek a determination by the Court that the proposed settlement is fair, reasonable and adequate. Kratos makes no assurances at
this time that the Court will approve the proposed settlement terms or that the matter ultimately will be settled. Despite the tentative settlement reached in this action, Kratos believes that the
allegations lack merit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2004, two derivative lawsuits were filed in the United States District Court for the Southern District of California against certain of the current and former officers and directors
of Kratos: </FONT><FONT SIZE=2><I>Pedicini v. Wireless Facilities,&nbsp;Inc.,</I></FONT><FONT SIZE=2> Case No.&nbsp;04CV1663; and </FONT><FONT SIZE=2><I>Roth v. Wireless
Facilities,&nbsp;Inc.,</I></FONT><FONT SIZE=2> Case No.&nbsp;04CV1810. These actions were consolidated into a single action in </FONT><FONT SIZE=2><I>In re Wireless Facilities,&nbsp;Inc.
Derivative Litigation</I></FONT><FONT SIZE=2>, Lead Case No 04CV1663-JAH. These lawsuits contain factual allegations that are substantially similar those made in the class action lawsuits,
but the plaintiffs in these lawsuits assert claims for breach of fiduciary duty, gross mismanagement, abuse of control, waste of corporate assets, violation of Sarbanes Oxley Act section&nbsp;304,
unjust enrichment and insider trading. The plaintiffs in these lawsuits seek unspecified damages and equitable and/or injunctive relief. The lead plaintiff filed a consolidated complaint on
March&nbsp;21, 2005. On May&nbsp;3, 2005, the defendants filed motions to dismiss this action, to stay this action pending the resolution of the consolidated non-derivative securities
case pending in the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>95</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>Southern
District of California, and to dismiss the complaint against certain non-California resident defendants. Pursuant to a request by the Court, Defendants' motions were withdrawn
without prejudice pending a decision on defendants' motion to dismiss the complaint against the non-California resident defendants. On March&nbsp;20, 2007, the Court ruled that it lacked
personal jurisdiction over five of the six non-California defendants and dismissed them from the federal derivative complaint. On March&nbsp;27, 2007, plaintiffs filed an amended
derivative complaint setting forth all of the same allegations from the original complaint and adding allegations regarding Kratos' stock option granting practices. Basically, plaintiffs allege that
Kratos "backdated" or "springloaded" employee stock option grants so that the options were granted at less than fair market value. The amended complaint names all of the original defendants (including
those dismissed for lack of jurisdiction) as well as nine new defendants. On July&nbsp;2, 2007, the non-California resident defendants moved to dismiss the complaint for lack of personal
jurisdiction. On October&nbsp;17, 2007, the Court took the motion under submission without oral argument. On February&nbsp;26, 2008, the Court again ruled that it lacked personal jurisdiction over
five of the six non-California defendants and dismissed them from the amended federal derivative complaint. The parties have conferred and discussed the Court's order and have stipulated
to a briefing schedule for any remaining motions to dismiss that Kratos, along with the individual defendants subject to the court's jurisdiction, may bring in an effort to dismiss the </FONT> <FONT SIZE=2><I>Hameed</I></FONT><FONT SIZE=2> Action as
to them. Pursuant to the parties' stipulation, such motions must be brought on or before June&nbsp;5, 2008. Kratos believes that the
allegations lack merit and intends to vigorously defend all claims asserted. It is impossible at this time to assess whether or not the outcome of these proceedings will or will not have a material
adverse effect on Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April 2007, another derivative complaint was filed in the United States District Court for the Southern District of California, </FONT><FONT SIZE=2><I>Hameed v.
Tayebi</I></FONT><FONT SIZE=2>, Case No.&nbsp;07-CV-0680 BTM(RBB), which we refer to as the "</FONT><FONT SIZE=2><I>Hameed</I></FONT><FONT SIZE=2> Action", against several
of the current and former officers and directors of Kratos. The allegations in this new derivative complaint mirror the amended allegations in the 2004 federal derivative action. Pursuant to the
Court's order and agreement of the parties, the defendants' responses to the complaint in the </FONT><FONT SIZE=2><I>Hameed</I></FONT><FONT SIZE=2> Action were stayed until the Court ruled on the
motion to dismiss for lack of personal jurisdiction in the 2004 derivative litigation. As noted above, on February&nbsp;26, 2008, the Court ruled that it lacked personal jurisdiction over five of
the non-California defendants named in the 2004 derivative action, including three that were also named in the </FONT><FONT SIZE=2><I>Hameed</I></FONT><FONT SIZE=2> Action. The parties
have conferred and discussed the Court's order and have stipulated a briefing schedule for any remaining motions to dismiss that Kratos, along with the individual defendants subject to the court's
jurisdiction, may bring in an effort to dismiss the </FONT><FONT SIZE=2><I>Hameed </I></FONT><FONT SIZE=2>Action as to them. Pursuant to the parties' stipulation, such motions must be brought on or
before
June 5, 2008. Kratos believes that the allegations lack merit and intends to vigorously defend all claims asserted. Currently, Kratos is unable to form&nbsp;a professional judgment that an
unfavorable outcome is either probable or remote. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
August and September 2004, two virtually identical derivative lawsuits were filed in California Superior Court for San Diego County against certain of the current and former officers
and directors of Kratos. These actions contain factual allegations similar to those of the federal lawsuits, but the plaintiffs in these cases assert claims for violations of California's insider
trading laws, breaches of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment. The plaintiffs in these actions seek unspecified damages, equitable
and/or injunctive relief and disgorgement of all profits, benefits and other compensation obtained by defendants. These lawsuits have been consolidated into one
action&#151;</FONT><FONT SIZE=2><I>In re Wireless Facilities,&nbsp;Inc. Derivative Litigation,</I></FONT><FONT SIZE=2> California Superior Court, San Diego County, Lead Case No. GIC 834253.
The plaintiffs filed a Consolidated Shareholder Derivative Complaint on October&nbsp;14, 2004. This action has been stayed pending a decision in federal court on a motion to dismiss the federal
derivative lawsuits. In October 2007, the parties notified the Court of the status of the federal action and requested the court continue its stay of this action. Kratos anticipates that the court
will continue to stay this matter and that the court will request the parties file an updated status report in April 2008. Kratos believes that the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>96</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>allegations
lack merit and intends to vigorously defend all claims asserted. It is impossible at this time to assess whether or not the outcome of these proceedings will or will not have a material
adverse effect on Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
has recorded an accrual for a contingent liability associated with the legal proceedings related to the derivative actions of $0.8&nbsp;million based on its estimate of the
potential amount it would have to pay, net of estimated amounts to be paid by the insurance carriers of Kratos, in relation to these lawsuits. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>2007 Securities Litigation  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March and April 2007, there were three federal class actions filed in the United States District Court for the Southern District of California against Kratos
and several of its current and former officers and directors. These class action lawsuits followed the March&nbsp;12, 2007 public announcement by Kratos that it was conducting a voluntary internal
review of its stock option granting processes. These actions have been consolidated into a single action, </FONT><FONT SIZE=2><I>In re Wireless Facilities,&nbsp;Inc. Securities Litigation
II</I></FONT><FONT SIZE=2>, Master File No.&nbsp;07-CV-0482-BTM-NLS. The consolidated class action complaint was filed on November&nbsp;19, 2007. In
March 2008, following a voluntary mediation of the matter, the parties reached a tentative agreement to settle the class action. Under the settlement proposal, plaintiffs and the class will dismiss
all claims, with prejudice, in exchange for a cash payment in the amount of $4.5&nbsp;million. The Kratos directors' and officers' liability insurers will pay the settlement amount, less any
applicable retention or co-insurance obligations and contributions that are expected to be paid directly by Kratos. Kratos estimates that the
total amount of its payment toward the settlement will be approximately $1.7&nbsp;million. Kratos has accrued approximately $1.7&nbsp;million as of December&nbsp;31, 2007 related to this matter.
The parties currently are in the process of documenting their agreement, and then will seek a determination by the Court that the proposed settlement is fair, reasonable and adequate. Kratos makes no
assurances at this time that the Court will approve the proposed settlement terms or that the matter ultimately will be settled. Despite the tentative settlement reached in this action, Kratos
believes that the allegations lack merit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Other Litigation and Government Investigations  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2005, a former independent contractor of Kratos filed a lawsuit in Brazil against WFI de Brazil, a subsidiary of Kratos to which he had been assigned
for a period of time. He sought to be designated an employee of WFI de Brazil and entitled to severance and related compensation pursuant to Brazilian labor law. The individual sought back wages,
vacation pay, stock option compensation and related benefits in excess of $0.5&nbsp;million. In July 2006, the labor court awarded the individual back wages, vacation pay and certain other benefits.
Kratos filed an appeal in the matter on July&nbsp;20, 2006. On August&nbsp;22, 2007, the appeals court partially upheld the appeal, although it upheld the individual's designation as an employee.
The labor court has awarded the individual the Brazilian currency equivalent of approximately $0.6&nbsp;million (based on the current currency exchange rate). Counsel of Kratos has filed motions for
clarification of the judgment due to omissions in the decision. Kratos has accrued approximately $0.6&nbsp;million as of December&nbsp;31, 2007 related to this matter. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
March&nbsp;28, 2007, three plaintiffs, on behalf of a purported class of similarly situated employees and contractors, filed a lawsuit against Kratos in the Superior Court of the
State of California, Alameda County. The suit alleges various violations of the California Labor Code and seeks payments for allegedly unpaid straight time and overtime, meal period pay and associated
penalties. Kratos and the plaintiffs have agreed to venue for the suit in San Diego County. Although Kratos believes that the allegations lack merit, it has agreed in principle with the plaintiffs to
settle their claims for an aggregate amount in the range of $0.3&nbsp;million to $0.5&nbsp;million, to include individual and incentive awards, attorneys' fees and administrative costs, subject to
court approval. The actual amount paid by Kratos will depend upon the number of responses received from members of the purported class of </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>97</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_ds42501_1_98"> </A>
<BR>

<P style="font-family:times;"><FONT SIZE=2>plaintiffs.
Kratos has recorded an accrual for a contingent liability associated with this legal proceeding in the amount of $0.3&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
May&nbsp;3, 2007, Kratos announced that it had a filed a lawsuit against a former employee who previously served as its stock option administrator and left Kratos in
mid-2004, and his spouse. The lawsuit sought to recover damages resulting from the theft by a former employee of Kratos stock options and common stock valued in excess of
$6.3&nbsp;million. The thefts, which appear to have taken place during 2002 and 2003, were discovered through the Kratos review of its past practices related to the granting and pricing of employee
stock options with the assistance of its outside counsel and forensic computer consultants. The complaint also alleged that the former employee attempted to cover up the scheme by, among other things,
deleting entries from the records of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
promptly reported to the SEC the discovery of the theft. The SEC initiated an informal inquiry and commenced an enforcement action against the former employee. The U.S. Attorney's
Office also forwarded a grand jury subpoena to Kratos seeking records related to the former employee and Kratos' historical option granting practices. The SEC filed a federal lawsuit and obtained a
temporary restraining order and asset freeze against the former employee and his spouse. The U.S. Attorney's Office indicted him for the theft and he pled guilty to federal criminal charges and has
been sentenced to 46&nbsp;months in prison and currently is incarcerated. On April 1, 2008, the SEC notified Kratos that it had completed its informal investigation and that it did not intend to
recommend any enforcement action by the SEC against the Company. Kratos has cooperated with, and intends to continue to cooperate with the U.S. Attorney's Office on this matter and otherwise. The
former employee and his wife entered into a settlement agreement with Kratos on October&nbsp;5, 2007, turning over substantially all of their assets to Kratos in settlement of the damages incurred
in the theft. On February&nbsp;15, 2008, the SEC approved the settlement. On February&nbsp;19, 2008, the court entered a final judgment approving the settlement. Kratos has obtained the assets,
which aggregate approximately $3.4&nbsp;million, and is in the process of liquidating them. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to the foregoing matters, from time to time, Kratos may become involved in various claims, lawsuits and legal proceedings that arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm Kratos' business. Kratos is currently not aware of
any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos' common stock is listed on the NASDAQ Global Select Market and has traded under the symbol "KTOS" since September&nbsp;17, 2007. Kratos' common stock
traded under the symbol "WFII" from November&nbsp;5, 1999 through September&nbsp;14, 2007. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>98</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_ds42501_1_99"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth the high and low sales prices for Kratos' common stock for the periods indicated, as reported by NASDAQ. Such quotation represents inter-dealer prices
without retail markup, markdown or commission and may not necessarily represent actual transactions. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>High</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Low</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Year Ended December&nbsp;31, 2007:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.04</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.91</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.75</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.73</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.74</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.07</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.85</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.24</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
Year Ended December&nbsp;31, 2006:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.88</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.00</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.93</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.91</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.53</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.75</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.52</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.88</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
April&nbsp;8, 2008 the last sale price of Kratos' common stock as reported by NASDAQ was $1.83 per share. On April&nbsp;8, 2008, there were 214 shareholders of record of Kratos'
common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
has not declared any cash dividends since becoming a public company. Kratos currently intends to retain any future earnings to finance the growth and development of the business
and, therefore, do not anticipate paying any cash dividends in the foreseeable future. In addition, Kratos credit facility restricts its ability to pay dividends. Any future determination to pay cash
dividends will be at the discretion of Kratos' board of directors and will be dependent upon the future financial condition, results of operations, capital requirements, general business conditions
and other relevant factors as determined by Kratos' board of directors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Securities Authorized for Issuance Under Equity Compensation Plans  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information about Kratos' equity compensation plans as of December&nbsp;31, 2007 is as follows (shares in thousands): </FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Plan Category</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of<BR>
Securities to be<BR>
Issued Upon<BR>
Exercise of<BR>
Outstanding<BR>
Options,<BR>
Warrants and<BR>
Rights</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted<BR>
Average Exercise<BR>
Price of<BR>
Outstanding<BR>
Options,<BR>
Warrants and<BR>
Rights</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of<BR>
Securities<BR>
Remaining<BR>
Available for<BR>
Future Issuance</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Equity Compensation Plans Approved by Shareholders(1)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,019</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.62</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,321</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>(3)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Equity Compensation Plans Not Approved by Shareholders(2)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,318</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.86</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,110</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,337</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,431</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
1997 Stock Option Plan, 1999 and 2005 Equity Incentive Plan and 1999 Employee Stock Purchase Plan
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
2000 Non-Statutory Stock Option Plan
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
351,811 shares reserved for issuance under the Employee Stock Purchase Plan which was suspended in 2006. </FONT></DD></DL>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
more detailed information regarding Kratos' equity compensation plans, see Note&nbsp;10 to Kratos' Consolidated Financial Statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>99</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_ds42501_1_100"> </A>

<P style="font-family:times;"><FONT SIZE=2><B>Performance Graph  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following performance graph is a comparison of the five year cumulative stockholder return on Kratos' common stock against the cumulative total return of the
NASDAQ Composite Index, the NASDAQ Telecommunications Index and a peer group composed of the Russell 2000 Stock Index and SYS Technologies, NCI,&nbsp;Inc., Stanley,&nbsp;Inc., SI
International,&nbsp;Inc., MTC Technologies,&nbsp;Inc., and Dynamic Research Corporation for the period commencing December&nbsp;31, 2002 and ending December&nbsp;31, 2007. The performance
graph assumes an initial investment of $100 in Kratos' common stock and in each of the indices and peer group. The comparison also assumes that all dividends are reinvested and all returns are
market-cap weighted. The historical information set forth below is not necessarily indicative of future performance. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ds42501_comparison_of_5_year_cumulativ__com06893"> </A>
<A NAME="toc_ds42501_3"> </A>
<BR></FONT><FONT SIZE=2><B>COMPARISON OF&nbsp;5 YEAR CUMULATIVE TOTAL RETURN*<BR>  </B></FONT><FONT SIZE=2>Among Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc. The NASDAQ Composite Index,<BR>  The NASDAQ Telecommunications Index And A Peer
Group    <BR></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>
<IMG SRC="g89400.jpg" ALT="GRAPHIC" WIDTH="637" HEIGHT="424">
  </B></FONT></P>

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>$100
invested on 12/31/02 in stock or index-including reinvestment of dividends. </FONT></DD></DL>

<P style="font-family:times;"><FONT SIZE=2>Fiscal
year ending December&nbsp;31. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
performance graph above and related text are being furnished solely to accompany this proxy statement/prospectus pursuant to Item&nbsp;201(e) of Regulation&nbsp;S-K,
and are not being filed for purposes of Section&nbsp;18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of ours, whether made before
or after the date hereof, regardless of any general incorporation language in such filing. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>100</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><A
NAME="page_du42501_1_101"> </A>


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 </FONT> <FONT SIZE=2><B>Selected Financial Data  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the Engineering and Deployment Services divestitures in June and July 2007, respectively, the Wireless Network Services segment has been classified
as a discontinued operation in this Proxy Statement and all prior year results presented herein have been reclassified to reflect these businesses as discontinued operations in accordance with SFAS
No.&nbsp;144, "Accounting for the Impairment or Disposal of Long-Lived Assets." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 2005, Kratos' Board made the decision to exit Kratos' Mexican and South American deployment businesses. In December 2006, Kratos' Board made the decision to exit Kratos' EMEA
and Brazilian businesses. Accordingly, all results of operations for these businesses have been reflected as discontinued operations for all years presented. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
selected consolidated financial data has been restated as a result of the discontinued businesses. The following selected consolidated financial data should be read in conjunction
with Kratos' Consolidated Financial Statements and related Notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" which are included in this
Proxy Statement. Kratos' historical results are not necessarily indicative of operating results to be expected in the future. </FONT></P>

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<TABLE WIDTH="93%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(All amounts except per share data in millions)<BR> </B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Consolidated Statements of Operations Data:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>116.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>152.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>153.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>36.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Operating income (loss) from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(13.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(31.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(24.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Provision (benefit) for income taxes from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Income (loss) from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(46.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(28.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Income (loss) from discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(57.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(40.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income (loss) from continuing operations per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.63</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.38</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.63</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.38</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income (loss) from discontinued operations per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.34</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.17</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.34</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.17</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net income (loss) per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.79</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.55</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.79</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.55</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Weighted average shares:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>68.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>73.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>68.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>73.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>101</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=111,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=830690,FOLIO='101',FILE='DISK112:[08ZAT1.08ZAT42501]DU42501A.;33',USER='KSOLTER',CD=';8-APR-2008;23:02' -->
<A NAME="page_du42501_1_102"> </A>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="100%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="92%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>As of December&nbsp;31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(All amounts in millions)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Consolidated Balance Sheet Data:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Short-term investments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Working capital</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>132.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>98.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.4</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>279.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>330.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>342.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>337.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>335.3</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Short-term debt</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>51.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.7</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Long-term debt</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Total stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>191.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>219.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>229.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>187.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>167.2</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
amounts in the selected consolidated financial data above have been reclassified to conform to the 2007 presentation. See Note&nbsp;1 of Notes to Consolidated Financial
Statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
should read this selected consolidated financial data together with the Consolidated Financial Statements and related Notes contained in this proxy statement/prospectus, as well as
the section of this proxy statement/prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&amp;A")  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>This Proxy Statement contains forward-looking statements. These statements relate to future events or Kratos' future financial
performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or
"continue," the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Factors that may cause Kratos' results to
differ include, but are not limited to: changes in the scope or timing of Kratos' projects; changes or cutbacks in spending by the U.S. Department of Defense which could cause delays or cancellations
of key government contracts; the timing, rescheduling or cancellation of significant customer contracts and agreements, or consolidation by or the loss of key customers; failure to successfully
consummate acquisitions or integrate acquired operations; the rate of growth of adoption of WLAN and wireless security systems by enterprises; and competition in the marketplace which could reduce
revenues and profit margins.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Although Kratos' believes that the expectations reflected in the forward-looking statements are reasonable, Kratos cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither Kratos, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. Kratos is under no
obligation to update any of the forward-looking statements after the filing of its Annual Report on Form&nbsp;10-K to conform such statements to actual results or to changes in Kratos'
expectations.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Certain of the information set forth herein, including costs and expenses that exclude the impact of stock compensation expense, amortization expense of purchased
intangibles for 2006 and 2007, and the stock option investigation and related costs in 2007, may be considered non-GAAP financial measures. Kratos' believes this information is useful to
investors because it provides a basis for measuring the operating performance of our business and our cash flow, excluding the effect of stock compensation expense that would normally be included in
the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles. Kratos' management uses these non-GAAP financial measures along
with the most directly comparable GAAP financial measures in evaluating its operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in
isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-financial measures we report may not be comparable to similarly titled amounts
reported by other companies.</I></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>102</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes and other financial information
appearing elsewhere in this proxy statement/prospectus and other reports and filings made with the Securities and Exchange Commission. Readers are also urged to carefully review and consider the
various disclosures made by Kratos which attempt to advise interested parties of the factors which affect Kratos' business, including without limitation the disclosures made under the section Risk
Factors.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Overview  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos provides mission critical engineering, IT services and warfighter solutions to the U.S. Government and government agencies, as well as to state and local
agencies and commercial customers. Kratos is an innovative provider of mission critical engineering, IT services and warfighter solutions. Kratos' principal services are related to, but are not
limited to, Command, Control, Communications, Computing, Combat Systems Intelligence, Surveillance and Reconnaissance, which we refer to as C5ISR, weapons systems lifecycle support and extension,
military weapon range operations and technical services, missile, rocket and weapon test and evaluation, mission launch services, public safety, security and surveillance, advanced network engineering
services and IT services, and critical infrastructure design and integration services. Kratos offer our customers solutions and expertise to support their mission-critical needs by leveraging its
skills across these core service areas. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically,
the majority of Kratos' business was concentrated in the area of wireless network services, and Kratos' business operated in three reportable segments: wireless network
services, government network services, and enterprise network services. In 2006, Kratos was an independent provider of outsourced engineering and network deployment services, security systems
engineering and integration
services and other technical services for the wireless communications industry, the U.S. government, and enterprise customers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2006 and 2007, Kratos undertook a transformation strategy whereby it divested its wireless-related businesses and chose to aggressively pursue business with the federal government,
primarily the U.S. Department of Defense, through strategic acquisitions and organic growth. Kratos divested assets in its wireless network services segment and renamed its enterprise network services
segment "Public Safety and Security." Today, under the new corporate name of Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., Kratos is organized into two primary operating segments: Kratos
Government Solutions and Public Safety&nbsp;&amp; Security. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Divestiture of Wireless Network Business  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2005, Kratos' Board made the decision to exit Kratos' Mexican operations and certain of its other deployment businesses in South America. Prior to
this decision, these operations had been reported in Kratos' Wireless Network Services segment. Kratos determined that these operations met the criteria to be classified as held for sale. Accordingly,
Kratos reflected these operations as discontinued in accordance with SFAS No.&nbsp;144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Kratos' South American
deployment operations were substantially shut down as of the end of 2005. Accordingly, all results for these operations for all periods presented have been reflected as discontinued. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;17, 2006, Kratos entered into a definitive agreement to divest all of its operations in Mexico for total approximate cash consideration of $18.0&nbsp;million, which
approximated the net book value of the operations, including $13.2&nbsp;million of liabilities associated with a loss contingency. The transaction closed on March&nbsp;10, 2006. The transaction
was structured as a sale of our subsidiaries in Mexico, and the purchase price consisted of $1.5&nbsp;million in cash paid on February&nbsp;17, 2006, plus a secured promissory note payable in
installments through December&nbsp;31, 2006. The note was secured by pledges of assets and a personal guaranty. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>103</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
final closing balance sheet as of February&nbsp;17, 2006 resulted in net asset adjustments aggregating to a total approximate $18.9&nbsp;million consideration,
$1.5&nbsp;million of which was paid on February&nbsp;17, 2006, with the remaining $17.4&nbsp;million payable by means of the promissory note in installments through December&nbsp;31, 2006 with
an interest rate of 7.5% per annum. The remaining note receivable balance was paid in December 2006. No amounts remain outstanding on the note receivable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
purchaser, Sakoki&nbsp;LLC, was a newly-formed entity controlled by Massih Tayebi. Although Massih Tayebi has no current role with Kratos, he was one of its co-founders
and served as its Chief Executive Officer from inception in 1994 through September 2000, and as a director from inception through April 2002. In addition, as of July&nbsp;31, 2007, Massih Tayebi
owned or controlled approximately 8.2% of the total voting power of Kratos' capital stock. He is also the brother of Masood Tayebi, who was the Chairman of Kratos' Board at the time of this
transaction. Masood Tayebi is no longer on Kratos' Board and had no personal financial interest in the transaction and no role with the entity that purchased the Mexico operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
October&nbsp;2, 2006, Kratos consummated the acquisition of Madison Research Corporation, which we refer to as MRC, for $69.0&nbsp;million in cash, subject to an adjustment paid
in April 2007 which increased the total purchase price to approximately $73.8&nbsp;million, including transaction costs of $0.2&nbsp;million. Ten percent of the purchase price before adjustment,
or $6.9&nbsp;million, was withheld as security for satisfaction of certain indemnification obligations and payable over eighteen months following the closing date of the merger pursuant to the terms
of the merger agreement. In April 2007, approximately $1.5&nbsp;million of the holdback was released and paid to the former shareholders of MRC. In October 2007, a second scheduled holdback payment
of $2.8&nbsp;million was made. The remaining holdback payment of approximately $2.3&nbsp;million is expected to be settled in April 2008 subject to the resolution of certain indemnification
matters. The acquisition was funded by cash on hand and cash from Kratos' previous $85&nbsp;million Credit Facility with Key Bank National Association. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
MRC acquisition has been accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No.&nbsp;141, "Business Combinations"
which we refer to as SFAS&nbsp;141, whereby the total cost of the acquisition has been allocated to tangible and intangible assets acquired and liabilities assumed based upon a determination of fair
values at the effective date of the acquisition. A valuation was performed by an independent appraiser to finalize the purchase price allocation based upon the fair value of the assets and liabilities
acquired and the details of this valuation are included in Note&nbsp;6 of our Consolidated Financial Statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;28, 2006, Kratos' Board approved a plan to divest portions of Kratos' business where critical mass had not been achieved. This plan involved the divestiture of Kratos'
EMEA operations and Kratos' remaining South American operations. The EMEA operations were sold to LCC International,&nbsp;Inc., which we refer to as LCC, on March&nbsp;9, 2007 for
$4.0&nbsp;million in cash, $3.3&nbsp;million of which was received on that date. Kratos also received approximately $1.8&nbsp;million from our EMEA operations prior and subsequent to the closing
date as payment on outstanding intercompany debt. The balance of the $0.7&nbsp;million sales price is being withheld as security for the satisfaction of certain indemnification obligations and is
payable on a date that is the earlier of March&nbsp;31, 2008 or the date that the buyer files its 10-K for the fiscal year ended December&nbsp;31, 2007. Based upon its review of the
most recently available financial statements of the buyer, as of December&nbsp;31, 2007, Kratos has concern about its ability to pay this holdback, due to their available liquidity. Kratos has
recorded a reserve of $0.7&nbsp;million for this receivable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
recorded an impairment charge of $5.2&nbsp;million in the fourth quarter of 2006 to reduce the current carrying value of its South American operations to their estimated fair
value based upon current indications of interest. On April&nbsp;20, 2007, Kratos entered into an Equity Purchase Agreement to sell all of the issued and outstanding equity of its interests of its
wholly-owned subsidiary WFI de Brazil Techlogia en Telecomunicaciones&nbsp;LTDA to Strategic Project Services,&nbsp;LLC (SPS). The </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>104</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>consideration
included the assumption of substantially all outstanding liabilities of WFI Brazil, nominal cash consideration, and additional earn-out consideration based on
25&nbsp;percent of net receivables collected subsequent to the closing date. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
May&nbsp;29, 2007, Kratos entered into an Asset Purchase Agreement with LCC for the sale of all of the assets used in the conduct of the operation of its engineering services
business of Kratos' Wireless Network Services segment that provided engineering services to the non-government wireless communications industry in the United States, for aggregate
consideration in of $46&nbsp;million. LCC delivered a subordinated promissory note for the principal amount of $21.6&nbsp;million, which we refer to as the Subordinated Promissory Note, paid
$17&nbsp;million at closing and paid final working capital adjustments of $2.4&nbsp;million through an amendment to the Subordinated Promissory Note. Kratos retained an estimated
$5.0&nbsp;million in net working capital. The transaction was completed on June&nbsp;4, 2007. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July&nbsp;5, 2007, Kratos sold the $21.6&nbsp;million Subordinated Promissory Note to Silver Point Capital,&nbsp;L.P., which we refer to as Silver Point, in a transaction
arranged by KeyBanc Capital Markets, which we refer to as KeyBanc. Kratos received approximately $19.6&nbsp;million in net cash proceeds, reflecting a discount from par value of less than five
percent and aggregate transaction fees of approximately $1&nbsp;million, which includes a $0.75&nbsp;million fee to KeyBanc, an affiliate of Kratos' lender. On January&nbsp;30, 2008, Kratos
received net proceeds of approximately $2.3&nbsp;million on the working capital adjustment from Silver Point, net of a $0.1&nbsp;million discount from par value. Kratos did not provide any
guaranty for LCC's payment obligations for the note. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July&nbsp;9, 2007, Kratos entered into a definitive agreement with an affiliate of Platinum Equity to sell the deployment services business of Kratos' wireless network services
segment for total consideration payable of $24&nbsp;million, including $18&nbsp;million in cash at closing (subject to typical post closing working capital adjustments) and an aggregate
$6&nbsp;million in a three-year earn-out arrangement. Kratos also agreed to provide certain transition services for a period of six months. The assets sold to Platinum Equity
included all of Kratos' wireless deployment business and the Wireless Facilities name. The transaction closed on July&nbsp;24, 2007. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
September&nbsp;25, 2007, Kratos provided the working capital calculation to Platinum Equity, which indicated a working capital adjustment was due to Platinum primarily due to cash
collected on accounts receivables by Kratos prior to the close of the transaction that exceeded its previous estimate of working capital to be delivered to Platinum. Platinum has reviewed Kratos'
working capital calculation, and Kratos have not been able to come to an agreement on the working capital adjustment. In accordance with the terms of the acquisition agreement, Kratos and Platinum are
currently in the
process of choosing a firm to resolve this item. As of December&nbsp;31, 2007 the balance of Kratos' calculation has been reflected in other current liabilities. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of the engineering and deployment services divestitures in 2007, the Wireless Network Services segment has been classified as a discontinued operation in this Proxy Statement
and all prior year results presented herein have been reclassified to reflect these businesses as discontinued operations in accordance with SFAS No.&nbsp;144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Recent Acquisitions  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2007 Kratos completed its acquisition of Indianapolis, Indiana headquartered Haverstick Consulting,&nbsp;Inc., which we refer to as
Haverstick, as part of Kratos' Government Solutions Segment. Haverstick provides rocket and missile test and evaluation, weapons systems support, and professional services to the U.S. Army, U.S. Air
Force, U.S. Navy, NASA, and other federal, state and local agencies. Through the Haverstick acquisition, Kratos expanded its customer relationship within the DoD and enhanced its presence with the
U.S. Air Force, a key growth area for Haverstick. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>105</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
total purchase price was $90.2&nbsp;million including transaction costs incurred by Kratos of $0.5&nbsp;million. The purchase price paid to Haverstick of $89.7&nbsp;million was
paid in a combination of $70.3&nbsp;million of cash and common stock valued at $19.4&nbsp;million. We paid $66.7&nbsp;million in cash at closing, $2.4&nbsp;million in cash shortly thereafter
and $12.0&nbsp;million of common stock. In addition, $1.2&nbsp;million in cash and $7.4&nbsp;million in stock was held back to secure any negative working capital adjustments required by the
merger agreement and our indemnity rights. The holdback consideration will be released on the 12<SUP>th</SUP>&nbsp;month and 21<SUP>st</SUP>&nbsp;month of the anniversary date of the
acquisition. In addition to the indemnity holdback, the Agreement also calls for a post closing working capital adjustment. To fund the acquisition, Kratos secured a new credit facility of
$85.0&nbsp;million arranged by KeyBanc Capital Markets. The credit facility, which includes a $25.0&nbsp;million line of credit and $60.0&nbsp;million in term notes, replaced our previous credit
facility, which had an outstanding principal balance of $6.0&nbsp;million on December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;29, 2008 Kratos provided the working capital calculation to Haverstick, which indicated a working capital adjustment was due to Kratos primarily because the working
capital, as calculated per the Agreement, was below the target amount. Haverstick has reviewed Kratos' working capital calculation and is in disagreement. Their response proposes that there is
actually excess working capital of approximately $1.5&nbsp;million. In accordance with the Agreement, Kratos had fifteen days from the date of Haverstick's objection to resolve the disagreement. If
resolution had not been achieved within the
fifteen day period, Kratos and Haverstick would have had five days to agree on a nationally recognized independent accounting firm to resolve the disagreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April 2008 Kratos and Haverstick resolved the disagreement with respect to the working capital adjustment. The agreed upon working capital adjustment exceeded the target amount by
approximately $1.45&nbsp;million and as a result Kratos will issue approximately 700,000&nbsp;shares of its common stock and make a cash payment of $200,000 to the former shareholders of
Haverstick. Both Kratos and Haverstick have agreed that the aforementioned payment is in complete and full satisfaction of the calculation of the net working capital as of closing and have released
one another from any and all claims with respect to this adjustment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the terms of the Merger Agreement, Kratos has agreed to use its reasonable best efforts to file&nbsp;a resale registration statement covering the shares issued in
connection with the Merger promptly following the closing date. In the event that the Kratos common stock issued are not salable under rules promulgated under the Securities Acts, holders of the stock
may elect to exchange such shares for a cash amount equal to $2.74 per share in accordance with the terms of the Merger Agreement. Until the date on which the shares of stock are salable interest
shall accrue on the value of the Closing Stock at a floating rate of one-month LIBOR plus four percent (4)% per annum. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February 2008 Kratos entered into a definitive merger agreement with San Diego-based C5ISR and net-centric warfare solutions provider SYS Technologies (AMEX:SYS) in a
stock-for-stock transaction. Under the terms of the agreement, SYS will merge into a wholly owned subsidiary of Kratos and all of SYS's outstanding common shares will be
converted into Kratos common shares. Upon closing, Kratos will issue approximately 25&nbsp;million shares of its common stock. The transaction is subject to customary closing conditions, including
approval of the transaction by SYS's shareholders and the approval of Kratos' stockholders of the issuance of shares. The transaction is expected to close in the second quarter of 2008. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
September&nbsp;12, 2007 Kratos changed its name from Wireless Facilities,&nbsp;Inc. to Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc. to reflect its new strategic focus. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007, Kratos considers the following factors to be important in understanding its financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>106</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
Government Solutions' business with the U.S. government and prime contractors is generally performed under cost reimbursable, fixed-price or time and materials contracts. Cost
reimbursable
contracts for the government provide for reimbursement of costs plus the payment of a fee. Some cost reimbursable contracts include incentive fees that are awarded based on performance on the
contract. Under fixed-price contracts, Kratos agrees to perform certain work for a fixed price. Under time and materials contracts, Kratos is reimbursed for labor hours at negotiated hourly billing
rates and reimbursed for travel and other direct expenses at actual costs plus applied general and administrative expenses. Kratos' Pubic Security and Safety contracts are primarily fixed-price
contracts whereby revenue is recognized using the percentage-of-completion method of accounting under the provisions of Statement of Position (SOP) 81-1,
"Accounting for Performance of Construction Type and Certain Production Type Contracts." For contracts offered on a time and material basis, Kratos recognizes revenues as services are performed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost
of revenues includes direct compensation, living, travel and benefit expenses for project-related personnel, payments to third-party subcontractors, cost of materials
project-related incentive compensation based upon the successful achievement of certain project performance goals, allocation of overhead costs and other direct project-related expenses. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling,
general and administrative expenses include compensation and benefits for corporate service employees and similar costs for billable employees whose time and expenses cannot be
assigned to a project (underutilization costs), expendable computer software and equipment, facilities expenses and other operating expenses not directly related and/or allocated to projects. General
and administrative costs include all corporate and administrative functions that support existing operations and provide infrastructure to facilitate Kratos' future growth. Additionally, Kratos' sales
personnel and senior corporate executives have, as part of their compensation packages, periodic and annual bonus/commission incentives based on the attainment of specified performance goals. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
considers the following factors when determining if collection of a receivable is reasonably assured: comprehensive collection history; results of Kratos communications with
customers; the current financial position of the customer; and the relevant economic conditions in the customer's country. If Kratos has had no prior experience with the customer, Kratos reviews
reports from various credit organizations to ensure that the customer has a history of paying its creditors in a reliable and effective manner. If the financial condition of Kratos' customers were to
deteriorate, and adversely affect their financial ability to make payments, additional allowances would be required. Additionally, on certain contracts whereby Kratos performs services for a
prime/general contractor, a specified percentage of the invoiced trade accounts receivable may be retained by the customer until Kratos completes the project. Kratos periodically reviews all
retainages for collectibility and record allowances for doubtful accounts when deemed appropriate, based on Kratos' assessment of the associated risks. Total retainages included in accounts receivable
and current assets of discontinued operations were approximately $1.7&nbsp;million and $0.0&nbsp;million at December&nbsp;31, 2007, respectively. In addition, $0.6&nbsp;million of retainages
that are expected to be paid after 2007 are included in other assets (long term). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos'
PSS segment previously built, installed and operated a wireless LAN system at a number of shopping malls in the United States. This network was developed to offer internet
connectivity for a fee to customers and tenants at the malls. The market for these services had changed in 2006 with the emergence of free WiFi and WiMAX and this resulted in significantly reduced
expectations for future revenue and profits related to the realizability of this asset. Based upon an analysis of the expected future cash flows from this asset in accordance with SFAS No.&nbsp;144,
Kratos determined that the full
value of this asset, approximately $1.8&nbsp;million, was impaired at the end of 2006. In January 2008, Kratos sold the LAN system network to the owner of the shopping malls for $0.3&nbsp;million.
This transaction will be recorded in Kratos' first quarter of 2008 at the time of the transfer of the network. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>107</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due
to a loss of management in early 2006 as a result of the completion of earn-outs on some of Kratos' PSS acquisitions at the end of 2005, its PSS operations experienced an
underperformance relative to historic operating results in 2006 and this impacted Kratos' projected future performance. Kratos determined at the end of 2006 that the total amount of goodwill for its
PSS segment, approximately $18.3&nbsp;million, was impaired. The fair value of the goodwill was estimated using these projections and a combination of a discounted cash flow model and a market
approach model that takes into consideration comparable business and market transactions. Kratos also concluded based on this analysis the intangible assets for PSS were not impaired. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007, Kratos' annual effective tax rate was a negative 5% for the year ending December&nbsp;31, 2007 which resulted in tax expense of $1.3&nbsp;million on a
loss before income taxes of $26.9&nbsp;million. The rate differs from the federal and state statutory rates primarily due to the increase in the valuation allowance against deferred tax assets
created during the year for which recognition is not considered to be "more likely than not". </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos'
management currently considers the following events, trends and uncertainties to be important to understanding its financial condition and operating performance: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
believes that its Kratos Government Solutions segment will build and expand its customer relationships within the U.S. Departments of Defense, Department of Homeland Security and
other non-DoD state and local agencies by taking advantage of the significant opportunities for companies with substantial expertise in advanced engineering and information technology.
Kratos believes it will experience continued growth in revenues and operating income from this operating segment. The acquisition of Haverstick on December&nbsp;31, 2007 resulted in the addition of
nearly 500 highly skilled technical professionals and engineers with expertise in the areas of military weapons and target range support as well as targets and missile operations and maintenance. The
acquisition of MRC on October&nbsp;2, 2006 provides Kratos with expanded presence in Huntsville, Alabama, which is a key strategic military location for this segment. MRC offers a broad range of
technical, engineering and IT solutions, and has developed core competencies in weapons system lifecycle support, integrated logistics, test and evaluation, commercial
off-the-shelf software and hardware selection and implementation, software development and systems lifecycle maintenance. The results of operations of Haverstick have not been
included in Kratos' consolidated statement of operations as that transaction closed on December&nbsp;31, 2007. The results of operations of MRC have been included in our consolidated results
beginning from the closing date of October&nbsp;2, 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos'
restructuring assessments which occurred in the fourth quarter of 2006 included a critical review of its Public Safety&nbsp;&amp; Security segment to take into consideration the
overall enterprise related industry and market opportunities, as well as the management and performance setbacks that occurred in this segment during 2006. As a result of this analysis we made the
decision to focus primarily on areas where Kratos have significant existing expertise, qualifications and relationships. For example, Kratos believes its expertise and overall qualifications provide a
clear competitive differentiator on projects related to physical and other types of security system integrations at Department of Defense military bases, production facilities, and other state, local
and municipal government locations. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>108</FONT></P>

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 </FONT> <FONT SIZE=2><B>Results of Operations  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Comparison of Results for the Year Ended December&nbsp;31, 2006 to the Year Ended December&nbsp;31, 2007  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Revenues by operating segment for the years ended December&nbsp;31, 2006 and 2007 are as follows (in millions): </FONT></P>

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<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>$change</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>% change</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Public Safety&nbsp;&amp; Security Segment</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>51.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Kratos Government Solutions Segment</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>97.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>142.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Total revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>153.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>40.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues
increased $40.5&nbsp;million from $153.1&nbsp;million in 2006 to $193.6&nbsp;million in 2007, reflecting an increase of $45.0&nbsp;million in our Kratos Government
Solutions segment, primarily due to the acquisition of MRC in October 2006, which contributed $70.5&nbsp;million in revenues in 2007 and $17.2&nbsp;million in 2006. This increase of
$53.3&nbsp;million was partially offset by decreases due to the reduction of one program with annualized revenues of nearly $5.7&nbsp;million that was consolidated by one of Kratos' Federal
Government customers as well as, to a lesser degree, other program delays and losses resulting in reduced revenues of $2.6&nbsp;million in other businesses within Kratos' Government Solutions
segment. Reductions in Kratos' Public Safety&nbsp;&amp; Security segment of $4.5&nbsp;million were primarily related to the exit of the municipal wireless business in the first quarter of 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
described in the section "Critical Accounting Principles and Estimates" and in the footnotes to Kratos audited consolidated financial statements, a portion of its revenue is derived
from fixed-price contracts whereby revenue is calculated using the percentage-of-completion method based on the ratio of total costs incurred to date compared to estimated
total costs to complete the contract. These estimates are reviewed monthly on a contract-by-contract basis, and are revised periodically throughout the life of the contract
such that adjustments to profit resulting from revisions are made cumulative to the date of the revision. Significant management judgments and estimates, including the estimated costs to complete
projects, which determine the project's percent complete, must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and
timing of Kratos revenue for any period if management makes different judgments or utilizes different estimates. During the reporting periods contained herein, we did experience revenue and margin
adjustments of certain projects based on the aforementioned factors, but the effect of such adjustments, both positive and negative, when evaluated in total were determined to be immaterial to the
consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of Revenues.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Cost of revenues increased $37.8&nbsp;million or 30.4% from $124.2&nbsp;million for the year ended
December&nbsp;31, 2006 to $162.0&nbsp;million for the year ended December&nbsp;31, 2007 primarily due to the increase in total revenues. The increase was primarily attributable to cost of
revenues of approximately $14.6&nbsp;million related to the MRC acquisition, offset by decreases in cost of revenues as a result of the reduced revenues in our PSS segment discussed above. Gross
margin during the year ended December&nbsp;31, 2007 of 16.3% decreased from a 2006 gross margin of 18.9%. The decrease in gross margin primarily resulted from a change in the mix of Government
Services revenue versus Public Safety&nbsp;&amp; Security revenue. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling, General and Administrative Expenses.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative expenses increased 2.6% from
$38.5&nbsp;million to $39.5&nbsp;million for the years ended December&nbsp;31, 2006 and 2007, respectively. The increase of $1.0&nbsp;million is primarily due to an increase in costs
reflecting the acquisition of MRC and an increase in external consulting and professional fees, such as legal and accounting, partially offset by a reduction in stock compensation expense of
$4.9&nbsp;million from 2006, which decreased from $5.9&nbsp;million in 2006 to $1.0&nbsp;million in 2007. Included in the selling, general and adminstrative expenses (SG&amp;A) for 2006 and 2007 is
amortization of purchased intangibles of </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>$2.0&nbsp;million
and $2.8&nbsp;million, respectively. The increase in amortization year over year is also a result of the MRC acquisition. As a percentage of revenues, selling, general and
administrative expenses decreased from 25.1% in 2006 to 20.4% in 2007. Excluding the impact of the amortization of purchased intangibles and stock compensation expense, SG&amp;A decreased from 20.0% to
19.0% of revenues for 2006 and 2007, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock Option Investigation, Related Fees and Recoveries.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In the summer of 2006, Kratos' current executive management team,
which has been in place since 2004, initiated an investigation of Kratos' past stock option granting practices, which we refer to as the Equity Award Review, in reaction to media reports regarding
stock option granting practices of public companies. Kratos' 2007 costs of $10.6&nbsp;million included $14.0&nbsp;million in legal, accounting and other professional fees related to our Equity
Award Review which was completed in September 2007 and the ongoing government inquiries by the Department of Justice and the SEC. This amount was partially offset by $3.4&nbsp;million related to the
recovery of assets from Kratos' settlement with its former stock option administrator related to damages for the theft of Kratos' stock options and common stock which occurred in 2002 and 2003 and was
discovered during Kratos' internal review of option granting practices. See "Legal Proceedings" on page 94 for a further discussion of these items. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimated Cost for Settlement of Securities Litigation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In March 2008, following a voluntary mediation of 2004 and 2007
securities litigation, the parties reached a tentative agreement to settle the class action. See "Legal Proceedings" on page 94 for a further discussion of these items. Kratos has accrued an estimated
$4.9&nbsp;million related to its costs for the settlement of these litigations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contingent Acquisition Consideration and Restatement Fees.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In September 2004, Kratos amended the purchase agreements related
to two of the companies acquired in its ENS segment in 2003 to more accurately reflect the intent of the transactions, resulting in a rescission of the continuous employment clauses from the
earn-out arrangements, for which Kratos recorded a $12.4&nbsp;million accrual at that time. Kratos had $0.1&nbsp;million in expense associated with contingent acquisition consideration
based upon the final payments on these agreements in 2006. There were no charges incurred in 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment and Restructuring Charges.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Impairment and restructuring charges decreased $20.6&nbsp;million from
$21.8&nbsp;million in 2006 to $1.2&nbsp;million in 2007. During 2006, Kratos recorded $21.8&nbsp;million in impairment and restructuring charges as a result of a change in strategic focus of its
PSS segment and
a consolidation of its headquarter facilities, which included $18.3&nbsp;million for goodwill impairment related to acquisitions made in the PSS segment. This was due in part to changes in the
industry and the strategic focus, the impact of recent and future expected operating performance, as well as operational challenges from significant employee turnover that Kratos encountered after the
completion of the earn-out periods in early 2006. The balance of the charge was related to an asset impairment of approximately $1.8&nbsp;million, an unused facility charge of
approximately $1.4&nbsp;million related to facilities consolidation and severance costs associated with restructuring activities of approximately $0.3&nbsp;million. The costs in 2007 of
$1.2&nbsp;million included $0.8&nbsp;million for an excess facility accrual for obligations under facility leases with unused office space as a result of the recent divestitures of Kratos wireless
network services businesses, $0.2&nbsp;million related to the impairment of leasehold improvements for these facilities and $0.2&nbsp;million related to an impairment of fixed assets. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other Expense, Net.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2006, net other expense was $0.9&nbsp;million compared to net
other expense of $2.3&nbsp;million for the year ended December&nbsp;31, 2007. The other expense in 2006 was due to interest income on the note receivable relating to the sale of Kratos' Mexican
subsidiary and interest expense for the borrowings on the line of credit used to fund the acquisition of MRC in October 2006. In 2007, in accordance with EITF&nbsp;87-24, </FONT> <FONT SIZE=2><I>Allocation of Interest to Discontinued
Operations</I></FONT><FONT SIZE=2>, interest expense on the debt of $2.2&nbsp;million that was required to be repaid as a result of the
sales of Kratos' wireless network services business was allocated to discontinued operations for the periods presented. See Note&nbsp;4 of Notes to Consolidated Financial Statements of this </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>110</FONT></P>

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statement/prospectus. Consequently, in 2007 the interest cost for the Line of Credit borrowings used to fund the MRC acquisition was primarily allocated to discontinued operations. The net other
expense of $2.3&nbsp;million in 2007 was primarily attributable to approximately $1.8&nbsp;million of an impairment charge, recorded in the fourth quarter of 2007, related to the carrying value of
investments to fair value as well as $1.2&nbsp;million of interest expense incurred on Kratos' credit facility. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision (benefit) for Income Taxes.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Kratos' effective income tax rate for the year ended December&nbsp;31, 2006
represented a negative 43% income tax provision compared to a negative 5% income tax provision for the year ended December&nbsp;31, 2007. The tax provision of $13.8&nbsp;million for the year ended
December&nbsp;31, 2006 included an increase to the valuation allowance of $15.9&nbsp;million against the deferred tax assets. The tax provision for the year ended December&nbsp;31, 2007 included
an increase to the valuation allowance of $9.8&nbsp;million against the deferred tax assets. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income (Loss) from Discontinued Operations.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Loss from discontinued operations increased from a loss of $11.7&nbsp;million
in 2006 to a loss of $12.6&nbsp;million during 2007. The increase was primarily due to the impairment of assets related to the wireless deployment business of $13.4&nbsp;million, an impairment of
goodwill of $7.2&nbsp;million related to this business, a $1.9&nbsp;million loss from the disposal of Kratos' deployment business and a $1.1&nbsp;million excess facility accrual. These charges
were all partially offset by a gain of $14.8&nbsp;million on the sale of the wireless engineering services business operations and a gain of $2.6&nbsp;million on the sale of the EMEA business.
Revenues and net loss before taxes generated by these businesses in 2006 were approximately $201.7&nbsp;million and $9.8&nbsp;million, respectively, compared to $85.7&nbsp;million and
$12.7&nbsp;million, respectively, in 2007. The decrease year over year was impacted by the divestitures of the wireless network services businesses in 2007. See Note&nbsp;4 to the Notes to the
Consolidated Financial Statements for further discussion of these transactions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Comparison of Results for the Year Ended December&nbsp;31, 2005 to the Year Ended December&nbsp;31, 2006  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Revenues by operating segment for the years ended December&nbsp;31, 2005 and 2006 are as follows (in millions): </FONT></P>

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<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>$change</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>% change</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Public Safety&nbsp;&amp; Security Segment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(17.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Government Solutions Segment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>85.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>97.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=2>Total revenues</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>152.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>153.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues
increased $0.8 or 0.1% from $152.3&nbsp;million in 2005 to $153.1&nbsp;million in 2006. The increase in revenues included an increase of $12.5&nbsp;million in Kratos'
Government Solutions segment, substantially offset by reduced revenue in Kratos' Public Safety&nbsp;&amp; Security segment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
decreased revenues in the PSS segment of $11.7&nbsp;million from 2005 to 2006 was primarily a result of significant employee turnover, particularly management sales and business
development personnel, that
occurred in Kratos' Atlanta and Houston offices following the completion of the three year acquisition earn-out periods at the beginning of 2006. The increased revenue in the Government
Network Services segment is a result of the acquisition of MRC in the fourth quarter of 2006, which contributed $17.6&nbsp;million in revenues in 2006, offset partially by decreases due to program
delays and program reductions from two of Kratos' DOD Customers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of Revenues.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Cost of revenues increased $8.5&nbsp;million or 7.3% from $115.7&nbsp;million for the year ended
December&nbsp;31, 2005 to $124.2&nbsp;million for the year ended December&nbsp;31, 2006. Gross margin during the year ended December&nbsp;31, 2005 of 24.0% decreased to a gross margin of 18.9%
for the year ended December&nbsp;31, 2006. The increase in cost of revenues was partially attributable to cost of revenues of approximately $14.6&nbsp;million related to the MRC acquisition. The
decrease in gross margins resulted from an increased mix of government network services business, which generally reports the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>111</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>classification
of cost elements based upon definitions in accordance with government contracting regulations. As a result, cost of revenues in the 2006 periods includes certain cost elements that
would otherwise be classified as SG&amp;A expense under a commercial contract arrangement. In addition, the overall decrease in gross margin percentage was partially attributable to a stock-based
compensation expense of $0.9&nbsp;million in 2006 related to Kratos' adoption of SFAS No.&nbsp;123(R) in January 2006, compared to $0.0&nbsp;million in 2005 and the impact of cost overruns in
the PSS sector as a result of employee and management turnover that occurred following the completion of the earn-out periods in early 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling, General and Administrative Expenses.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative expenses increased 8.5% from
$35.5&nbsp;million to $38.5&nbsp;million for the years ended December&nbsp;31, 2005 and 2006, respectively. As a percentage of revenues, selling, general and administrative increased from 23.3%
in 2005 to 25.1% in 2006. The increase of $3.0&nbsp;million is primarily due to the cost of stock-based compensation which was $5.9&nbsp;million in 2006 or 3.9% of revenues versus
$0.2&nbsp;million, net of related tax adjustments, in 2005 or 0.1% of revenues partially offset by a reduction in consulting fees. Excluding the stock-based compensation expense, SG&amp;A decreased from
$35.3&nbsp;million, or 23.2% of revenues, in 2005 to $32.6&nbsp;million, or 21.3% of revenues, in 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contingent Acquisition Consideration and Restatement Fees.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In September 2004, Kratos amended the purchase agreements related
to two of the companies acquired in its ENS segment in 2003 to more accurately reflect the intent of the transactions, resulting in a rescission of the continuous employment clauses from the
earn-out arrangements, for which Kratos recorded a $12.4&nbsp;million accrual at that time. In September 2005, Kratos reduced $2.5&nbsp;million of its contingent acquisition
earn-out accruals that was determined to be excess based on the projected performance of the division compared to the minimum performance targets as defined in the earn-out
arrangements. In December 2005, Kratos increased its contingent acquisition earn-out accruals by $0.4&nbsp;million, to reflect the financial performance of one of the acquired entities
that exceeded its previously projected performance. Kratos had $0.1&nbsp;million in expense associated with contingent acquisition consideration based upon the final payments on these agreements in
2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment and Restructuring Charges.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During 2006, Kratos recorded $21.8&nbsp;million in impairment and restructuring
charges as a result of a change in strategic focus of its ENS segment and a consolidation of its headquarter facilities, which included $18.3&nbsp;million for goodwill impairment related to
acquisitions made in the ENS segment. This was due in part to changes in the industry and Kratos' strategic focus, the impact of recent and future expected operating performance, as well as
operational challenges from significant employee turnover that we encountered after the completion of the earn-out periods in early 2006. The balance of the charge was related to an asset
impairment of approximately $1.8&nbsp;million, an unused facility charge of approximately $1.4&nbsp;million related to facilities consolidation and severance costs associated with restructuring
activities of approximately $0.3&nbsp;million. No impairment or restructuring charges were incurred in 2005. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other Income (Expense), Net.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2005, net other income was $0.3&nbsp;million compared
to net other expense of $0.9&nbsp;million for the year ended December&nbsp;31, 2006. The increase in net other expense of $1.2&nbsp;million was primarily due to the interest that was incurred on
the Key Bank credit facility as a result of the MRC acquisition, partially offset by the interest income earned on the note receivable for the sale of Mexico. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision (benefit) for Income Taxes.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Kratos' effective income tax rate for the year ended December&nbsp;31, 2005
represented a 3% income tax benefit compared to a negative 43% income tax provision for the year ended December&nbsp;31, 2006. The tax benefit of $0.1&nbsp;million for the year ended
December&nbsp;31, 2005 included a decrease to the valuation allowance on deferred tax assets based upon Kratos' projections of taxable income for 2006, including the reversal of temporary
differences. The reduction in the valuation allowance was primarily a result of Kratos' projected forecasts of 2006 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>112</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>taxable
income, the estimated timing of reversal of temporary differences and the expected utilization of net operating loss carryforwards. In 2006, the income tax expense of $13.8&nbsp;million is a
result of an increase of $15.9&nbsp;million in Kratos' valuation allowance for deferred tax assets. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss from Discontinued Operations.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Loss from discontinued operations increased from a loss of $2.0&nbsp;million in 2005 to
a loss of $11.7&nbsp;million during 2006. Included in the loss from discontinued operations of $2.0&nbsp;million for the year ended December&nbsp;31, 2005 is an approximate $5.0&nbsp;million
charge related to a write off of unrecoverable contract costs incurred on sites Kratos was building for its customers in Mexico and South America which were cancelled prior to the completion of the
sites. Although Kratos was under contractual arrangement with these customers to build these sites, these costs were contractually unrecoverable from its customers due to the termination clauses in
the contracts, which did not provide for reimbursement for in process cancelled sites, unless agreed upon by the customer. Also included in Kratos' loss from discontinued operation in 2005 is an
impairment charge of $0.9&nbsp;million related to accumulated foreign currency translation losses as well as a $4.4&nbsp;million valuation allowance established against the deferred tax assets of
Kratos' discontinued operations. Included in the loss from discontinued operations of $11.7&nbsp;million for the year ended December&nbsp;31, 2006 is an impairment charge of approximately
$5.2&nbsp;million to reduce the current carrying value of the South American operations to their estimated fair value based upon current indications of interest. Also included in Kratos' loss from
discontinued operations in 2006 is an impairment charge of $1.7&nbsp;million related to accumulated foreign currency translation losses. Revenues and net income (loss) before taxes
generated by these businesses in 2005 were approximately $265.1&nbsp;million and net income of $7.1&nbsp;million, respectively, compared to $201.7&nbsp;million and a net loss of
$9.8&nbsp;million, respectively, in 2006. The reduction in revenues in 2006 from 2005 reflects the sale of our Latin American operations in February 2006. See Note&nbsp;4 to the Notes to the
Consolidated Financial Statements for further discussion of these transactions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Liquidity and Capital Resources  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007, Kratos had consolidated cash and cash equivalents of $8.6&nbsp;million, consolidated long-term and
short-term debt of $76.7&nbsp;million, and consolidated stockholders equity of $167.2&nbsp;million. Kratos' principal sources of liquidity are cash flows from operations and borrowings
under its credit facility. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Net Cash from Operations  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos' operating cash flow is used to finance trade accounts receivable, fund capital expenditures, fund Kratos' ongoing litigation and government inquiries, and
make selective acquisitions. Financing trade accounts receivable is necessary because, on average, our customers do not pay us as quickly as Kratos pay its vendors and employees for their goods and
services. Cash from continuing operations is primarily derived from Kratos' customer contracts in progress and associated changes in working capital components. A summary of Kratos' net cash provided
by operating activities from continuing operations from its consolidated statement of cash flows is as follows (in millions): </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="69%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Years Ended December&nbsp;31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="69%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Net cash used in operating activities of continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
used in operating activities of continuing operations for 2007 decreased by $2.7&nbsp;million from 2006 primarily due to a decrease in days sales outstanding from 109&nbsp;days
to 101&nbsp;days, after adjustment for the MRC transaction in 2006 and the Haverstick transaction in 2007, partially offset by payment related to Kratos' internal stock option investigation, as well
as the timing of payments of Kratos' expenses. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>113</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
used in investing activities from continuing operations are summarized as follows (in millions): </FONT></P>

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<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Investing activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Sale/maturity of short-term investments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cash paid for contingent acquisition consideration</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(17.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cash paid for acquisitions, net of cash acquired</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(33.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(59.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(63.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Proceeds from the disposition of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cash transferred from (to) restricted cash</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Capital expenditures</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="62%" style="font-family:times;"><FONT SIZE=2>Net cash used in investing activities from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(47.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(50.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(15.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
paid for acquisitions and contingent acquisition consideration accounted for the most significant outlays for investing activities in each of the three years from 2005 to 2007 as a
result of the implementation of Kratos' strategies to diversify its business while focusing on its core competencies. These acquisitions included Haverstick in 2007, MRC in 2006, and TLA in 2005. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investing
activities in 2006 and 2007 also included proceeds of $18.9&nbsp;million and $57.3&nbsp;million respectively, directly attributable to our sale of Kratos' wireless
discontinued operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital
expenditures consist primarily of investment in computer hardware and software and improvement of Kratos' physical properties in order to maintain suitable conditions to conduct
its business. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Cash provided by financing activities from continuing operations</I></FONT><FONT SIZE=2> are summarized as follows (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Financing activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Proceeds from issuance of common stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Proceeds from issuance of common stock under employee stock purchase plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Borrowings under credit facility and line of credit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>85.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>88.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Repayment under line of credit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(34.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(64.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Repayment of capital lease obligations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Debt issuance costs</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Net cash provided by financing activities from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2005, Kratos entered into a $15&nbsp;million credit facility with KeyBank National Association, which we refer to as KeyBank, for general working capital requirements and to fund
future acquisitions. Kratos did not draw on this facility until 2006 and in October 2006 Kratos replaced this facility with an $85&nbsp;million facility from KeyBank to fund the acquisition of MRC.
During 2007, Kratos entered into two amendments to its credit facility, one in March and the other in June, which reduced the total facility to $35&nbsp;million as a result of the divestitures of
its wireless network services businesses. In December 2007, Kratos successfully negotiated a new $85.0&nbsp;million credit facility with Key Bank, which was used primarily to fund the Haverstick
acquisition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds
from the issuance of common stock in 2005 through 2006 are related to the exercise of employee stock options. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>114</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=124,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=509346,FOLIO='114',FILE='DISK112:[08ZAT1.08ZAT42501]DW42501A.;34',USER='KSOLTER',CD=';9-APR-2008;00:16' -->
<A NAME="page_dw42501_1_115"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Cash provided by (used in) discontinued operations are summarized</I></FONT><FONT SIZE=2> as follows (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Operating cash flows</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Investing cash flows</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Financing cash flows</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Effect of exchange rates on cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Net cash flows of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investing
cash flow consists of capital expenditures incurred by Kratos' wireless network services segment. Financing cash flows is the result of proceeds received on the exercise of
stock options by the wireless network services employees. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Off Balance Sheet Arrangements  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has no material off-balance sheet arrangements as defined in Regulation&nbsp;S-K 303(a)(4)(ii). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Contractual Obligations and Commitments  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with Kratos' business acquisitions, it has agreed to make additional future payments to sellers based on final purchase price adjustments and the
expiration of certain indemnification obligations. Pursuant to the provisions of SFAS No.&nbsp;141, such amounts are accrued, and therefore, recorded by Kratos when the contingency is resolved
beyond a reasonable doubt and, hence, the additional consideration becomes payable. In 2007, Kratos paid $4.6&nbsp;million of working capital adjustments and approximately $4.3&nbsp;million of the
holdback amounts to the former MRC shareholders in accordance with the Purchase Agreement. As of December&nbsp;31, 2007, Kratos has approximately $3.5&nbsp;million of cash holdback amounts that
will be released subject to indemnity rights due for the MRC and Haverstick acquisitions. The MRC payment of approximately $2.3&nbsp;million was scheduled to be released in April 2008, but Kratos
currently expects that no amounts will be released until July 2008, if at all, to provide sufficient time to resolve outstanding indemnification claims. The remaining amounts for Haverstick of
$1.2&nbsp;million are due in December 2008 and September 2009. The holdback arrangements accrue interest in accordance to terms in the purchase agreements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to the indemnity holdback, the Haverstick Agreement also calls for a post closing working capital adjustment. On February&nbsp;29, 2008 Kratos provided the working capital
calculation to Haverstick, which indicated a working capital adjustment was due to Kratos primarily because the working capital, as calculated per the Agreement, was below the target amount.
Haverstick has reviewed Kratos' working capital calculation and is not in agreement. Their response proposes that there is actually excess working capital of approximately $1.5&nbsp;million. In
accordance with the Agreement, Kratos had fifteen days from the date of Haverstick's objection to resolve the disagreement. If resolution had not been achieved within the fifteen day period, Kratos
and Haverstick would have had five days to agree on a nationally recognized independent accounting firm to resolve the disagreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April 2008 Kratos and Haverstick resolved the disagreement with respect to the working capital adjustment. The agreed upon working capital adjustment exceeded the target amount by
approximately $1.45&nbsp;million and as a result Kratos will issue approximately 700,000&nbsp;shares of its common stock and make a cash payment of $200,000 to the former shareholders of
Haverstick. Both Kratos and Haverstick have agreed that the aforementioned payment is in complete and full satisfaction of the calculation of the net working capital as of closing and have released
one another from any and all claims with respect to this adjustment. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>115</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
amounts earned by shareholders of acquired companies for which there were no continuous employment clauses will result in additional goodwill recorded for those acquisitions when the
earn-out consideration is earned. There were no earn-out considerations in connection with the MRC or Haverstick acquisitions, but in connection with future acquisitions,
Kratos may agree to make additional payments to sellers contingent upon achievement of performance milestones by the acquired entities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;31, 2007, Kratos entered into a new credit facility of $85.0&nbsp;million with KeyBanc Capital Markets which replaced the October&nbsp;2, 2006 credit agreement
with Key Bank. This credit facility provides for two term loans consisting of a first lien term note of $50.0&nbsp;million and a second lien term note of $10.0&nbsp;million, as well as, a first
lien $25&nbsp;million revolving line of credit. The $10.0&nbsp;million term loan has a five and one half year term with principal payments required quarterly beginning on March&nbsp;31, 2008 of
$25,000 through March&nbsp;31, 2013 with the final balance of $9.5&nbsp;million due on June&nbsp;30, 2013. The $50.0&nbsp;million term loan has a five year term with principal payments
required quarterly beginning on March&nbsp;31, 2008 of $0.6&nbsp;million in 2008, $1.3&nbsp;million in 2009, $2.5&nbsp;million in 2110, and $4.1&nbsp;million in 2011 and 2012. The term loans
have a provision which states that once the full amount of the note has been borrowed, the notes cannot be paid down and reborrowed again. The revolving line of credit has a four year term which
expires on December&nbsp;31, 2011 and contains provisions typical in such arrangements. All loans under the new credit facility have an interest rate equal to a base rate defined as a fluctuating
rate per annum equal to the higher of (a)&nbsp;the Federal Funds Rate plus <SUP>1</SUP>/<SMALL>2</SMALL> of 1% and (b)&nbsp;the rate of interest in effect for such day as publicly announced from time to time
by KeyBank as its "prime rate" plus a margin for the term loans of 6.5% to 7.5% and a margin of 1.0% to 3.25% on the revolving line of credit. The applicable margin at date of borrowing is determined
by the ratio of Kratos' aggregate debt to its EBITDA for the previous four fiscal quarters. Kratos used the credit facility to fund the acquisition of Haverstick and to retire outstanding debt under
its October 2006 credit facility with Key Bank. The terms of the new credit agreement require Kratos to provide certain customary covenants for a credit agreement, including certain financial
covenants which vary by quarter. See schedules&nbsp;7.12(a) through (e)&nbsp;to both the First Lien Credit Agreement and the Second Lien Credit Agreement which are filed as Exhibits&nbsp;10.1
and 10.2 respectively, to Kratos' Current Report on Form&nbsp;8-K filed with the SEC on January&nbsp;7, 2008. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007, Kratos' outstanding balance on the facility was $75.5&nbsp;million and the weighted average interest rate on the debt borrowed during 2007 was 8.3%.
This includes $3.5&nbsp;million of interest expense and financing costs related to the October 2006 credit facility and the new facility dated December&nbsp;31, 2007. The replacement of the
October 2006 facility resulted in a write-off of $1.0&nbsp;million in deferred financing costs. Kratos has $3.3&nbsp;million in deferred financing costs outstanding as of
December&nbsp;31, 2007 which are related to the new facility and are being amortized over the four, five and five and one half year life of the respective underlying notes. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;11, 2008, Kratos entered into three interest swap agreements with Key Bank, to fix the LIBOR rate to an average of 3.16% for the term of the swap agreements. The
effective date of the swaps were February&nbsp;14, 2008. The notional amounts and expiration dates of the swap agreements are $15&nbsp;million and March&nbsp;31, 2010; $22.5&nbsp;million and
March&nbsp;31, 2011; and $32.5&nbsp;million and March&nbsp;31, 2011. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March 2008 Kratos entered into a tentative agreement to settle the 2004 and 2007 securities class action litigation actions (described in "Legal Proceedings" on page 94), and as a
result, Kratos recorded a $4.9&nbsp;million charge in the quarter ended December&nbsp;31, 2007 to accrue its share of the settlement amounts, and an estimate for a contingent liability associated
with legal proceedings related to the derivative actions, net of the amounts to be covered by Kratos' insurance carriers. As a consequence of recording this legal settlement, Kratos did not meet
certain of the financial covenants in accordance with the Credit Agreement. Accordingly, on March&nbsp;27, 2008, Kratos obtained an amendment and waiver from its lenders to waive the impact of the
legal settlement amounts on its financial covenants as of December&nbsp;31, 2007 and the affected future periods. The amendment also </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>116</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<BR>

<P style="font-family:times;"><FONT SIZE=2>amended
the Credit Agreement to provide for an increase in the LIBOR floor rate to 4.25% and to require that Kratos set aside in a restricted account approximately 50% of the proceeds of the recovery
from the theft of stock options by its former stock option administrator, or approximately $1.7&nbsp;million, to fund these settlement amounts. The lenders have also reserved the right to require
Kratos to utilize the entire amount of the $3.4&nbsp;million in proceeds received from the theft of stock options to permanently pay down indebtedness. This right can be exercised no earlier than
60&nbsp;days from March&nbsp;27, 2008 and expires upon Kratos' compliance with financial covenants under the Credit Agreement for the four consecutive quarters commencing after January&nbsp;1,
2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
net benefit of the swap agreements entered into by Kratos on February&nbsp;11, 2008 has been reduced by the LIBOR floor included in the amendment and waiver discussed above. The
cost related to this amendment will be recorded as deferred financing costs for the credit facility in the first quarter of 2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes Kratos' currently existing contractual obligations and other commitments at December&nbsp;31, 2007, and the effect such obligations could have on Kratos'
liquidity and cash flow in future periods (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Payments due/forecast by Period</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2008</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2009-2010</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2011-2012</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2013 and After</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Long-term debt, net of interest(1)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Capital leases(5)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Estimated interest on debt(2)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other liabilities(3)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Purchase orders(4)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>40.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Operating leases(5)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interpretation 48 obligations, including interest and penalties(6)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Total commitments and recorded liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>165.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>60.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
Key Bank Credit Facility. The payments shown are Kratos' present forecast which contemplates that it will pay off the Key Bank Credit Facility by the due date of June 2013. The
annual payment requirements for long-term debt obligations are $2.6&nbsp;million in 2008, $15.2&nbsp;million in 2009 to 2010, $32.7&nbsp;million in 2011 to 2012, and
$9.5&nbsp;million in 2013. See "Notes to Consolidated Financial Statements" Note&nbsp;8(a) for further details.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
interest payments based on current interest rates for variable rate debt and fixed rate debt based upon our swap arrangements. See "Notes to Consolidated Financial
Statements" Note&nbsp;8(a) for further details.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Primarily
the obligations under the working capital adjustment clause and holdback payments related to the acquisition of MRC and Haverstick. See "Notes to Consolidated Financial
Statements" Note&nbsp;6 for further details.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Purchase
orders include commitments in which a written purchase order has been issued to a vendor, but the goods have not been received or services have not been performed.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>See
"Notes to Consolidated Financial Statements" Note&nbsp;10 for further details.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
FIN&nbsp;48 obligations shown in the above table represent certain uncertain tax positions. The years for which the uncertain tax positions will reverse have been estimated in
scheduling the obligations in the table above. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>117</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007 Kratos had $2.4&nbsp;million of standby letters of credit outstanding. Kratos' letters of credit are related to its workers compensation program, as
support for its performance bond program and for its work overseas. Additional information regarding Kratos' financial commitments at December&nbsp;31, 2007 is provided in the notes to Kratos'
consolidated financial statements. See "Notes to Consolidated Financial Statements, Note&nbsp;16&#151;Commitments and Contingencies." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Other Liquidity Matters  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos intends to fund its cash requirements with cash flows from operating activities, and borrowings under its current Credit Facilities and future Credit
Facilities. Kratos believes these sources should be sufficient to meet its cash needs for at least the next 12&nbsp;months. However, Kratos expects to pay for the settlement of its shareholder
litigation in the second half of 2008 as discussed in Note&nbsp;17&#151;Legal Matters to its audited Consolidated Financial Atatements proxy statement/prospectus, and Kratos may need to raise
additional funds to pay for this settlement. In addition, if Kratos becomes subject to significant judgments, settlements or fines related to the matters discussed in Note&nbsp;17&#151;Legal
Matters to its audited Consolidated Financial Statements, or any other matters, or incur legal fees in excess of Kratos' current expectations, it could be required to make significant payments that
could materially and adversely affect its financial condition, potentially impacting its ability to access the capital markets and its compliance with our debt covenants. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos'
quarterly and annual operating results have fluctuated in the past and may vary in the future due to a variety of factors, many of which are external to its control. If the
conditions in Kratos' industry deteriorate or our customers cancel or postpone projects or if we are unable to sufficiently increase our revenues or further reduce its expenses, Kratos may experience,
in the future, a significant long-term negative impact to its financial results and cash flows from operations. In such a situation Kratos could fall out of compliance with its financial
and other covenants which, if not waived, could limit its liquidity and capital resources. See "Risk Factors" on page 24 for a further discussion of these items. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Critical Accounting Principles and Estimates  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has identified the following critical accounting policies that affect its more significant judgments and estimates used in the preparation of its
consolidated financial statements. The preparation of Kratos' financial statements in conformity with accounting principles generally accepted in the United States of America requires it to make
estimates and judgments that affect the reported amounts of assets and liabilities, stockholders' equity, revenues and expenses, and related disclosures of contingent assets and liabilities. On a
periodic basis, as deemed necessary, Kratos evaluates its estimates, including those related to revenue recognition, allowance for doubtful accounts, valuation of long-lived assets
including identifiable intangibles and goodwill, accounting for income taxes including the related valuation allowance, accruals for partial self-insurance, contingencies and litigation
and contingent acquisition consideration. Kratos explains these accounting policies in the notes to the audited consolidated financial statements and at relevant sections in this discussion and
analysis. These estimates are based on the information that is currently available and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could
vary from those estimates under different assumptions or conditions. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Revenue recognition  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos derives a significant percentage of its revenue from long-term contracts and account for these contracts under the provisions of Statement of
Position 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." Revenue on time and materials contracts is recognized as
services are rendered at contracted labor rates plus material and other direct costs incurred. The portion of Kratos' revenue derived from fixed-price contracts accounted for </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>118</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>approximately
51.1% of its revenues for 2007. Revenue on fixed-price contracts is recognized using the percentage-of-completion method based on the ratio of total costs
incurred to date compared to estimated total costs to complete the contract. Estimates of costs to complete include material, direct labor, overhead, and allowable general and administrative expenses
for Kratos' government contracts. These cost estimates are reviewed and, if necessary, revised monthly on a contract-by-contract basis. If, as a result of this review, Kratos
determines that a loss on a contract is probable, then the full amount of estimated loss is charged to operations in the period it is determined that it is probable a loss will be realized from the
full performance of the contract. In certain instances in which it is impractical to estimate the final outcome of the project margin, but it is certain that Kratos will not incur a loss on the
project, it may record revenue equal to cost incurred, at zero margin. In the event that its cost incurred to date may be in excess of Kratos' funded contract value, it may defer those costs until the
associated contract value has been funded by the customer. Once the final estimate of the outcome of the project margin is determined, Kratos will record revenue using the
percentage-of-completion method of accounting based on the ratio of total costs incurred to date compared to the estimated total costs to complete the project. Significant
management judgments and estimates, including but not limited to the estimated costs to complete projects, must be made and used in connection with the revenue recognized in any accounting period. The
revenue Kratos may recognize in a given reporting period depends on: (1)&nbsp;the costs it has incurred for individual projects; (2)&nbsp;its then current estimate of the total remaining costs to
complete individual projects; and (3)&nbsp;the current estimated contract value associated with the projects. If, in any period, Kratos increases or decreases its estimate of the total costs to
complete a project, and/or reduce or increase the associated contract value, revenue for that period would be impacted. As a result, Kratos' gross margin in such period and in future periods may be
affected. To the extent that its estimates fluctuate over time or differ from actual results, gross margins in subsequent periods may vary significantly from our estimates. Material differences may
result in the amount and timing of Kratos' revenue for any period if management made different judgments or utilized different estimates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
cancellation, schedule delay, or modification of a fixed-price contract which is accounted for using the percentage-of-completion method may adversely affect
our gross margins for the period in which the contract is modified or cancelled. Under certain circumstances, a cancellation or negative modification could result in Kratos having to reverse revenue
that Kratos recognized in a prior period, thus significantly reducing the amount of revenues Kratos may recognize for the period in which the adjustment is made. Correspondingly, a positive
modification may positively affect Kratos' gross margins. In addition, a schedule delay or modifications can result in an increase in estimated cost to complete the project, which would also result in
an impact to its gross margin. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, many of Kratos' contracts include milestone billings. If a contract is terminated or if the scope of a contract changes prior to a milestone billing, the amount of revenue
Kratos could recognize may change, based upon the specific termination clauses of the contract, which would affect its revenue and gross margin in the period in which the contract is terminated or the
scope is changed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the reporting periods contained herein, Kratos did experience revenue and margin adjustments of certain projects based on the aforementioned factors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Allowance for doubtful accounts  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos maintains an allowance for doubtful accounts for estimated losses resulting from the potential inability of certain customers to make required future
payments on amounts due to Kratos. Management determines the adequacy of this allowance by periodically evaluating the aging and past due nature of individual customer accounts receivable balances and
considering the customer's current financial situation as well as the existing industry economic conditions and other relevant factors that would be useful towards assessing the risk of
collectibility. If the future financial condition of Kratos' customers were to deteriorate, resulting in their inability to make specific required payments, additions to the allowance for doubtful
accounts may be required. In addition, if the financial condition of Kratos' customers improves and collections of amounts outstanding commence or are reasonably assured, then we may reverse
previously established allowances for doubtful accounts. Changes to estimates of contract value are recorded as adjustments to revenue and not as a component of the allowance for doubtful accounts.
Kratos writes off accounts receivable when they become uncollectible and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>119</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B><I>Long-lived and Intangible Assets.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos account for long-lived assets in accordance with the provisions of SFAS No.&nbsp;144, </FONT><FONT SIZE=2><I>Accounting for the Impairment
or Disposal of Long-Lived Assets</I></FONT><FONT SIZE=2>, which we refer to as SFAS&nbsp;144. SFAS&nbsp;144 addresses financial accounting and reporting for the impairment or disposal
of long-lived assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to the expected future net cash flows generated by the asset. If it is determined that the
asset may not be recoverable and if the carrying amount of an asset exceeds its estimated fair value, an impairment charge is recognized to the extent of the difference. SFAS&nbsp;144 requires
companies to separately report discontinued operations, including components of an entity that either have been disposed of (by sale, abandonment or in a distribution to owners) or classified as held
for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with SFAS&nbsp;144, Kratos assesses the impairment of identifiable intangibles and long-lived assets whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Factors Kratos considers important which could individually or in combination trigger an impairment review include the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>significant
underperformance relative to expected historical or projected future operating results;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>significant
changes in the manner of Kratos' use of the acquired assets or the strategy for its overall business;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>significant
negative industry or economic trends;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>significant
decline in Kratos' stock price for a sustained period; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos'
market capitalization relative to net book value. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
Kratos determined that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of
impairment, it would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
a quarterly basis, Kratos assesses whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets may not be
recoverable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Goodwill and Purchased Intangible Assets.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos evaluates its goodwill and intangible assets for impairment pursuant to SFAS No.&nbsp;142, </FONT><FONT SIZE=2><I>Goodwill and Other Intangible
Assets</I></FONT><FONT SIZE=2> which we refer to as SFAS&nbsp;142. SFAS142 provides that goodwill and other intangible assets with indefinite lives are not amortized but tested for impairment
annually or more frequently if circumstances indicate potential impairment. The impairment test is comprised of two steps: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;A
reporting unit's fair value is compared to its carrying value. The carrying values of each reporting unit are determined by specifically identifying and allocating the
assets and liabilities of the Company to each reporting unit based on headcount, relative revenues or costs, or other methods as deemed appropriate by management. If the fair value is less than its
carrying value, impairment is indicated; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;if
impairment is indicated in the first step, it is measured by comparing the implied fair value of goodwill and intangible assets to their carrying value at the
reporting unit level. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>120</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounting for income taxes and tax contingencies.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In July 2006, the FASB issued FASB Interpretation No.&nbsp;48,
"Accounting for Uncertainty in Income Taxes" which we refer to as Interpretation No.&nbsp;48. Interpretation No.&nbsp;48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No.&nbsp;109, "Accounting for Income Taxes." Interpretation No.&nbsp;48 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Interpretation No.&nbsp;48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition. Kratos adopted the provisions of Interpretation No.&nbsp;48 effective January&nbsp;1, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of the process of preparing its consolidated financial statements Kratos is required to estimate its provision for income taxes in each of the tax jurisdictions in which it
conducts business. This process involves estimating Kratos' actual current tax expense in conjunction with the evaluation and measurement of temporary differences resulting from differing treatment of
certain items for tax and accounting purposes. These temporary differences result in the establishment of deferred tax assets and liabilities, which are recorded on a net basis and included in Kratos'
consolidated balance sheet. Kratos then assesses on a periodic basis the probability that its net deferred tax assets will be recovered and, therefore realized from future taxable income and to the
extent it believes that recovery is not more likely than not, a valuation allowance is established to address such risk resulting in an additional related provision for income taxes during the period. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant
management judgment is required in determining Kratos' provision for income taxes, its deferred tax assets and liabilities, tax contingencies, unrecognized tax benefits, and
any required valuation allowance, including taking into consideration the probability of the tax contingencies being incurred. Kratos' management assesses this probability based upon information
provided to Kratos by its tax advisors, its legal advisors and similar tax cases. If at a later time our assessment of the probability of these tax contingencies changes, Kratos' accrual for such tax
uncertainties may increase or decrease. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
has a valuation allowance at December&nbsp;31, 2007, due to management's overall assessment of risks and uncertainties related to our future ability to realize and, hence,
utilize certain deferred tax assets, primarily consisting of net operating losses, carry forward temporary differences and future tax deductions resulting from certain types of stock option exercises,
before they expire. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
2007 effective tax rate at December&nbsp;31, 2007 for annual and interim reporting periods could be impacted if uncertain tax positions that are not recognized at
December&nbsp;31, 2007 are settled at an amount which differs from Kratos' estimate. Finally, during 2008, if Kratos is impacted by a change in the valuation allowance as of December&nbsp;31, 2007
resulting from a change in judgment regarding the realizability of deferred tax assets beyond December&nbsp;31, 2007, such effect will be recognized in the interim period in which the change occurs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Accrual for partial self-insurance.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos maintains an accrual for its health and workers compensation partial self-insurance, which is a component of total accrued expenses in the
consolidated balance sheets. Management determines the adequacy of these accruals based on a monthly evaluation of its historical experience and trends related to both medical and workers compensation
claims and payments, information provided to Kratos by its insurance broker, industry experience and average lag period in which claims are paid. If such information indicates that Kratos' accruals
require adjustment, it will, correspondingly, revise the assumptions utilized in its methodologies and reduce or provide for additional accruals as deemed appropriate. Kratos also carries
stop-loss insurance that provides coverage limiting its total exposure related to each medical and workers compensation claim incurred, as defined in the applicable </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>121</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>insurance
policies. The medical and workers compensation limits per claim are $100,000 and $250,000, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Contingencies and litigation.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos is currently involved in certain legal proceedings. Kratos estimates a range of liability related to pending litigation where the amount and range of loss
can be estimated. Kratos records its estimate of a loss when the loss is considered probable and estimable. Where a liability is probable and there is a range of estimated loss and no amount in the
range is more likely than any other number in the range, Kratos records the minimum estimated liability related to the claim in accordance with SFAS No.&nbsp;5, "Accounting for Contingencies." As
additional information becomes available, Kratos assesses the potential liability related to its pending litigation and revise its estimates. Revisions in its estimates of potential liability could
materially impact its results of operations. See "Legal Proceedings" on page 94 for additional information. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Share-Based Payments.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning in fiscal year 2006, Kratos accounts for share-based compensation arrangements in accordance with the provisions of Statement of Financial Accounting
Standards No.&nbsp;123R, which we refer to as SFAS&nbsp;123R, "Share-Based Payments," which requires the measurement and recognition of compensation expense for all share-based payment awards to
employees and directors based on estimated fair values. Prior to adoption of SFAS&nbsp;123R, Kratos accounted for share-based compensation using the intrinsic value-based method in accordance with
Accounting Principles Board (APB) Opinion No.&nbsp;25, "Accounting for Stock Issued to Employees." Kratos adopted SFAS&nbsp;123R using the modified prospective transition method. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
valuation provisions of SFAS&nbsp;123R apply to new awards and to awards that are outstanding on the effective date and subsequently modified or cancelled. Under the modified
prospective application, which Kratos used, prior periods are not revised for comparative purposes. Kratos uses the Black-Scholes option valuation model to estimate the fair value of its stock options
at the grant date. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. Kratos'
employee stock options are generally subject to vesting restrictions and are generally not transferable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Option
pricing models require the input of highly subjective assumptions including the expected stock price volatility over the term of the award, the expected life of an option and the
number of awards ultimately expected to vest. Changes in these assumptions can materially affect the fair value estimates of an option. Furthermore, the estimated fair value of an option does not
necessarily represent the value that will ultimately be realized by an employee. Kratos used historical data to estimate the expected forfeiture rate, intrinsic and historical data to estimate the
expected price volatility, and a weighted-average expected life formula to estimate the expected option life. The risk-free rate is based on the U.S. Treasury yield curve in effect at the
time of grant for the estimated life of the option. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimates
of share-based compensation expenses are significant to Kratos' consolidated financial statements, but these expenses are based on option valuation models and will never result
in the payment of cash by us. For this reason, and because Kratos does not view share-based compensation as related to our operational performance, Kratos exclude estimated share-based compensation
expense when evaluating the business performance of its operating segments. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Quantitative and Qualitative Disclosures About Market Risk  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos is exposed to market risk in connection with changes in interest rates, primarily in connection with outstanding balances under Kratos' credit facility
with KeyBank National Association. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>122</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>Based
on Kratos' average outstanding balances during the year ended December&nbsp;31, 2007 a 1% change in the LIBOR rate would impact Kratos' financial position and results of operations by
approximately $0.4&nbsp;million over the next year. Kratos did not utilize any derivative financial instruments to hedge interest rate risks in 2007 or in prior years. Cash and cash equivalents as
of December&nbsp;31, 2007 were $8.6&nbsp;million and are primarily invested in money market interest bearing accounts. A hypothetical 10% adverse change in the average interest rate on Kratos'
money market cash investments and short-term investments would have had no material effect on net income for the year ended December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Recently Issued Accounting Pronouncements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2006, FASB issued Interpretation No.&nbsp;48, Accounting for Uncertainty in Income Taxes&#151;an interpretation of FASB Statement No.&nbsp;109
(FIN&nbsp;48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that Kratos recognize the impact of a tax position in its financial statements, if that
position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN&nbsp;48 are effective for fiscal years beginning after
December&nbsp;15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The application of this Statement reduced Kratos'
retained earnings on January&nbsp;1, 2007 by $0.1&nbsp;million to increase reserves for uncertain tax positions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
SEC issued Staff Accounting Bulletin No.&nbsp;108, which we refer to as SAB&nbsp;108, in September 2006. SAB&nbsp;108 expresses the views of the SEC staff regarding the process
of quantifying the materiality of financial misstatements. SAB&nbsp;108 requires both the balance sheet and income statement approaches be used when quantifying the materiality of misstatement
amounts. In addition, SAB&nbsp;108 contains guidance on correcting errors under the dual approach and provides transition guidance for correcting errors existing in prior years. SAB&nbsp;108 was
effective in Kratos' fourth quarter of 2006. The adoption of SAB&nbsp;108 did not have a material impact on Kratos' consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September 2006, the FASB issued SFAS No.&nbsp;157, "Fair Value Measurements," which we refer to as SFAS&nbsp;157. This new standard provides guidance for using fair value to
measure assets and liabilities and information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair
value measurements on earnings. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in
some cases require, estimates of fair market value. SFAS&nbsp;157 also expands financial statement disclosure requirements about a company's use of fair value measurements, including the effect of
such measures on earnings. The provisions of SFAS&nbsp;157 are effective for financial statements issued for fiscal years beginning after November&nbsp;15, 2007. Kratos is in the process of
determining the impact of this statement on its consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February 2007, the FASB issued FASB Statement No.&nbsp;159, </FONT><FONT SIZE=2><I>The Fair Value Option for Financial Assets and Financial Liabilities&#151;Including an
Amendment of FASB Statement No.&nbsp;115.</I></FONT><FONT SIZE=2> This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option
is available to all entities, including not-for-profit organizations. Most of the provisions in Statement 159 are elective; however, the amendment to FASB Statement
No.&nbsp;115, </FONT><FONT SIZE=2><I>Accounting for Certain Investments in Debt and Equity Securities</I></FONT><FONT SIZE=2> applies to all entities with available-for-sale
and trading securities. Some requirements apply differently to entities that do not report net income. The FASB's stated objective in issuing this standard is as follows: "to improve financial
reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
fair value option established by Statement 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report
unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>123</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>indicator
if the business entity does not report earnings) at each subsequent reporting date. A not-for-profit organization will report unrealized gains and losses in its
statement of activities or similar statement. The fair value option: (a)&nbsp;may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the
equity method; (b)&nbsp;is irrevocable (unless a new election date occurs); and (c)&nbsp;is applied only to entire instruments and not to portions of instruments. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement
159 is effective as of the beginning of an entity's first fiscal year that begins after November&nbsp;15, 2007. Early adoption is permitted as of the beginning of the
previous fiscal year provided that the entity makes that choice in the first 120&nbsp;days of that fiscal year and also elects to apply the provisions of FASB Statement No.&nbsp;157, </FONT> <FONT SIZE=2><I>Fair Value Measurements.</I></FONT><FONT
SIZE=2> Kratos is in the process of determining the impact of this statement on its consolidated financials statements. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 2007, the FASB issued SFAS No.&nbsp;141 (revised 2007) ("SFAS&nbsp;141R"), "Business Combinations" and SFAS No.&nbsp;160, which we refer to as SFAS&nbsp;160,
"Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No.&nbsp;51". SFAS&nbsp;141R will change how business acquisitions are accounted for
and will impact financial statements both on the acquisition date and in subsequent periods. SFAS&nbsp;160 will change the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of equity. The provisions of SFAS&nbsp;141R and SFAS&nbsp;160 are effective for financial statements issued for fiscal
years beginning after December&nbsp;15, 2008. Early adoption is not permitted. Kratos is in the process of determining the impact of these statements on its consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
more information on Kratos, see "Where You Can Find More Information" on page 215. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="dy42501_sys"> </A>
<A NAME="toc_dy42501_1"> </A>
<BR></FONT><FONT SIZE=2><B><I>SYS    <BR>    </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS and its subsidiaries provide information connectivity solutions that capture, analyze and present real-time information to customers in the
Department of Defense, Department of Homeland Security, other government agencies and commercial companies. Using interoperable communications software, sensors, digital video broadcast and
surveillance technologies, wireless networks, network management, decision-support tools and Net-Centric technologies, SYS's technical experts enhance complex decision-making. Founded in
1966, SYS is a California corporation headquartered in San Diego and has its principal offices in California and Virginia. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically,
SYS's revenues have been generated by providing information technology, systems integration and program and financial management services under long term contracts for the
Department of Defense and in particular the U.S. Navy. More recently, through a combination of acquisitions and internal growth initiatives, SYS has expanded and leveraged its technical engineering
services with complementary products and has broadened its customer base to include other government agencies and commercial enterprises beyond the Department of Defense. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
expanded products and services capabilities, together with SYS's longstanding expertise in situational awareness and systems engineering, has enabled SYS to develop a set of
information technology solutions to complement its services offerings for the Information Technology services and Public Safety and Security markets. SYS customers in these markets such as federal,
state and local governments, public safety first-responders, large corporations, schools and universities, all share a common need for decision support products and services that enhance or enable
connecting real-time data to decision makers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
delivers its solutions through two reportable segments, the Defense Solutions Group and the Public Safety, Security and Industrial Systems Group. The Defense Solutions Group focuses
on engineering, technical and management services to Federal Government agencies. The Public Safety, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>124</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>Security
and Industrial Systems Group focuses on providing "right-time" situation status and mission execution support solutions to government and commercial customers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
also provides solution lifecycle support with program, financial, test and logistical services, including classroom and online training. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
additional information, visit </FONT><FONT SIZE=2><I>www.systechnologies.com</I></FONT><FONT SIZE=2>. The information on this website is not incorporated by reference into this
proxy statement/prospectus. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Industry Overview/Market Opportunity  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's services and products are designed to address the information connectivity needs of its target customers in the Information Technology and Public Safety and
Security markets. All of these customers have a need for decision support solutions in order to respond quickly to an incident and to share information with other agencies or organizations in a
collaborative effort. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Solutions  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's solutions include the following: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Systems Engineering  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS has a longstanding history of providing top quality systems engineering assistance to both government and industry customers. Using a diverse team of subject
matter experts, SYS applies a robust systems engineering approach that delivers the proper balance of total system performance and total ownership costs within a
family-of-systems, systems-of systems context. SYS's engineers have broad experience in all aspects of systems engineering from requirements setting, component
design and testing to production. SYS achieves synergy by bringing together its expertise in many disciplines to build solutions which connect data to decisions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
provides a variety of Test and Evaluation core competencies geared to the methodologies of the Department of Defense C4ISR system acquisition. SYS delivers an
end-to-end solution providing Test and Evaluation support in program and administrative acquisition through the entire Test and Evaluation lifecycle. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Network Security and Management  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's solutions address the growing technological complexity, heightened security awareness and operations infrastructure needs in an increasingly
net-centric world. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
NeuralStar&#153; product is a network management platform that monitors networks in real-time, analyzes performance metrics and captures, correlates and stores
performance and alarm events for network devices, applications and services. NeuralStar&#153; is a network management platform that gives organizations the ability to manage heterogeneous data,
voice, video, wireless and satellite systems as a single environment, also allowing them to take direct control by issuing commands to network elements and automating manually intensive processes. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
NSMG solutions have been proven in some of the world's most intensive, high-security military environments, including serving the core network management component for
the Department of Defense's backbone network, known as the Global Information Grid. SYS network management solutions serve mission-critical roles at the Ballistic Missile Defense Agency, the National
Guard and the Defense Advanced Research Projects Agency. Net-centered enterprises and service providers, including Microsoft, BNSF, Broadwing and Cincinnati Bell, use SYS solutions to
increase service quality, efficiency and profitability. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>125</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B><I>Software Engineering  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's software engineering organization has a core expertise in a broad set of application domains such as enterprise information management and visualization
computing problems utilizing state of the art tools to address a wide range of futuristic operational and technical requirements. The group has an established reputation for technology transition. The
software group's predominant customer-base includes military command and control, homeland security, public safety, and related areas. Within the military domain, SYS has provided software
solutions for situation awareness, decision support, weather, anti-submarine warfare, network management, and distance learning. Non military domains include enterprise video systems for
surveillance and satellite broadcast, online training systems, and first-responder incident management and emergency response. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Public Safety and Security  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS provides integrated solutions for data interoperability and real-time situational awareness including collaboration, command and control, and
accountability for safer emergency operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
initial product focus is in the areas of increasing overall preparedness and improving information sharing. SYS is addressing this through its Vigilys&#153; solution which
can be used to more effectively manage incident response operations and enable efficient sharing of time critical information between responders in the field and supporting operations centers, and
between cooperating private, local, county, state, federal, and Department of Defense agencies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vigilys&#153;
is a software based tactical operations system designed for public safety agencies seeking to improve response capabilities and effectiveness. The
Vigilys&#153; solution delivers relevant and actionable real-time information to and from the scene of an incident for improved decision-making, resource allocation and response
coordination. The Vigilys&#153; product suite consists of the Vigilys Conductor, Vigilys Mobile and Vigilys Commander. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Enterprise Video Solutions  </I></B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> Video Surveillance  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's Marathon product suite includes integrated video surveillance, security, and loss prevention solutions that enhance operational management,
security&nbsp;&amp; safety and loss control. SYS's products are used by customers in market segments including point-of-sale (POS), central alarm monitoring, and homeland
security. SYS's Marathon Digital Video Recorder (DVR) software utilizes patented software-based video compression technology and state-of-the-art digital recording
which is designed to make video more practical by improving the usability of video and data through scalable networked digital video solutions. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
video surveillance management systems provide: (i)&nbsp;security surveillance for safety of employees and customers; (ii)&nbsp;recording and observing in store operations for
operational improvement, theft or
accidents; (iii)&nbsp;POS software integrating video clips with cash register transactions to reduce shrinkage and (iv)&nbsp;the ability to be remotely monitored by a remote central station
service. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
scalable PC network technology addresses the customer's operation as a whole, providing efficiencies and cost savings through an integrated approach. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> Video Distribution  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's video distribution products represent the convergence of broadcast and Internet technologies by providing head-end (transmission) equipment and
edge device (reception) equipment to provide the infrastructure for this key data and video powered distribution capability. SYS's products leverage its industry expertise in the video distribution
market with specific concentration on the key convergence </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>126</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>technologies
(MPEG-4 AVC/H.264, ATSC, DVB, IPv6, etc.) and an engineering approach to building scalable and modular products that respond rapidly to changes in the marketplace. SYS offers
products, technologies and solutions in the following areas: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Content
management
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>IP-based
content distribution
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Set
top box IRD's (integrated receiver-decoders)
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Video
on demand
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>ATSC
(American Television Standards Committee) digital broadcasting
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>DVB
(Digital Video Broadcast) satellite and terrestrial broadcasting </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
enterprise video solutions are distinguished by: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>IP-centric
video delivery products for internet, satellite, and terrestrial networks;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Strong
reputation and presence in the satellite and broadcast video markets and the security industry;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>In-house
integration technology for rapidly integrating third-party systems and information sources. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
solutions address the customer's operation as a whole, providing efficiencies and cost savings through an integrated approach based on feature-rich: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Scalable
network technology, including technology from SYS's flag-ship network management product, NeuralStar&#153;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Best-of-breed
SYS proprietary compression technology originally developed under a grant from the National Institute of Standards and Technology
(NIST), as well as best-of-breed standards-based compression technologies (MPEG-4 H.264 AVC)
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Data
interoperability integration technology from the SYS Vigilys&#153; product suite </FONT></DD></DL>
</UL>
<BR>
<UL>

<P style="font-family:times;"><FONT SIZE=2><I> Learning and Performance  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's learning and performance solutions consist of a broad range of products and services capabilities to deliver training solutions and web-enabled
or satellite based interactive distance learning (IDL) for customers in the Department of Defense, other government and commercial organizations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
training solutions include services, product development, and tools addressing a breadth of related disciplines that include human performance factors, job&nbsp;&amp; task analysis,
competencies definition, skills&nbsp;&amp; knowledge building via multiple deliver mediums, tracking, assessment, evaluation, and trend analysis. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
HSI solutions focus on improving human performance and readiness through workload analysis, process improvement, manpower optimization, human factors engineering, and advanced
training delivery methods/integrated learning environments. This area of work results in improved human performance, manpower optimization, and a higher state of readiness that reduce SYS's customer's
total ownership cost. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
IDL solutions utilize its established strengths in digital, audio and video broadcast products and expertise in its web-based learning management solutions through
which it has created a very robust, feature rich solution called Global Learning Solutions (GLS) which is targeted for the sizable interactive distance learning market including university,
government, defense, homeland security and company training and education programs. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>127</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GLS
is a comprehensive learning management system with complete broadcast infrastructure that enhances the distance learning experience. GLS incorporates a unique blend of content
distribution products and web-based system architecture to provide flexible content and delivery options that easily accommodate future expansion. SYS customizes solutions tailored to its
clients' needs and deliver them via the Internet and/or by satellite. The system facilitates various types of live and on-demand learning including e-learning,
instructor-led training, web and audio casts, live high-definition video, assessments/certifications, collaboration tools and the flexibility to include third party courseware
integration. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Management Support Services  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's program management and logistics group provides solutions support and services to meet the needs of its customers in business operations, program
management, financial management, engineering and maintenance services, enterprise solutions development and implementation and logistics support. Program management includes all elements of
operational and financial execution to meet required objectives and results. Logistics support includes life-cycle supportability and in-service engineering services to support
current and planned equipment, in a variety of platforms. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Business Strategy  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's business objectives are to diversify and grow its revenues, broaden its customer base and improve operating margins. SYS's strategy to achieve these
objectives is based on leveraging its core strengths in C4ISR, information technology, systems integration and program and financial management while adding complementary products and capabilities
that will allow it to grow its markets in these areas as well as expand into other markets, including commercial markets. SYS has affected this strategy through acquisitions and through productizing
capabilities and solutions developed through its engineering services. SYS believes that this strategy will enable it to diversify its revenue sources, compete for larger Department of Defense
programs and grow its operating margins, especially through the inclusion of products. Three key aspects of this strategy are as follows: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Timing.
The process of transforming from a pure service provider to providing a mix of high technology services and products is targeted to occur in a staged fashion. As
growth rates in revenues from SYS's engineering and program management services decrease or plateau, revenues from products or new customers need to be generated in a synchronized fashion;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Products.
As SYS acquires or develops new products its strategy is threefold; (i)&nbsp;to continue and grow the markets for which those products were initially developed;
(ii)&nbsp;to adapt those products for sale into its government related businesses and (iii)&nbsp;to integrate these products such that SYS can pursue programs that require a broader mix of
capabilities to deliver a complete solution;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Acquisitions.
SYS has expanded its capabilities and broadened its markets by acquiring companies that have products or niche service offerings. As SYS continues to execute
on this strategy, it will build the existing infrastructure to accommodate these new organizations as they adapt to SYS's systems and methodologies. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Recent Acquisitions and Technology Purchases  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;31, 2004, SYS acquired all of the outstanding stock of Polexis, a privately held, San Diego-based provider of advanced data management software in
support of enterprise operations and mission-critical decision-making. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;16, 2004, SYS acquired all of the assets of Xsilogy, a privately held, San Diego-based provider of wireless sensor network technologies and applications. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>128</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January&nbsp;6, 2005, SYS acquired all of the outstanding stock of Antin, a defense contractor that provided information technology, C4ISR, and technical support services. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
August&nbsp;22, 2005, SYS acquired the assets of Web Technologies,&nbsp;LLC (Web Tech), a provider of e-learning and web application development for customers
in the automotive, environmental, financial, technology, and hospitality industries, as well as the U.S. government. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
September&nbsp;27, 2005, SYS entered into an agreement to purchase certain technology and intellectual property rights related to the ForceViz technology of Lomasoft Corporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November&nbsp;7, 2005, SYS acquired all of the outstanding stock of Logic Innovations,&nbsp;Inc. (Logic), a privately held, San Diego-based provider of solutions that helped to
ensure the fast and efficient delivery of digital audio, video and data to the broadcasting, communications and consumer electronics industries. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;2, 2005, SYS acquired all of the assets and assumed certain specified liabilities of cVideo,&nbsp;Inc., a San Diego-based provider of interactive video and
information analysis products for business surveillance and security applications. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
April&nbsp;2, 2006, SYS acquired Realty Based Information Technology Services,&nbsp;Ltd. (RBIS), a provider of Information Technology security engineering which developed,
implemented and maintained convergent security services that are delivered by personnel with high level&nbsp;U.S. government clearances. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
October&nbsp;17, 2006, SYS acquired all the outstanding common stock of Ai Metrix, a Reston, Virginia provider of innovative network management software solutions delivered to
government and commercial customers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>U.S. Government Contracts  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS has derived a majority of its revenues from contracts with government agencies, the vast majority of which are with the Federal Government, under which it
acts as a prime or subcontractor. During fiscal 2007, approximately 88% of SYS's total annual revenues were derived from contracts with government agencies and 12% was derived from commercial
customers. SYS intends to focus on retaining and trying to increase the percentage of its business as prime contractor because it provides SYS with client relationships that generate higher levels of
revenue and makes SYS less dependent on other prime contractors. The following table shows SYS's revenues from each of these types of contracts as a percentage of its total contracts based revenues
for the three and six months ended December&nbsp;28, 2007 and December&nbsp;29, 2006: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="49%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Three Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Six months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="49%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Cost reimbursable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>79</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>77</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Time and materials</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Fixed price</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
costs of revenues are affected by the mix of contract types (cost reimbursement, fixed-price or time and materials) as well as the mix of prime contracts versus subcontracts.
Further, with the recent inclusion of products, SYS's cost of revenues will be affected by the cost and availability of materials and components, product mix and other fixed and variable costs.
Significant portions of SYS's contracts are time and materials and cost reimbursement contracts. Subject to contract limits, SYS is reimbursed for labor hours at negotiated hourly billing rates and
other direct expenses under time and materials contracts and reimbursed for all actual allowable costs, plus a fee, or profit, under cost reimbursement contracts. The financial risks under these
contracts are generally lower than those </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>129</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>associated
with other types of contracts such as fixed price contracts; however, the margins are also typically lower than those on fixed-price contracts. The U.S. Government also has awarded SYS
fixed-price contracts. Such contracts carry higher financial risks because SYS must deliver the products, systems or contract services at a cost below the fixed contract value in order to earn a
profit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Contract backlog  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS defines backlog as the amount of revenues it expects to realize over the remaining base contract performance period and for signed contracts in existence as
of the measurement date. SYS does not include contract ceiling values under MAC or ID/IQ contracts in its backlog calculation. SYS also does not include in backlog (i)&nbsp;the expected amount of
revenues that would be realized if, and when, it were successful in the re-compete of signed contracts in existence as of the measurement date or (ii)&nbsp;the expected amount of
revenues that would be realized from future unidentified growth on signed contracts and task orders in existence as of the measurement date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
defines funded backlog as the portion of its backlog for which funding currently is appropriated and obligated to it under a signed contract or task order by the purchasing agency,
or otherwise authorized for payment to it by a customer upon completion of a specified portion of work, less the amount of revenue it has previously recognized under the contract. SYS's funded backlog
does not include the full potential value of its contracts, because Congress often appropriates funds to be used by an agency for a particular program or contract on a yearly or quarterly basis, even
though the contract may call for performance over a number of years. As a result, contracts typically are only partially funded at any point during their term, and all or some of the work to be
performed under the
contracts may remain unfunded unless and until Congress makes subsequent appropriations and the procuring agency allocates funding to the contract. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
backlog as of December&nbsp;28, 2007 was $40.2&nbsp;million, of which $24.0&nbsp;million was funded and $16.2&nbsp;million had been ordered, but not yet funded. Total
backlog as of December&nbsp;29, 2006 was $43.5&nbsp;million, of which $30.0&nbsp;million was funded and $13.5&nbsp;million had been ordered, but not yet funded. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
of SYS's U.S. government contracts are subject to audit and various cost controls and include standard provisions for termination for the convenience of the U.S. government.
Multi-year U.S. government contracts and related orders are subject to cancellation if funds for contract performance for any subsequent year become unavailable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
preceding information regarding contract backlog and future revenues to be derived therefrom is forward-looking and is subject to certain risks and uncertainties including, but not
limited to, the inherent difficulty of predicting future contract potential, a dependence on the continued funding of Government programs and contract procurements, and the risk of contract
termination. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>130</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Customers  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS is engaged in multiple contracts as both a prime and subcontractor. Its customers include (but are not limited to) the following: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Defense</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="34%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Other Government</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="28%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Commercial</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2>U.S. Navy:<BR>
NAVSEA<BR>
SPAWAR<BR>
NAVAIR<BR>
ONR<BR>
Other Department of Defense Entities:<BR>
DARPA<BR>
Missile Defense Agency<BR>
NASA<BR>
DISA<BR>
Lockheed-Martin<BR>
Northrop Grumman<BR>
L-3 Communications&#151;Titan<BR>
Cubic Corporation<BR>
Boeing</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Department of Homeland Security<BR>
Delaware County, PA<BR>
California Office of Emergency Services<BR>
<BR>
California Department of Transportation<BR>
<BR>
Orange County Public Schools</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" style="font-family:times;"><FONT SIZE=2>American Honda Motor&nbsp;Co.,&nbsp;Inc.<BR>
Fox Networks<BR>
General Electric Corporation<BR>
HBO<BR>
IntelSat<BR>
Lehigh University<BR>
Motorola<BR>
PanAmSat<BR>
Pratt&nbsp;&amp; Whitney<BR>
Primemedia<BR>
Sempra Energy<BR>
Southern California Edison<BR>
United Airlines<BR>
Volkswagen of America</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B>COMPETITIVE CONDITIONS  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Defense Solutions Group  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of SYS's business is awarded through competitive procurements. The engineering and management services industry consists of many companies
with which SYS competes and who can provide the same or similar type of services. Many of SYS's competitors are larger and have greater financial resources than it does. SYS obtains much of its
business on the basis of proposals to new and existing customers. Competition usually centers on successful past performance, technical capability, management, personnel experience and price. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
has many competitors who compete for the same customers. They are competent, experienced and continuously working to take work and projects away from SYS. These competitors range in
size from small businesses to multi-billion dollar corporations. Much of SYS's business is long term and continuous. SYS recognizes that the SYS niche areas are desirable to other professional service
firms, and it continuously seeks to improve within these niches. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition
is intense in Department of Defense contracting. Typically, work is contracted to experienced incumbents who have existing business relationships with the contracting
organization. Breaking into new markets is difficult and time consuming. Though competitors have a difficult time competing in those areas where SYS is entrenched, SYS has also experienced
difficulties breaking into new Department of Defense markets, where competitors are entrenched. In Department of Defense contracting, there is a blurred line between competitors and partners. Often
companies are in competition in bidding for one contract, while they are cooperating team members in winning another. Generally, SYS faces competition from three categories of competitors: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Large Department of Defense Contractors.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Large Department of Defense contractors, such as Lockheed-Martin, Northrop Grumman,
L-3 Communications, Raytheon and others, represent serious competition to SYS in areas of systems engineering and in-service engineering. These and others compete in
information systems and communications. Large management consulting firms compete with </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>131</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>SYS
for management consulting, strategic planning and information technology work. These companies also team with smaller companies. Companies in this category include Booz, Allen&nbsp;&amp; Hamilton,
Bearing Point and Accenture. These large companies can rely upon considerable monetary and labor resources to win government contracts. They are broadly focused in the types of work they will seek to
obtain and are often teamed with small businesses and minority-owned businesses in subcontract arrangements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mid-Tier Competitors.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Mid-tier competitors include NCI,&nbsp;Inc., MTC Technologies, Kratos, and
Dynamics Research Corp. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Small Business Department of Defense Contractors and Small Disadvantaged Department of Defense Contractors.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Small business
Department of Defense contractors are generally more focused in their contracting strategies. They have fewer resources unless teamed with larger competitors. However, according to Department of
Defense policy, a certain portion of Department of Defense work is set aside for small businesses, creating an environment of fierce competition among these companies for the allocated work. The U.S.
Government, according to policy, also sets aside certain contracts for companies owned by members of statutorily identified disadvantaged groups. Because SYS does not qualify, it cannot compete in
this arena, except as a subcontractor to qualified businesses. These qualified small disadvantaged businesses, however, are free to compete for all government issued contracts. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
believes that the principal competitive factors in its ability to win new business include past performance, qualifications, domain and technology expertise, the ability to replace
contract vehicles, the ability to deliver results within budget (time and cost), reputation, accountability, staffing flexibility, and project management expertise. SYS believes its ability to compete
also depends on a number of additional factors including the ability of its customers to perform the services themselves, and competitive pricing for similar services. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Public Safety, Security and Industrial Systems Group  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS competes for both products and services based opportunities. On the services side many of the same competitors and competitive factors discussed under Defense
Solutions Group apply equally to
the Public Safety, Security and Industrial Systems Group business. With regards to products the competitors are generally industry or market specific, with some examples as follows: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Network
Management (HP OpenView; Micromuse(IBM); EMC Smarts; SolarWinds)
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Video
Surveillance(Honeywell; Kalatel (G.E.); I3DVR; ImageVault)
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Digital/Audio
Broadcast (Tandberg; Thompson; Helius; Wegener)
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>E-training/learning
solutions (General Physics; Learn.com) </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to the competitors listed above, as newer technologies are developed, many larger companies are forming strategic alliances to pursue market opportunities as opposed to
developing their own in-house proprietary solutions. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Intellectual Property and Other Proprietary Rights  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS has filed for a number of copyright protections on several of its products. In addition, it has also registered a number of trademarks to protect its
intellectual property. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the acquisition of the net assets of Xsilogy, SYS acquired two issued patents and numerous filed pending patents. The two issued patents are in the fields of flow
sensors and sensing pressure. The patents pending are in the fields of sensors and sensor network architecture. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>132</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
believes that its intellectual property is important to its success, and it tries to protect it as described above and through the maintenance of trade secrets. SYS feels that name
brand recognition will make its products and services stand out. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However,
the steps SYS takes to protect its intellectual property may be inadequate. Unauthorized parties may try to disclose, obtain or use SYS's proprietary information, which could
harm its business. Others may claim that SYS has violated its proprietary rights or infringed on its intellectual property. Any such claims could subject SYS to significant liability for damages and
invalidate its proprietary rights. Any efforts to protect or defend SYS's rights could be time-consuming and costly. Other parties may also independently develop similar or competing
technology. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Employees  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;31, 2008, SYS employed 405 employees. None of these employees are subject to a collective bargaining agreement, and there is no union
representation within SYS. SYS believes its employee relations are good. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>133</FONT></P>

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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="dz42501_sys_management_s_discussion_an__sys03652"> </A>
<A NAME="toc_dz42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION<BR>  AND RESULTS OF OPERATIONS    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should read the following discussion together with SYS's consolidated financial statements and the related notes to those financial statements that are
included in this proxy statement/prospectus. Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties.
SYS's future results could differ materially from those discussed here. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Overview  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues and profits for the fiscal year ended June&nbsp;30, 2007 were significantly impacted by three major themes. First, SYS's mix of revenues has changed as
a result of products based revenues growing from 5% of revenues in 2006 to 8% in 2007 which has directly resulted in its overall gross margins growing from 20% in 2006 to 24% in 2007. Second, while
SYS's services based revenues have been impacted by both funding delays and program reductions, SYS has had year over year growth in its services business. Third, SYS's operating costs and expenses
have increased significantly because (i)&nbsp;selling, general and administrative expenses as a result of the acquisitions in April and October 2006 and the expansion of the sales and marketing
efforts to support SYS's growth and (ii)&nbsp;SYS has made investments in research, engineering and development to further develop and expand its product offerings. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
business areas that encompass engineering and program management services have been in a continuous slow decline for the past five years while during this same period SYS's C4ISR
business has steadily grown. SYS anticipates that this trend of decreases in engineering and program management will continue as the Department of Defense continues to implement their information
transformation strategy focusing on enhanced information technology and communications systems, data acquisition and real time situational awareness. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's
cost of revenues is affected by the mix of contract types (cost reimbursement, fixed-price or time and materials) as well as the mix of prime contracts versus subcontracts and the
mix of product sales
revenue versus services revenue. Significant portions of SYS's contracts are time and materials and cost reimbursement contracts. SYS is reimbursed for labor hours at negotiated hourly billing rates
and other direct expenses under time and materials contracts and reimbursed for all actual costs, plus a fee, or profit, under cost reimbursement contracts. The financial risks under these contracts
are generally lower than those associated with other types of contracts, and margins are also typically lower than those on fixed-price contracts. The U.S. Government also has awarded SYS fixed-price
contracts. Such contracts carry higher financial risks because SYS must deliver the products, systems or contract services at a cost below the fixed contract value in order to earn a profit. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table shows SYS's revenues from each of these types of contracts as a percentage of SYS's total revenues for the fiscal years ended June&nbsp;30, 2007, 2006 and 2005: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="70%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Cost reimbursement</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>78</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>77</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>70</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Time and materials</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Fixed price</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>134</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth certain statements of operations data, including the amounts stated as a percentage of revenues, for the fiscal years ended June&nbsp;30, 2007, 2006 and
2005 (amounts in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="92%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="44%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Cost of revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>58.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>79.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>81.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Research, engineering and development expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Impairment charges</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Other (income) expense, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Income(loss) before income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Income tax (benefit) provision</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="44%" style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues
by reportable business segments for years ended June&nbsp;30, 2007, 2006 and 2005 were as follows (amounts in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Defense Solutions Group</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43.7</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Public Safety, Security and Industrial Systems Group</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.1</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45.8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Results of Operations  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Fiscal Year 2007 vs. Fiscal Year 2006  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Revenues increased by approximately $19.9&nbsp;million or 35.6% during fiscal 2007. The increase included
approximately $11.4&nbsp;million from acquisitions, $1.1&nbsp;million from products sales, and $11.6&nbsp;million from increases in training, software engineering services and engineering and
program management services which were partially offset by decreases of ($4.2) million in certain software development activities within SYS's Net-Centric programs. Acquisition related
revenues were primarily attributable to the acquisition of Ai Metrix in fiscal 2007 and the acquisitions of WebTech, Logic, cVideo and RBIS,&nbsp;Ltd. in fiscal 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
July&nbsp;1, 2006 certain business activities that were managed and reported under the Defense Solutions Group were moved into the Public Safety, Security and Industrial
Systems Group and are now managed and reported within that business group. The activities consisted principally of training related services and certain software services based contracts that are
inter-related with other activities in the Public Safety, Security and Industrial Systems Group. Prior period amounts have been reclassified to reflect the inclusion of these activities in the Public
Safety, Security and Industrial Systems Group. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
growth in the Defense Solutions Group of $4.9&nbsp;million is attributable to the acquisition of RBIS,&nbsp;Ltd., which added revenues of $5.7&nbsp;million and increases of
$3.4&nbsp;million in revenues from training, software engineering services and engineering and program management services. These increases were
partially offset by decreases of ($4.2) million in certain software development activities within SYS's Net-Centric programs. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
growth in the Public Safety, Security and Industrial Systems Group of $15.0&nbsp;million is attributable to i)&nbsp;growth in training related services of $8.1&nbsp;million due
to a combination of expansion of existing customer business, new business opportunities, and cross-selling opportunities within the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>135</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>SYS
customer base, ii)&nbsp;$1.1&nbsp;million increase in enterprise video product sales, and iii)&nbsp;$5.8&nbsp;million increase from acquisitions of Ai Metrix, WebTech, cVideo and Logic
Innovations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs of revenue.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Costs of revenue for services includes all direct costs such as labor, materials and subcontractor costs.
Costs of revenue for services also includes indirect overhead costs such as facilities, indirect labor, fringe benefits and other discretionary costs which are pooled and allocated to contracts on a
pro rata basis. Generally, changes in direct costs for services are correlated to changes in revenue as resources are consumed in the production of that revenue. Costs of revenue for products includes
the direct costs and manufacturing indirect expenses associated with manufacturing SYS's products. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a percentage of revenue, costs of revenue were 76.5% and 79.9% for fiscal 2007 and 2006, respectively, resulting in gross margins of 23.5% and 20.2%, respectively. The increase in
gross margins was the direct result of increased product sales that carry a higher gross margin than do SYS's services. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative expenses.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Selling, general and administrative expenses (SG&amp;A) include labor, fringe
benefits, sales and marketing, bid and proposal (B&amp;P) and other indirect costs. During 2007 SG&amp;A expenses increased by approximately $7.0&nbsp;million or 82.4% over the prior year. Increases in SG&amp;A
are attributable to the SG&amp;A of the acquisitions in the current fiscal year and also continue to be driven by (i)&nbsp;increased spending for sales and marketing efforts of approximately
$2.3&nbsp;million, (ii)&nbsp;increased spending for SYS's infrastructure support of approximately $1.6&nbsp;million, (iii)&nbsp;increased amortization expense attributable to acquisitions of
approximately $0.4&nbsp;million, (iv)&nbsp;increased bad debt expense of approximately $0.3&nbsp;million, (v)&nbsp;increased facility related expenses of approximately $1.0&nbsp;million, and
(vi)&nbsp;and an increase in all other expenses of approximately $1.4&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research, engineering and development expenses.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Research, engineering and development (R&amp;D) expenses include burdened labor
and material costs to develop new products as well as maintaining and enhancing SYS's existing product capabilities. R&amp;D expenses increased $0.4&nbsp;million or 11.1% over the prior year. The
increase in these expenses is primarily attributable to research and development as well as sustaining engineering related to SYS's enterprise video and network security and management product lines. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss from operations.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;SYS incurred a loss from operations of ($1.7) million as compared to a loss from operations of ($2.1)
million in the prior fiscal year. The prior year loss from operations included a $1.3&nbsp;million impairment charge. Accordingly, the loss from operations increased from the prior year net of the
impairment charge. This increase in loss from operations is primarily due to the increased spending for SG&amp;A and R&amp;D. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss
from operations includes share-based compensation expense of approximately $0.4&nbsp;million in fiscal 2007 and $0.5&nbsp;million in fiscal 2006. These expenses include
non-cash expenses associated with stock options granted to employees, the employee stock purchase plan and, in fiscal 2006, non-cash expenses related to an employee stock
purchase agreement. The recognition of these share-based compensation expenses is in accordance with SFAS No.&nbsp;123R, which was adopted as of the beginning of the fiscal 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other (income) expense.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Other (income) expense includes interest expense on SYS's outstanding convertible notes and
borrowings made under its credit facility and interest and other income. Other expense was $0.7&nbsp;million as compared to $0.3&nbsp;million in the prior year. The increase in other expense is
due primarily to a net increase in interest expense related to the issuance of approximately $3.1&nbsp;million in convertible notes in February 2006 and interest on SYS's term note issued in
connection with the RBIS acquisition in the fourth quarter of fiscal 2006, partially offset by the decrease in interest expense resulting from the conversion of convertible notes during fiscal 2006
and 2007. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>136</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax benefit.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The income tax benefit was ($0.7) million as compared to ($0.7) million in the prior year. SYS's
effective tax rate was 28.4% as compared to 28.3% in the prior year. SYS's effective tax rate is directly affected by share-based compensation expenses related to SFAS&nbsp;123R, which are not
deductible for tax purposes, but which are considered in estimating the annual effective tax rate. These factors can lead to large fluctuations in the estimated effective tax rate from quarter to
quarter. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;There were no dividends authorized or paid in 2007 or 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Results of Operations  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth selected items, including consolidated revenues for the three and six months ended December&nbsp;28, 2007 and December&nbsp;29,
2006 (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="96%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="31%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Three Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=9 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Six Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="31%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Percent</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Percent</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Percent</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Percent</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="31%" style="font-family:times;"><FONT SIZE=2>Revenues</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>38.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="31%" style="font-family:times;"><FONT SIZE=2>Costs of revenues</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>73.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="31%" style="font-family:times;"><FONT SIZE=2>Selling, general&nbsp;&amp; administrative</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="31%" style="font-family:times;"><FONT SIZE=2>Research, engineering and<BR>
development</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="31%" style="font-family:times;"><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="31%" style="font-family:times;"><FONT SIZE=2>Other expense (income)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="31%" style="font-family:times;"><FONT SIZE=2>Income tax provision (benefit)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For the three months ended December&nbsp;28, 2007, revenues were $18.1&nbsp;million, a decrease of
$1.1&nbsp;million or 5.7% compared to the same period in fiscal 2007. The decrease in revenues consisted of a $0.9&nbsp;million decrease in service related revenues and a $0.4&nbsp;million
decrease in product related revenues, which were partially offset by an increase of $0.2&nbsp;million of acquisition revenues related to Ai Metrix (acquired in October 2006). The decrease in
services related revenues was primarily attributable to decreases in certain software engineering and Information Technology support programs that were partially offset by growth in learning and
performance training solutions and in public safety solutions. For the six months ended December&nbsp;28, 2007, revenues were $38.6&nbsp;million, an increase of $3.1&nbsp;million or 8.7%
compared to the same period in fiscal 2007. The increase in revenues was attributable to $2.6&nbsp;million of acquisition revenues related to Ai Metrix and $0.5&nbsp;million of net increases in
other products and services. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues
by reportable segment for the three and six months ended December&nbsp;28, 2007 and December&nbsp;29, 2006 were as follows (in millions): </FONT></P>

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<TABLE WIDTH="101%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=10 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Three Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=10 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Six Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Change</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>%</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Change</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>%</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Defense Solutions Group</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(21.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Public Safety, Security and Industrial Systems Group</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2>Total revenues</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)%</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>38.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
decline in the Defense Solutions Group segment revenue of $2.7&nbsp;million and $2.8&nbsp;million in the three and six month periods, respectively, is primarily attributable to
decreases in certain engineering services and Information Technology support programs that were partially offset by growth in enterprise solutions services. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>137</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
growth in the Public Safety, Security and Industrial Systems Group segment revenue of $1.6&nbsp;million and $5.9&nbsp;million for the three and six month periods, respectively,
is attributable to the acquisition of Ai Metrix which added $0.2&nbsp;million and $2.5&nbsp;million of revenues in the three and six month periods respectively, and growth in network management
services, learning and performance training solutions, and public safety solutions, which combined contributed increased revenues of $1.4&nbsp;million and $3.4&nbsp;million in the three and six
month periods, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs
of revenue. Costs of revenue for services includes all direct costs such as labor, materials and subcontractor costs. Costs of revenue for services also includes indirect overhead
costs such as facilities, indirect labor, fringe benefits and other discretionary costs which are pooled and allocated to contracts on a pro rata basis. Generally, changes in direct costs for services
are correlated to changes in revenue as resources are consumed in the production of that revenue. Costs of revenue for products include the direct costs and manufacturing indirect expenses associated
with manufacturing SYS's products. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a percentage of revenue, costs of revenue were 74.6% for the three months ended December&nbsp;28, 2007 compared to 76.6% for the same period in fiscal 2007 resulting in gross
margins of 25.4% and 23.4%, respectively. For the six months ended December&nbsp;28, 2007 costs of revenue were 73.6% compared to 76.6% for the same period in fiscal 2007 resulting in gross margins
of 26.4% and 23.4%, respectively. During the three months ended December&nbsp;28, 2007, the growth in the gross margin resulted from higher margins from services revenues which were 23.0% as
compared to 19.5% in the prior year as a result of an increase in the gross margins on certain time and material contracts. During the six months ended December&nbsp;28, 2007 the increase in gross
margins was the result of increased product sales that carry a higher gross margin than do SYS's services together with the increased services margins previously discussed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling,
general and administrative expenses. Selling, general and administrative expenses (SG&amp;A) include labor, fringe benefits, sales and marketing, bid and proposal (B&amp;P) and other
indirect costs. SG&amp;A expenses decreased approximately $0.2&nbsp;million or 5.6%, to $3.4&nbsp;million in the three months ended December&nbsp;28, 2007 compared to the same period in fiscal 2007.
For the six months ended December&nbsp;28, 2007, there was essentially no change to SG&amp;A expenses compared to the same period in fiscal 2007. The decrease in SG&amp;A during the three month period is
primarily attributable to personnel reductions that were implemented at the end of FY07. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research,
engineering and development expenses. Research, engineering and development (R&amp;D) expenses include burdened labor and material costs to develop new products as well as
maintaining and enhancing SYS's existing product capabilities. During the three months ended December&nbsp;28, 2007, there was essentially no change to R&amp;D expenses compared to the same period in
fiscal 2007. During the six months ended December&nbsp;28, 2007, R&amp;D expenses increased approximately $.2&nbsp;million or 10.0% compared to the same period in fiscal 2007. The increase in these
expenses is primarily attributable to
research and development as well as sustaining engineering related to SYS's network security and management product lines that were partially offset by decreases in SYS's IP video and data
distribution product lines. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
(loss) from operations. SYS had income from operations of approximately $0.1&nbsp;million in the three months ended December&nbsp;28, 2007 compared to a loss from operations
of approximately $0.2&nbsp;million in the same period in fiscal 2007. For the six months ended December&nbsp;28, 2007, SYS had income from operations of approximately $1.2&nbsp;million compared
to a loss of approximately $0.4&nbsp;million for the same period in fiscal 2007. The increase in income from operations is primarily due to the increase in gross margins from SYS's product sales. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
(loss) from operations includes share-based compensation expense of approximately $0.1&nbsp;million and $0.2&nbsp;million for the three and six month periods ended
December&nbsp;28, 2007, respectively and the same amounts for each of these same periods in fiscal 2007. These expenses include non-cash expenses associated with stock options granted to
employees, the employee stock </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>138</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>purchase
plan. The recognition of these share-based compensation expenses is in accordance with SFAS&nbsp;123R, which was adopted as of the beginning of the fiscal 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
(income) expense. Other (income) expense includes interest expense on SYS's outstanding convertible notes and borrowings made under its credit facility and interest and other
income. Other expense was approximately $0.1&nbsp;million in the three months ended December&nbsp;28, 2007 compared to $0.2&nbsp;million in the same period in fiscal 2007 and $0.1&nbsp;million
for the six months ended December&nbsp;28, 2007 compared to $0.3&nbsp;million for the same period in fiscal 2007. The decrease in other expense is due primarily to a decrease in interest expense
related to a reduction of approximately $2.1&nbsp;million in convertible notes that matured and were converted to stock or paid down in cash during the prior fiscal year. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
tax provision (benefit). SYS's effective tax rates were 33.8% and 49.1% for three and six month periods ended December&nbsp;28, 2007, respectively, compared to 9.3% and 39.8%
for the comparable periods in fiscal 2007, respectively. SYS's effective tax rate is directly affected by share-based compensation expenses related to SFAS&nbsp;123R, which are not deductible for
tax purposes, but which are considered in estimating the annual effective tax rate as well as SYS's forecast of annual income before taxes. These factors can lead to large fluctuations in the
estimated effective tax rate from quarter to quarter. The 33.8% effective tax rate for the three month period ended December&nbsp;28, 2007 was the result of revising the estimated annual effective
tax rate to 49.1% from the 50.1% rate used at September&nbsp;28, 2007. The 9.3% effective tax rate for the three month period ended December&nbsp;29, 2006 was the result of revising SYS's
estimated annual effective tax rate used for fiscal 2007 from the 69.9% rate estimated at September&nbsp;29, 2006 to the 39.8% rate estimated at December&nbsp;29, 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Liquidity and Capital Resources  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, SYS has financed its operations and met its capital expenditure requirements through cash flows provided from operations, long-term
borrowings (including the sale of convertible notes), sales of equity securities and the use of its line of credit. The significant components of SYS's working capital are liquid assets such as cash,
trade accounts receivable, inventories and income taxes receivable, reduced by accounts payable, accrued expenses, line of credit, the current portion of SYS's term note, the current portion of its
convertible notes payable, the current portion of its deferred tax liabilities and deferred revenue. Working capital was $10.7&nbsp;million at December&nbsp;28, 2007 compared to
$8.2&nbsp;million at June&nbsp;30, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
flows from operating activities. Cash flows used in operating activities were approximately $1.5&nbsp;million for the six months ended December&nbsp;28, 2007 compared to cash
flows provided from operating activities of $0.4&nbsp;million for the same period in fiscal 2007. The increased use of cash in the current fiscal year was attributable to: (i)&nbsp;a significant
amount of liabilities for subcontractor and other trade payables and incentive compensation accrued at the end of fiscal 2007 that were paid during the first quarter of fiscal 2008 and (ii)&nbsp;an
increase in the percentage of SYS's accounts receivable in the 60 to 90&nbsp;day category which drove its DSO's from an average of 75&nbsp;days to 90&nbsp;days during the second quarter. A
significant portion of those receivables were collected subsequent to the end of the quarter. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
flows from investing activities. Cash flows used in investing activities were approximately $0.5&nbsp;million in the six months ended December&nbsp;28, 2007 compared to
$0.2&nbsp;million for the same fiscal period in 2007. The primary reason for the increase of cash related to financing activities in the current fiscal year relates to approximately
$0.2&nbsp;million of cash from Ai Metrix that exceeded acquisition costs when acquired in October 2007, which partially offset other cash used in investing activities in the prior fiscal year. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
flows from financing activities. Cash flows provided by financing activities were approximately $1.4&nbsp;million in the six months ended December&nbsp;28, 2007 compared to
$0.9&nbsp;million in the same period </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>139</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>in
fiscal 2007. The increase was due primarily to borrowings exceeding payments on SYS's credit facility in the current fiscal year. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One
of SYS's regular sources of liquidity is its revolving line of credit facility with Comerica for $4.0&nbsp;million, which expires on December&nbsp;28, 2008. The outstanding
balance on SYS's revolving $4.0&nbsp;million line of credit at December&nbsp;28, 2007 was $1.1&nbsp;million. SYS's $4.0&nbsp;million revolving line of credit facility allows SYS to use
(i)&nbsp;the full $4.0&nbsp;million for working capital purposes or (ii)&nbsp;under a Sub Facility, up to $2.0&nbsp;million of the credit facility for permitted acquisition purposes and
$750,000 for minority investment purposes. The line of credit is subject to certain restrictions on permitted acquisitions and minority investments, and in some cases, SYS must receive the lender's
consent prior
to using the facility for such purposes. If used for permitted acquisitions or minority investments, these advances must be repaid over 48&nbsp;months. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
fiscal 2006, in connection with the purchase of RBIS, SYS utilized $1.0&nbsp;million of this line for payment of a portion of the purchase consideration. In accordance with the
terms of the credit facility, the $1.0&nbsp;million was converted to a term note effective June&nbsp;10, 2006. The term note is payable in monthly installments of $20,833 plus interest for fiscal
years 2007 through 2010, with payments beginning October, 2006. In June 2007, SYS elected to pre-pay principal of $0.25&nbsp;million which represented the amount of principal due for the
next twelve months. The balance of the term note as of December&nbsp;28, 2007 was $0.5&nbsp;million, of which $0.1&nbsp;million is classified as a current liability. A total of
$0.25&nbsp;million of principal amounts of this note are due annually in fiscal years 2009 and 2010. The outstanding balance related to the Sub Facility reduces the maximum borrowings available
under the line of credit. As a result, as of December&nbsp;28, 2007, the maximum borrowing under the line of credit was $3.5&nbsp;million and the remaining available borrowing capacity on the line
of credit was approximately $2.4&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
September&nbsp;27, 2006, SYS and the lender agreed to amend the terms of the line of credit to eliminate the minimum quarterly net income covenant and the ratio of senior debt to
EBITDA covenant and modify the tangible effective net worth covenant and cash flow coverage ratio covenant. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
has the option of being charged prime plus 0.25% or LIBOR plus 300 basis points on the credit facility and prime plus 0.50% or LIBOR plus 325 basis points on the sub facility subject
to minimum advance amounts and duration under the LIBOR option. The loan is collateralized by all of SYS's assets including accounts receivable. Borrowings are limited to 80% of SYS's billed accounts
receivable that are less than 90&nbsp;days old. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management
believes that SYS will have sufficient cash flow from operations and funds available under the revolving credit agreement to finance its operating and capital requirements for
at least the next twelve months. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term
liquidity and continued acquisition related growth will depend on SYS's ability to manage cash, raise cash through debt and equity financing transactions and
maintain profitability. SYS may seek to raise additional capital from time to time as market conditions permit and subject to Board approval. SYS's losses in the two prior fiscal years may impact its
ability to raise capital. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January 2008, the Internal Revenue Service (IRS) completed its examination of SYS's U.S. income tax returns for fiscal years ended June&nbsp;30, 2004 through June&nbsp;30, 2006.
SYS has agreed to IRS adjustments to reverse the acceleration of the deduction of certain expenses incurred in a subsequent year for the tax years under audit resulting in a payment in January 2008
for taxes of $483,000. This amount was included in the income taxes payable as of June&nbsp;30, 2007 and December&nbsp;28, 2007. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Recent Accounting Pronouncements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2007, the Financial Accounting Standards Board, which we refer to as FASB, issued Statement of Financial Accounting Standards ("SFAS") No.&nbsp;141
(revised 2007), Business Combinations, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>140</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>which
replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are
recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process
research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No.&nbsp;141R is effective for SYS beginning July&nbsp;1, 2009 and will apply
prospectively to business combinations completed on or after that date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July&nbsp;1, 2007, SYS adopted the provisions of the FASB Interpretation No.&nbsp;48 ("FIN&nbsp;48"), Accounting for Uncertainty in Income Taxes&#151;an interpretation of
FASB Statement No.&nbsp;109, which provides a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Under
FIN&nbsp;48, SYS may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. FIN&nbsp;48 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Upon adoption, SYS recognized a $19,000 charge to its beginning retained
deficit as a cumulative effect of a change in accounting principle. See Note&nbsp;10&#151;Income Tax. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
May 2007, the FASB issued FASB Staff Position ("FSP") FIN&nbsp;48-1 Definition of Settlement in FASB Interpretation No.&nbsp;48 (FSP FIN&nbsp;48-1). FSP
FIN&nbsp;48-1 provides guidance on how to determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP
FIN&nbsp;48-1 is effective for SYS beginning July&nbsp;1, 2007. The implementation of this standard had no significant impact on SYS's condensed consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February 2007, the FASB issued Statement No.&nbsp;159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No.&nbsp;115
("SFAS&nbsp;159"). SFAS&nbsp;159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair
value. SFAS&nbsp;159 will be effective for SYS beginning July&nbsp;1, 2008. SYS is in the process of determining the impact of this statement on its consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September 2006, the FASB issued Statement No.&nbsp;157 ("SFAS&nbsp;157"), Fair Value Measurements. SFAS&nbsp;157 prescribes a single definition of fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting provisions of SFAS&nbsp;157 will be
effective for SYS beginning July&nbsp;1, 2008. SYS is in the process of determining the impact of this statement on its consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
more information on SYS, see "Where You Can Find More Information" on page 215. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>141</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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<A NAME="toc_ea42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>KRATOS ANNUAL MEETING    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Date, Time and Place  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These proxy materials are delivered in connection with the solicitation by the Kratos board of directors of proxies to be voted at the Kratos annual meeting,
which is to be held at 4810 Eastgate Mall, San Diego, CA&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008, at 10:00&nbsp;a.m., local time,
on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008. On or
about&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008, Kratos commenced
mailing
this Proxy Statement and the enclosed form of proxy to its stockholders entitled to vote at the meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Purpose of the Kratos Annual Meeting  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos stockholders will be asked to vote on the following six proposals: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
elect five directors for one-year terms or until their successors are elected and duly qualified. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
ratify the selection of Grant Thornton&nbsp;LLP as our independent auditors for the fiscal year ending December&nbsp;28, 2008. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve the amendment to the Kratos 1999 Employee Stock Purchase Plan to increase the aggregate number of shares that may be issued under the plan by 1,500,000 shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve an amendment to the Kratos 2005 Equity Incentive Plan to increase the aggregate number of shares that may be issued under the plan by 3,000,000&nbsp;shares </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve the issuance of Kratos common stock, par value $0.001 per share, pursuant to the Agreement and Plan of Merger and Reorganization, dated as of
February&nbsp;20, 2008, by and among Kratos Defense&nbsp;&amp; Security Solutions, Inc., White Shadow, Inc., and SYS, as the same may be amended from time to time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve any motion to adjourn or postpone the annual meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at
the time of the annual meeting to approve the first five proposals listed above. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
transact such other business as may properly come before the annual meeting or any adjournment or postponement thereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Kratos Record Date;  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Only stockholders of record as of the close of business on
[&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;], 2008 (the official record date) will be entitled to notice
of and to vote at the annual meeting or at any subsequent meeting due to an adjournment of the original meeting. </FONT><FONT SIZE=2><B>We are mailing this proxy statement and the accompanying proxy
card on or about [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;], 2008 to all stockholders of record as of
[&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;], 2008</B></FONT><FONT SIZE=2>. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Shares Outstanding and Voting Rights  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On the record date, [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,] 2008, Kratos had
two classes of voting stock outstanding, common stock and preferred stock. At
April&nbsp;8, 2008, 78,998,922 shares of common stock were issued and outstanding and 10,000 shares of Series&nbsp;B Convertible Preferred Stock were issued and outstanding. Each outstanding share
of common stock entitles the holder to one vote and each outstanding share of Series&nbsp;B Convertible Preferred Stock entitles the holder to one hundred votes, on all matters to be voted upon at
the annual meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
complete list of stockholders entitled to vote at the Kratos annual meeting will be available for examination by any Kratos stockholder at Kratos' headquarters, for purposes pertaining
to the Kratos </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>142</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>annual
meeting, during normal business hours for a period of ten days before the Kratos annual meeting, and at the time and place of the Kratos annual meeting. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Quorum and Votes Required  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to carry on the business of the meeting, Kratos must have a quorum. A quorum requires the presence, in person or by proxy, of the holders of a majority
of the votes entitled to be cast at the meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Required vote to elect Scott I. Anderson, Bandel L. Carano, Eric M. DeMarco, William A. Hoglund and Scot B. Jarvis to the Kratos Board of Directors
(Item&nbsp;1 on the Proxy Card)  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors are elected by a plurality of the votes present in person or by proxy and entitled to vote at a meeting at which a quorum is present. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Required vote to ratify the selection of Grant Thornton&nbsp;LLP as independent auditors for Kratos (Item&nbsp;2 on the Proxy Card)  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The affirmative vote of a majority of the shares of Kratos common stock entitled to vote at the meeting is required to approve the selection of Grant
Thornton&nbsp;LLP as independent auditors for Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Required vote to approve the amendment to the 1999 Employee Stock Purchase Plan to increase the aggregate number of shares that may be issued under the
Plan by 1,500,000 shares (Item&nbsp;3 on the Proxy Card)  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The affirmative vote of a majority of the shares of Kratos common stock entitled to vote at the meeting is required to approve the amendment to the 1999 Employee
Stock Purchase Plan to increase the aggregate number of shares that may be issued under the Plan by 1,500,000 shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Required vote to approve the amendment to the 2005 Equity Incentive Plan to increase the aggregate number of shares that may be issued under the Plan by
3,000,000 shares (Item&nbsp;4 on the Proxy Card)  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The affirmative vote of a majority of the shares of Kratos common stock entitled to vote at the meeting is required to approve the amendment to the 2005 Employee
Incentive Plan to increase the aggregate number of shares that may be issued under the Plan by 3,000,000 shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Required Vote to Approve the Share Issuance (Item&nbsp;5 on the proxy card)  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The affirmative vote of a majority of the shares of Kratos common stock entitled to vote at the meeting is required to approve the Share Issuance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Required Vote to approve any motion to adjourn or postpone the annual meeting to a later date or dates, if necessary, to solicit additional proxies if
there are insufficient votes at the time of the annual meeting to approve the Share Issuance (Item&nbsp;6 on the proxy card).  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The affirmative vote of a majority of the shares of Kratos common stock represented at the meeting either in person or by proxy is required to adjourn or postpone
the annual meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at the time of the annual meeting to approve the Share Issuance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Treatment of Abstentions, Non-Voting and Incomplete Proxies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brokers who hold shares of Kratos common stock in "street name" for a beneficial owner of those shares typically have the authority to vote in their discretion on
routine proposals when they have not received instructions from beneficial owners. However, under the rules that govern brokers, brokers are </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>143</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>not
allowed to exercise their voting discretion with respect to the approval of matters that are "non-routine," such as approval of the issuance of shares of Kratos common stock pursuant to the merger
agreement, without specific instructions from the beneficial owner. These non-voted shares are referred to as "broker non-votes." If your broker holds your Kratos common stock in "street name," your
broker will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker with this joint Proxy Statement. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you return a proxy card but fail to indicate your vote with respect to a proposal, an incomplete proxy, your shares will be voted in favor of the proposal in accordance with the
recommendation of the board of directors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Abstentions,
incomplete proxies and "broker non-votes" will be counted as present and entitled to vote for purposes of determining whether a quorum is present at the meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
Proposal&nbsp;1, because directors are elected by a plurality of the votes cast, abstentions will not be counted in determining which nominees received the largest number of votes
cast. Broker non-votes are not expected to result from the vote on Proposal&nbsp;1. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
Proposal&nbsp;2, abstentions will have the same effect as voting against the ratification of the selection of Grant Thornton&nbsp;LLP as independent auditors of Kratos. Broker
non-votes are not expected to result from the vote on Proposal&nbsp;2. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
Proposal&nbsp;3, abstentions will have the same effect as voting against the amendment to the Kratos 1999 Employee Stock Purchase Plan to increase the aggregate number of shares
that may be issued under the Plan by 1,500,000&nbsp;shares. Brokers and other nominees will not have discretionary voting authority on this proposal and thus broker non-votes will result from the
vote on Proposal&nbsp;3. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
Proposal&nbsp;4, abstentions will have the same effect as voting against the amendment to the Kratos 2005 Equity Incentive Plan to increase the aggregate number of shares that may
be issued under the
Plan by 3,000,000&nbsp;shares. Brokers and other nominees will not have discretionary voting authority on this proposal and thus broker non-votes will result from the vote on Proposal&nbsp;4. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
Proposal&nbsp;5, abstentions will have the same effect as voting against approval of the issuance of shares of Kratos common stock pursuant to the merger agreement. Brokers and
other nominees will not have discretionary voting authority on this proposal and thus broker non-votes will result from the vote on Proposal&nbsp;5. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
Proposal&nbsp;6, abstentions will have the same effect as voting against approval of an adjournment. Broker non-votes are not expected to result from the vote on Proposal&nbsp;6. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Voting by Kratos Directors and Executive Officers  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On the Kratos record date, directors and executive officers of Kratos and their affiliates owned and were entitled to vote
[&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;] shares of Kratos common stock, or approximately [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;]% of the total voting power of the shares of Kratos common stock
and
shares of Kratos capital stock outstanding on that date. Each of Kratos' directors and executive officers have executed voting agreements pursuant to which each has agreed to vote their shares of
common stock in favor of the items listed on the Proxy Card. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Voting of Proxies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Giving a proxy means that a Kratos stockholder authorizes the persons named in the enclosed proxy card to vote its shares at the Kratos annual meeting in the
manner it directs. A Kratos </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>144</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>stockholder
may vote by proxy or in person at the meeting. To vote by proxy, a Kratos stockholder may use one of the following methods if it is a registered holder (that is, it holds its stock in its
own name): </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>Telephone voting,</B></FONT><FONT SIZE=2> by dialing the toll-free number and following the instructions on the proxy card;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>Via the Internet,</B></FONT><FONT SIZE=2> by going to the web address www.proxyvote.com and following the instructions on the proxy card; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>Mail,</B></FONT><FONT SIZE=2> by completing and returning the proxy card in the enclosed envelope. The envelope requires no additional postage if
mailed in the United States. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
requests that Kratos stockholders complete and sign the accompanying proxy and return it to Kratos as soon as possible in the enclosed postage-paid envelope. When the
accompanying proxy is returned properly executed, the shares of Kratos stock represented by it will be voted at the Kratos annual meeting in accordance with the instructions contained on the proxy
card. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any proxy is returned without indication as to how to vote, the Kratos stock represented by the proxy will be considered a vote in favor of all matters for consideration at the Kratos
annual meeting. Unless a Kratos stockholder checks the box on its proxy card to withhold discretionary authority, the proxy holders may use their discretion to vote on other matters relating to the
Kratos annual meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
a Kratos stockholder's shares are held in "street name" by a broker or other nominee, the stockholder should check the voting form used by that firm to determine whether it may vote
by telephone or the Internet. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Every Kratos stockholder's vote is important. Accordingly, each Kratos stockholder should sign, date and return the enclosed proxy card, or vote via the Internet
or by telephone, whether or not it plans to attend the Kratos annual meeting in person.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Revocability of Proxies and Changes to a Kratos Stockholder's Vote  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A Kratos stockholder has the power to change its vote at any time before its shares are voted at the annual meeting by: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>notifying
Kratos' Corporate Secretary, Laura L. Siegal, in writing at 4810 Eastgate Mall, San Diego, CA 92121 that you are revoking your proxy;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>executing
and delivering a later dated proxy card or submitting a later dated vote by telephone or in the internet; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>voting
in person at the annual meeting. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>However, if a Kratos stockholder has shares held through a brokerage firm, bank or other custodian, it may revoke its instructions only by informing the custodian
in accordance with any procedures it has established.</B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Solicitation of Proxies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The solicitation of proxies from Kratos stockholders is made on behalf of the Kratos board of directors. Kratos and SYS will generally share equally the cost and
expenses of printing and mailing this Proxy Statement and all fees paid to the SEC. Kratos will pay the costs of soliciting and obtaining these proxies, including the cost of reimbursing brokers,
banks and other financial institutions for forwarding proxy materials to their customers. Proxies may be solicited, without extra compensation, by Kratos officers and employees by mail, telephone,
fax, personal interviews or other methods of communication. Kratos has engaged the firm of Georgenson Shareholder to assist Kratos in the distribution and solicitation of proxies from Kratos
stockholders and will pay Georgenson Shareholder </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>145</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>an
estimated fee of $8,850 plus out-of-pocket expenses for its services. SYS will pay the costs of soliciting and obtaining its proxies and all other expenses related to the
SYS special meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Internet Availability of Proxy Materials and Delivery of Proxy Materials to Households Where Two or More Stockholders Reside  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As permitted by the Exchange Act, only one copy of this Proxy Statement is being delivered to stockholders residing at the same address, unless Kratos
stockholders have notified Kratos of their desire to receive multiple copies of the Proxy Statement. This is known as householding. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
will promptly deliver, upon oral or written request, a separate copy of this Proxy Statement to any stockholder residing at an address to which only one copy was mailed. Requests
for additional copies for this year or future years should be directed to: Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., Attention: Corporate Secretary, 4810 Eastgate Mall, San Diego, CA
92121. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
Kratos stockholders may view this Proxy Statement on the internet at: www.kratosdefense.com. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Attending the Meeting  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to space availability, all stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited,
admission to the meeting will be on a first-come, first-served basis. Registration and seating will begin
at&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.m., local time.
</FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are a registered stockholder (that is, if you hold your stock in certificate form), an admission ticket is enclosed with your proxy card. If you wish to attend the annual meeting,
please vote your proxy but keep the admission ticket and bring it with you to the annual meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
your shares are held in "street name" (that is, through a bank, broker or other holder of record) and you wish to attend the annual meeting, you need to bring a copy of a bank or
brokerage statement to the annual meeting reflecting your stock ownership as of the Kratos record date. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ea42501_proposal_1_election_of_directors"> </A>
<A NAME="toc_ea42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>PROPOSAL 1    <BR>    <BR>    ELECTION OF DIRECTORS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kratos board of directors has designated the persons named below as nominees for election of directors, for one-year terms, expiring at its 2009
Annual Meeting of Stockholders. All nominees are currently serving as directors of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Kratos board of directors is elected annually and currently consists of five members, all of whom are standing for re-election to the board of directors at the annual
meeting. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Vote Required and the Kratos Board of Directors' Recommendation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each director is elected by a plurality of the votes cast. The persons named in the enclosed proxy will vote the proxies they receive FOR the election of the
nominees named below, unless a particular proxy card withholds authorization to do so, or provides contrary instructions. Abstentions will be counted as present for purposes of determining the
presence of a quorum, but will not have any effect on the outcome of voting with respect to the election of directors. Broker non-votes are not expected to result from this proposal. Each of the
nominees has indicated that he is willing and able to serve as a director. If, before the annual meeting, any nominee becomes unable to serve, an event that is not anticipated by the Kratos board of
directors, the proxies will be voted for the election of whomever the Kratos board of directors may designate. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>146</FONT></P>

<HR NOSHADE>
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<BR></FONT><FONT SIZE=2><B>The Kratos board of directors recommends that stockholders<BR>  vote </B></FONT><FONT SIZE=2><B><I><U>FOR</U></I></B></FONT><FONT SIZE=2><B> the election of each of the nominees for director listed below.  <BR>
</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Nominees For Election:  </B></FONT></P>

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<TABLE WIDTH="78%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="30%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Age</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="60%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Committees</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="30%" style="font-family:times;"><FONT SIZE=2>Scott I. Anderson</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Audit Committee Chair and Nominating and Corporate Governance Comitteee</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="30%" style="font-family:times;"><FONT SIZE=2>Bandel L. Carano</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Compensation Committee and Nominating and Corporate Governance Comitteee</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="30%" style="font-family:times;"><FONT SIZE=2>Eric M. DeMarco</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="30%" style="font-family:times;"><FONT SIZE=2>William A. Hoglund</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>54</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Audit Committee, Compensation Committee and Nominating and Corporate Governance Comitteee Chair</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="30%" style="font-family:times;"><FONT SIZE=2>Scot B. Jarvis</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>47</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Audit Committee, Compensation Committee Chair and Nominating and Corporate Governance Comitteee</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Scott
I. Anderson, 49, has been a director since February 1997. Since 1997, Mr.&nbsp;Anderson has been a principal of Cedar Grove Partners,&nbsp;LLC, an investment and advisory
concern. Since 1998, Mr.&nbsp;Anderson has also been a principal of Cedar Grove Investments,&nbsp;LLC, a private seed capital firm. Mr.&nbsp;Anderson was with McCaw Cellular/AT&amp;T Wireless, most
recently as Senior Vice President of the Acquisitions and Development group. Mr.&nbsp;Anderson served on the board of directors of SunCom Wireless until its acquisition by T-Mobile in
February 2008 and also serves on the boards of directors of, mInfo,&nbsp;Inc. and GotVoice,&nbsp;Inc.; CosComm International, Inc., Globys, Inc. and Anvil Corp. Mr.&nbsp;Anderson is a member of
the control groups of Von Donop Inlet PCS,&nbsp;LLC and LCW Wireless,&nbsp;LLC, both wireless licensees. He holds a B.A. in History from the University of Washington, Magna Cum Laude, and a J.D.
from the University of Washington Law School, with highest honors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bandel
L. Carano, 46, originally served as a director from August 1998 to June 2001, and re-joined the Kratos board of directors in October 2001. Since 1987, he has been a
general partner of Oak Investment Partners, a multi-stage venture capital firm. Mr.&nbsp;Carano also serves on the Investment Advisory Board of the Stanford Engineering Venture Fund, the boards of
directors of Airspan Networks,&nbsp;Inc. and FiberTower Corporation, the supervisory board of Tele Atlas&nbsp;N.V. and the board of directors of numerous private companies, including MobiTV,
NeoPhotonics, nLight Photonics, Tensilica and Visto Corporation. Mr.&nbsp;Carano holds a B.S. and an M.S. in Electrical Engineering from Stanford University. Mr.&nbsp;Carano was nominated and
elected as one of our directors pursuant to the terms of a purchase agreement among Kratos and certain of its stockholders in connection with the sale of Kratos' Series&nbsp;A Convertible Preferred
Stock in October 2001. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Eric
M. DeMarco, 44, joined Kratos in November 2003 as President and Chief Operating Officer. Mr.&nbsp;DeMarco was appointed a director and assumed the role of Chief Executive Officer
effective April&nbsp;1, 2004. Prior to coming to Kratos, Mr.&nbsp;DeMarco most recently served as President and Chief Operating Officer of The Titan Corporation ("Titan"), a Delaware corporation.
Prior to his being named President and Chief Operating Officer, Mr.&nbsp;DeMarco served as Executive Vice President and Chief Financial Officer of Titan. Prior to joining Titan, Mr.&nbsp;DeMarco
served in a variety of public accounting positions primarily focusing on large multinational corporations and publicly traded companies. Mr.&nbsp;DeMarco holds a Bachelor of Science, Business
Administration and Finance, Summa Cum Laude, from the University of New Hampshire. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;William
A. Hoglund, 54, has been a director since February 2001. Mr.&nbsp;Hoglund is also a member of Safeboats International,&nbsp;LLC. From 1996 to 2000 Mr.&nbsp;Hoglund served
as the Vice President and Chief Financial Officer of Eagle River,&nbsp;LLC, a private investment company. During his tenure at Eagle River, Mr.&nbsp;Hoglund was also a director of Nextel
Communications,&nbsp;Inc. and Nextlink </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>147</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>Communications,&nbsp;Inc.
Mr.&nbsp;Hoglund holds a B.A. in Management Science and German Literature from Duke University and an MBA from the University of Chicago. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Scot
B. Jarvis, 47, joined the Kratos board of directors in February 1997. Mr.&nbsp;Jarvis co-founded Cedar Grove Partners,&nbsp;LLC in 1997, an investment and
consulting/advisory partnership, and currently is its managing member. Prior to co-founding Cedar Grove, Mr.&nbsp;Jarvis served as a senior executive of Eagle River,&nbsp;Inc., a McCaw
investment firm. While at Eagle River he founded Nextlink Communications on behalf of McCaw and served as its president. He also served as a regional president for Nextel Communications. From 1985 to
1994, Mr.&nbsp;Jarvis served in several executive capacities at McCaw Cellular Communications up until it was sold to AT&amp;T. Mr.&nbsp;Jarvis serves on the corporate boards of Cantata
Technology,&nbsp;Inc., Wavelink Corporation, Visto Corporation, SkyPipeline and Slingshot Sports. Mr.&nbsp;Jarvis holds a B.A. in Business Administration from the University of Washington. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Corporate Governance Guidelines  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kratos board of directors has adopted corporate governance guidelines to assist the Kratos board of directors in the exercise of its responsibilities and to
serve the interests of Kratos and our stockholders. The corporate governance guidelines are available for review on our website at www.kratosdefense.com. The information on Kratos' website is not a
part of this prospectus. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Director Independence  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kratos board of directors has unanimously determined that four of our directors standing for election, Messrs.&nbsp;Anderson, Carano, Hoglund and Jarvis,
who constitute a majority of the Kratos board of directors, are "independent" as that term is defined by the NASDAQ Marketplace Rule&nbsp;4200(a)(15). In making this determination, the Kratos board
of directors has affirmatively determined, considering broadly all relevant facts and circumstances regarding each independent director, that none of the independent directors has a material
relationship with Kratos (either directly or as a partner, stockholder, officer or affiliate of an organization that has a relationship with Kratos). In addition, based upon such standards, the Kratos
board of directors determined that Mr.&nbsp;DeMarco is not "independent" because he is the President and Chief Executive Officer. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Nominations for Directors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Nominating and Corporate Governance Committee is responsible for screening potential director candidates and recommending qualified candidates to the Board
for nomination. The committee will consider and evaluate any recommendation for director nominees proposed by a stockholder who (i)&nbsp;has continuously held at least 1% of the outstanding shares
of Kratos' common stock entitled to vote at the annual meeting of stockholders for at least one year by the date the stockholder makes the recommendation and (ii)&nbsp;undertakes to continue to hold
the common stock through the date of the meeting. In order to be evaluated in connection with Kratos' established procedures for evaluating potential director nominees, any recommendation for director
nominee submitted by a qualifying stockholder must be received by Kratos no later than 120&nbsp;days prior to the anniversary of the date proxy statements were mailed to stockholders in connection
with the prior year's annual meeting of stockholders. Any stockholder recommendation for director nominee must be submitted to the Corporate Secretary in writing at 4810 Eastgate Mall, San Diego,
California 92121 and must contain the following information: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>A
statement by the stockholder that he/she is the holder of at least 1% of Kratos' common stock and that the stock has been held for at least a year prior to the date of the
submission and that the stockholder will continue to hold the shares through the date of the annual meeting of stockholders; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>148</FONT></P>

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<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
candidate's name, age, contact information and current principal occupation or employment;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>A
description of the candidate's qualifications and business experience during, at a minimum, the last five years, including his/her principal occupation and employment and
the name and principal business of any corporation or other organization in which the candidate was employed;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
candidate's resume; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Three
references. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
goal of the Nominating and Corporate Governance Committee of the Kratos board of directors is to assemble a board of directors that brings a variety of perspectives and skills
derived from high quality business and professional experience to Kratos. In doing so, the Nominating and Corporate Governance Committee also considers candidates with appropriate
non-business backgrounds. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
than the foregoing, there are no stated minimum criteria for director nominees. However, the Nominating and Corporate Governance Committee may also consider such other factors as
it may deem are in Kratos' best interests and that of its stockholders. The Nominating and Corporate Governance Committee does, however, recognize that under applicable regulatory requirements at
least one member of the Kratos board of directors must meet the criteria for an "audit committee financial expert" as defined by SEC rules, and that at least a majority of the members of the Kratos
board of directors must meet the definition of "independent director" under the NASDAQ Marketplace Rules or the listing standards of any other applicable self regulatory organization. The Nominating
and Corporate Governance Committee also believe it to be appropriate for certain key members of Kratos' management to participate as members of the Kratos board of directors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Nominating and Corporate Governance Committee identifies nominees by first evaluating the current members of the Kratos board of directors willing to continue to serve. Current
members of the Kratos board of directors with skills and experience that are relevant to Kratos' business and who are willing to continue in service are considered for re-nomination,
balancing the value of continuity of service by existing members of the Kratos board of directors with that of obtaining a new perspective. If any member of the Kratos board of directors up for
re-election at an upcoming annual meeting of stockholders does not wish to continue in service, the Nominating and Corporate Governance Committee identifies the desired skills and
experience of a new nominee in light of the criteria above. All of the members of the Kratos board of directors will be polled for suggestions as to individuals meeting the criteria for nomination to
the Kratos board of directors. Research may also be performed to identify qualified individuals. If the Nominating and Corporate Governance Committee believes that the Kratos board of directors
requires additional candidates for nomination, the Nominating and Corporate Governance Committee may explore alternative sources for identifying additional candidates. This may include engaging, as
appropriate, a third party search firm to assist in identifying qualified candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
directors and director nominees will submit a completed form of directors' and officers' questionnaire as part of the nominating process. The process may also include interviews and
additional background and reference checks for non-incumbent nominees, at the discretion of the Nominating and Corporate Governance Committee. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Communications with Directors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kratos board of directors has adopted a Communications with Directors Policy. The Communications with Directors Policy is available for review on its website
at www.kratosdefense.com. The information on Kratos' website is not a part of this prospectus. Stockholders and other interested parties may communicate with one or more members of the Kratos board of
directors or the non management directors as a group in writing by regular mail. Those who wish to send such communications may do so by addressing their communication to: Chairman of the Kratos Board
of </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>149</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>Directors
or Board of Directors, c/o Corporate Secretary, Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., 4810 Eastgate Mall, San Diego, California, 92121. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Kratos board of directors has instructed the Secretary to review all communications so received and to exercise his or her discretion not to forward to the Kratos board of directors
correspondence that is inappropriate such as business solicitations, frivolous communications and advertising, routine business matters and personal grievances. However, any director may at any time
request the Secretary to forward any and all communications received by the Secretary but not forwarded to the directors. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Code of Ethics  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kratos board of directors has adopted a Code of Ethics that applies to all of its directors, officers and employees. The Code of Ethics is available for
review on its website at www.kratosdefense.com. The information on Kratos' website is not a part of this prospectus. The Code of Ethics is also available in print, without charge, to any stockholder
who requests a copy by writing to Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., 4810 Eastgate Mall, San Diego, California, 92121, Attention: Investor Relations. Each of Kratos' directors,
officers, including the chief executive officer, chief financial officer and corporate controller, and all of its other principal executive officers and employees is required to be familiar with the
Code of Ethics and to certify compliance annually. There have not been any waivers of the Code of Ethics relating to any of its executive officers or directors in the past year. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Meetings and Committees of the Kratos Board of Directors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kratos board of directors is responsible for overseeing the management of Kratos's business. Kratos's management keeps directors informed of the business at
meetings and through reports and analyses presented to the Kratos board of directors and the committees of the Kratos board of directors. Regular communications between directors and management also
occur apart from meetings of the Kratos board of directors and committees of the Kratos board of directors. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Meeting Attendance  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kratos board of directors normally meets quarterly, but may hold additional meetings as required. During fiscal 2007, the Kratos board of directors held four
regularly scheduled meetings and nine special meetings and acted by unanimous written consent ten times. Each of its directors attended at least 75% of the Kratos board of directors meetings he was
eligible to attend, with the exception of Mr.&nbsp;Carano who attended 38% of the meetings he was eligible to attend. Each director attended at least 75% of the meetings of each committee of the
Kratos board of directors on which he was serving, with the exception of Mr.&nbsp;Carano, who attended 33% of the Compensation Committee meetings he was eligible to attend, and Mr.&nbsp;Hoglund,
who attended 71% of the Audit Committee meetings he was eligible to attend. Three directors attended last year's annual meeting of stockholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Kratos board of directors has adopted a "Director Attendance at Annual Meeting Policy" which is available for review on our website at www.kratosdefense.com/governance.htm. The
information on Kratos' website is not a part of this prospectus. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Committees of the Kratos Board of Directors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kratos board of directors currently has three standing committees to facilitate and assist the Kratos board of directors in the execution of its
responsibilities: the Audit Committee; the Compensation Committee; and the Nominating and Corporate Governance Committee. The Audit Committee has been established in accordance with
Section&nbsp;3(a)58(A) of the Exchange Act. In accordance with NASDAQ Marketplace listing standards, each committee is comprised solely of non-employee, independent directors. Charters
for each committee are available on our website at www.kratosdefense.com. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>150</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B><I>Audit Committee  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Audit Committee consists of Messrs.&nbsp;Anderson (Chairperson), Hoglund and Jarvis. The Kratos board of directors has affirmatively determined that each
member of the Audit Committee is independent under NASDAQ Marketplace Rule&nbsp;4200(a)(15), and meets all other qualifications under NASDAQ Marketplace Rule&nbsp;4350(d)(2), the Sarbanes-Oxley
Act of 2002 and applicable rules of the Securities and Exchange Commission. The Kratos board of directors has also affirmatively determined that Mr.&nbsp;Hoglund qualifies as an "audit committee
financial expert" as such term is defined in Regulation&nbsp;S-K of the Securities Act of 1933. During 2006, the Audit Committee held four regular meetings and three special meetings. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Audit Committee acts pursuant to a written charter, which charter is reviewed at least annually by the Audit Committee. The Audit Committee Charter is also available for review on
our website at www.kratosdefense.com. The information on Kratos' website is not a part of this prospectus. The Audit Committee Charter was reviewed and revised by the Audit Committee in September 2006
and the Audit Committee believes that its Charter, as revised, adequately meets the needs of Kratos as well as the requirements of NASDAQ Marketplace Rule&nbsp;4350(d)(1). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
its Charter, the Audit Committee: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Is
directly and solely responsible for the appointment, compensation, retention, and as necessary, the termination of our independent auditors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Oversees
the audit activities of our independent auditors with such independent auditors reporting directly to the Audit Committee;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviews
and discusses with our independent auditors, the scope, results and integrity of our annual audit and financial statements, our compliance with legal and regulatory
requirements and the performance of our internal auditors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Oversees
risk management, legal compliance and ethics and reviews related party transactions;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Consults
with our independent auditors to ensure rotation of the lead audit partner at least every five years and the timing of such rotation;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Oversees
the independence of our independent auditors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Evaluates
our independent auditors' performance; and reviews and considers our independent auditors' comments as to controls, adequacy of staff and management performance
and procedures in connection with audit and financial controls; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviews
compliance with certain corporate policies and discharges such other duties as may from time to time be assigned to it by the Kratos board of directors. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B><I>Compensation Committee  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Compensation Committee consists of Messrs.&nbsp;Carano, Hoglund and Jarvis (Chairperson). The Kratos board of directors has affirmatively determined that
each member of the Compensation Committee is independent as such term is defined under NASDAQ Marketplace Rule&nbsp;4200(a)(15). During 2007, the Compensation Committee met three times and acted by
unanimous written consent
five times. The Compensation Committee operates pursuant to a charter, which is available for review on our website at </FONT> <FONT SIZE=2><I>www.kratosdefense.com/governance.htm</I></FONT><FONT SIZE=2>. The information on Kratos' website is not a
part of this prospectus. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
its Charter, the Compensation Committee: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Takes
any and all action which may be taken by the Kratos board of directors with respect to fixing the compensation level of our officers and employees, including the
compensation of our chief executive officer; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>151</FONT></P>

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<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Develops
and implements compensation policies that will clearly articulate the relationship of corporate performance to executive compensation and will attract and retain
high quality executives;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Proposes
for adoption by the Kratos board of directors and, if applicable, ratification by our stockholders, compensation plans, including but not limited to, stock option,
stock appreciation rights, pension and profit sharing, stock purchase and deferred compensation plans and other similar programs and any amendments thereto or terminations thereof;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Grants
rights, sets participation guidelines and interests in compensation plans to eligible participants;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviews
and approves other such compensation matters referred to the Compensation Committee by the Kratos board of directors or the chief executive officer;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Prepares
a report to be filed with the Proxy Statement or Information Statement disclosing our compensation policies which are applicable to our executive officers; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reports
from time to time to the Kratos board of directors on the Compensation Committee's actions. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B><I>Nominating and Corporate Governance Committee  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective September&nbsp;5, 2007, the Kratos board determined that a standing nominating and corporate governance committee of the Board was not necessary given
the relatively small size of the Kratos board and management team, the limited scope of operations and the simplicity of the Kratos business model. At that time, in accordance with the NASDAQ
Marketplace Rule&nbsp;4200(a)(15), the Kratos board determined that only the members of the Kratos board who qualified as "independent directors" would then perform the functions of the nominating
committee. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;27, 2008 the board of directors of Kratos reevaluated the need for a Nominating and Corporate Governance Committee and determined that it would be in the best
interests of Kratos and its stockholders to reinstate the Nominating and Corporate Governance Committee. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Nominating and Corporate Governance Committee is composed of Messrs.&nbsp;Andersen, Carano, Hoglund (Chairperson) and Jarvis. The Nominating and Corporate Governance Committee
evaluates and recommends to the Board of Directors nominees for each election of Directors. The Nominating and Corporate Governance Committee met two times in 2007. The Kratos board of directors has
adopted a charter for the Nominating and Corporate Governance Committee and a copy of that charter is available for review on our website at </FONT> <FONT SIZE=2><I>www.kratosdefense.com</I></FONT><FONT SIZE=2>. The information on Kratos' website is
not a part of this prospectus. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
fulfilling its responsibilities, the Nominating and Corporate Governance Committee considers the following factors: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
appropriate size of the Kratos board and its committees;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Development
and recommendation to the board a set of corporate governance principles applicable to Kratos;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Developments
in corporate governance and makes recommendations to the board regarding changes in governance policies and practices;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Management
succession plans and oversees the evaluation of management;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
evaluation of the Board, including conducting an annual evaluation of the performance of the Board and Board committees; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>152</FONT></P>

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<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
needs of Kratos with respect to the particular talents and experience of its directors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
knowledge, skills and experience of nominees, including experience in the government contracting industry, business, finance, administration or public service, in light
of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the board;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Each
directors experience with accounting rules and practices;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Applicable
regulatory and securities exchange/association requirements;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Appreciation
of the relationship of the Company's business to the changing needs of society. </FONT></DD></DL>
</UL>
<BR>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THE KRATOS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE </B></FONT><FONT SIZE=2><B><I><U>FOR</U></I></B></FONT><FONT SIZE=2><B> THE ELECTION OF
EACH OF THE NOMINEES FOR&nbsp;DIRECTOR.</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ec42501_proposal_2_ratificatio__ec402432"> </A>
<A NAME="toc_ec42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>PROPOSAL 2    <BR>    <BR>    RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kratos board of directors has selected Grant Thornton&nbsp;LLP, which we refer to as Grant Thornton, as Kratos' independent auditors for the fiscal year
ending December&nbsp;28, 2008 and has further directed that management submit the selection of independent auditors for ratification by Kratos' stockholders at the annual meeting. Grant Thornton has
audited Kratos' financial statements since July 2005. Representatives of Grant Thornton are expected to be present at the annual meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stockholder
ratification of the selection of Grant Thornton as Kratos' independent auditors is not required by Bylaws or otherwise. However, the Kratos board of directors is submitting
the selection of Grant Thornton to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider
whether or not to retain Grant Thornton. Even if the selection is ratified, the Audit Committee may, in its discretion, direct the appointment of different independent auditors at any time during the
year if they determine that such a change would be in Kratos' and its stockholders best interests. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of its duties, the Audit Committee considers whether the provision of services, other than audit services, during the fiscal year ended December&nbsp;31, 2007 by Grant Thornton
is compatible with maintaining the auditor's independence. The following table sets forth the aggregate fees billed to Kratos for the fiscal year ended December&nbsp;31, 2007 by Grant Thornton: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="61%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Fiscal 2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Fiscal 2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><I>Audit Fees(1)</I></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,045,734</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,700,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><I>Audit-Related Fees(2)</I></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>587,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><I>Tax Fees(3)</I></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2><I>All Other Fees(4)</I></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
</TABLE></DIV>
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<UL>
<UL>
<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Audit Fees</I></FONT><FONT SIZE=2> consist of fees billed and expected to be billed for professional services rendered for the integrated audit of Kratos'
consolidated annual financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by Grant Thornton in
connection with statutory and regulatory filings or engagements.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Audit-Related Fees</I></FONT><FONT SIZE=2> consist of fees billed and expected to be billed for assurance and related services that are reasonably related to
the performance of the audit or review of Kratos' consolidated financial statements and are not reported under "Audit Fees." General assistance with implementation of the requirements of SEC rules or
listing </FONT></DD></DL>
</UL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>153</FONT></P>

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<UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>standards
promulgated pursuant to the Sarbanes-Oxley Act of 2002, including approximately $270,000 related to the sale of our engineering division to LCCI and $326,000 related to the acquisition of
Haverstick Consulting,&nbsp;Inc. for&nbsp;2007. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Tax Fees</I></FONT><FONT SIZE=2> consist of fees billed and expected to be billed for professional services rendered for tax compliance, tax advice and tax
planning. These services include assistance regarding federal state and local tax compliance, planning and advice; international tax compliance, planning and advice; review of federal, state, local
and international income franchising and other tax returns.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>All Other Fees</I></FONT><FONT SIZE=2> consist of fees for products and services other than the services reported above. </FONT></DD></DL>
</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Audit Committee's policy is to pre-approve all audit and permissible non-audit services provided by Kratos' independent auditors. These services may include
audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the
particular service or category of services. The Audit Committee has delegated pre-approval authority to the Audit Committee Chairperson. The independent auditor and management are required
to periodically report to the Audit Committee regarding the extent of services provided by the independent auditor in accordance with this pre-approval. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Vote Required and Kratos Board of Directors' Recommendation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approval of this proposal requires the affirmative vote of a majority of the shares entitled to vote on this proposal, at a meeting at which a quorum is present.
Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum. Abstentions will have the same effect as a vote against this
proposal. Broker non-votes are not expected to result from this&nbsp;proposal. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Report of the Audit Committee  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee oversees our financial reporting process on behalf of the Kratos board of directors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of internal controls. Grant Thornton is responsible for performing an audit of our annual consolidated financial statements in
accordance with generally accepted accounting principles (GAAP) and for issuing a report on those statements and expressing an opinion on the conformity of these audited financial statements. Grant
Thornton also reviews Kratos' interim financial statements in accordance with Statement on Auditing Standards No.&nbsp;100 (interim financial information). The Audit Committee oversees the financial
reporting process and internal control structure on behalf of the Kratos board of directors. The Audit Committee met 16 times during 2007, including meeting regularly with Grant Thornton and our
internal auditors, both privately and with management present. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management and Grant Thornton the audited and interim financial statements, including
Management's Discussion and Analysis, included in Kratos' Reports on Form&nbsp;10-K for fiscal year ended December&nbsp;31, 2007. These reviews included a discussion&nbsp;of: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Kratos'
critical accounting policies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
reasonableness of significant financial reporting judgments made in connection with the financial statements, including the quality (and not just the acceptability) of
Kratos' accounting principles;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
clarity and completeness of financial disclosures; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>154</FONT></P>

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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
effectiveness of our internal control over financial reporting, including management's and Grant Thornton's reports thereon, the basis for the conclusions expressed in
those reports and changes made to Kratos' internal control over financial reporting during 2007;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>items
that could be accounted for using alternative treatments within GAAP, the ramifications thereof and the treatment preferred by Grant Thornton;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>unadjusted
audit differences noted by Grant Thornton during its audit of Kratos' annual financial statements; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
potential effects of regulatory and accounting initiatives on Kratos' financial statements. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with its review of Kratos' annual consolidated financial statements, the Audit Committee also discussed with Grant Thornton other matters required to be discussed with the
auditors under Statement on Auditing Standards No.&nbsp;61, as modified or supplemented (communication with audit committees) and those addressed by Grant Thornton's written disclosures and its
letter provided under Independence Standards Board Standard No.&nbsp;1, as modified or supplemented (independence discussions with audit committees). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Audit Committee is responsible for the engagement of the independent auditors and appointed Grant Thornton to serve in that capacity during 2005, 2006 and 2007. In that connection,
the Committee: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewed
Grant Thornton's independence from Kratos and management, including Grant Thornton's written disclosures described above;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewed
periodically the level of fees approved for payment to Grant Thornton and the pre-approved non-audit services it has provided to us to
ensure their compatibility with Grant Thornton's independence; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewed
Grant Thornton's performance, qualifications and quality control procedures. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Among
other matters, the Audit Committee also: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewed
the scope of and overall plans for the annual audit and the internal audit program;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>consulted
with management and Grant Thornton with respect to our processes for risk assessment and risk management;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewed
the adequacy of certain of our financial policies;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewed
and approved our policy with regard to the hiring of former employees of the independent auditors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewed
and approved our policy for the pre-approval of audit and permitted non-audit services by the independent auditors;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>received
reports pursuant to our policy for the submission and confidential treatment of communications from employees and others about accounting, internal controls and
auditing matters;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewed
with management the scope and effectiveness of our disclosure controls and procedures, including for purposes of evaluating the accuracy and fair presentation of
our financial statements in connection with certifications made by the Chief Executive Officer and Chief Financial Officer; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewed
significant legal developments and our processes for monitoring compliance with law and Kratos policies. </FONT></DD></DL>
</UL>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on the reviews and discussions referred to above, the Audit Committee recommended to the Kratos board of directors the audited financial statements be included in our Annual Report
on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2007 for filing with the SEC. </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>Respectfully
submitted,<BR>
THE AUDIT COMMITTEE </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Scott
I. Anderson,&nbsp;Chairperson<BR>
Scot B. Jarvis<BR>
William A. Hoglund </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be
deemed filed under such acts. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>THE KRATOS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE </B></FONT><FONT SIZE=2><B><I><U>FOR</U></I></B></FONT><FONT SIZE=2><B> THIS ITEM
(ITEM&nbsp;2).</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ec42501_proposal_3_approval_of_amendme__pro06372"> </A>
<A NAME="toc_ec42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>PROPOSAL 3    <BR>    <BR>    APPROVAL OF AMENDMENT TO THE KRATOS<BR>  1999 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE AGGREGATE NUMBER OF SHARES THAT MAY BE ISSUED UNDER THE PLAN BY&nbsp;1,500,000&nbsp;SHARES    <BR>
</B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the Annual Meeting, the stockholders will be asked to approve an amendment to the Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc. 1999 Employee Stock
Purchase Plan, which we refer to as the Purchase Plan, to increase the maximum number of shares of Common Stock that may be issued under the Purchase Plan by 1,500,000 shares. Kratos' stockholders
have previously approved the reservation of 2,850,000 shares of Kratos' common stock for purchase by employees under the Purchase Plan. As of April&nbsp;1, 2008, a total of 351,811 shares remain
available for future purchases, without giving effect to the proposed amendment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Board of Directors believes that the Purchase Plan benefits Kratos and its stockholders by providing its employees with an opportunity to purchase shares of common stock through
payroll deductions, which helps to attract, retain and motivate valued employees. To provide a reasonable reserve of shares to permit Kratos to continue offering this opportunity to its employees, the
Board of Directors has adopted, subject to stockholder approval, an amendment to increase the number of shares of common stock remaining reserved for issuance under the Purchase Plan by
1,500,000&nbsp;shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employees
who actively participate in the Purchase Plan may have up to 15% of their earnings for the period withheld pursuant to the Purchase Plan. The amount withheld is used at various
purchase dates
within the offering period to purchase shares of Kratos' common stock. The price paid for common stock at each such purchase date equals the lower of 85% of the fair market value of the common stock
at the commencement date of that offering period or 85% of the fair market value of the common stock on the relevant purchase date. Employees may end their participation in the offering at any time
during the offering period, and participation ends automatically upon termination of employment. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>156</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Summary of the Purchase Plan  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summary is qualified in its entirety by the specific language of the Purchase Plan, a copy of which is available to any stockholder upon request. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>General.&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>At the beginning of each offering under the plan, which we refer to as an Offering, each participant in the Purchase Plan is
granted the right to purchase, through accumulated payroll deductions, up to a number of shares of Kratos' common stock determined on the first day of the Offering, which we refer to as a Purchase
Right. The Purchase Right is automatically exercised on each purchase date during the Offering unless the participant has withdrawn from participation in the Purchase Plan prior to such date. The
Purchase Plan is intended to qualify as an "employee stock purchase plan" under section&nbsp;423 of the Internal Revenue Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Authorized Shares.&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Currently, a maximum of 2,850,000 of the Company's authorized but unissued or reacquired shares of common stock remain
available for issuance under the Purchase Plan, subject to appropriate adjustment in the event of any stock dividend, stock split, reverse stock split, recapitalization or similar change in Kratos'
capital structure, or in the event of any merger, sale of assets or other reorganization of Kratos. If any Purchase Right expires or terminates, the shares subject to the unexercised portion of such
Purchase Right will again be available for issuance under the Purchase Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Administration.&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>The Purchase Plan is administered by the Board of Directors or a committee of the Board. (For purposes of this discussion,
the term "Board" refers to either the Board of Directors or such committee.) Subject to the provisions of the Purchase Plan, the Board determines the terms and conditions of Purchase Rights granted
under the plan. The Board has the authority to interpret the Purchase Plan and Purchase Rights granted thereunder, and any such interpretation of the Board will be binding. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Eligibility.&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Any employee of the company or any parent or subsidiary of the company designated by the Board for inclusion in the Purchase
Plan is eligible to participate in an Offering under the plan so long as the employee is customarily employed for at least 20&nbsp;hours per week and more than five months in any calendar year. As
of April&nbsp;8, 2008, approximately 1,200 employees, including all executive officers, were eligible to participate in the Purchase Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Offerings.&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Generally, each Offering under the Purchase Plan extends for a period of six&nbsp;months, which we refer to as an Offering
Period. New Offering Periods begin every six months and do not overlap. Offering Periods generally commence on January&nbsp;1 and July&nbsp;1 of each year, each referred to as an Offering Date and
end on June&nbsp;30 and December&nbsp;31, respectively, of the second year following the Offering Date. Each Offering Period is generally comprised a six-month purchase period, each
referred to as a Purchase Period. Shares are purchased on the last day of each Purchase Period each referred to as a Purchase Date. The Board may establish a different term for any Offering (not to
exceed 27&nbsp;months) or Purchase Period or different commencement or ending dates for an Offering or a Purchase Period. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Participation and Purchase of Shares.&nbsp;&nbsp;&nbsp;&nbsp;</I></B></FONT><FONT SIZE=2>Participation in an Offering under the Purchase Plan is limited to eligible employees who authorize
payroll deductions prior to the first day of an Offering Period. Payroll deductions may not exceed fifteen 15% percent of an employee's earnings on any payday during the Offering Period, provided that
the Board may establish a different limit from time to time. An employee who becomes a participant in the Purchase Plan will automatically participate in each Offering beginning immediately after the
last day of the Offering Period in which he or she is a participant until the employee withdraws from the Purchase Plan, becomes ineligible to participate, or terminates employment. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>157</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to any uniform limitations or notice requirements imposed by the company, a participant may increase or decrease his or her rate of payroll deductions or withdraw from the
Purchase Plan at any time during an Offering. Upon withdrawal, the company will refund without interest the participant's accumulated payroll deductions not previously applied to the purchase of
shares. Once a participant withdraws from an Offering, that participant may not again participate in the same Offering at any later time. If the fair market value of a share of common stock on the
Offering Date of the current Offering in which employees are participating is greater than such fair market value on the Offering Date of a new Offering, then, unless a participant elects otherwise,
each participant will be automatically withdrawn from the current Offering after purchasing shares and enrolled in the new Offering. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
each Purchase Date, we issue to each participant in the Offering the number of shares of our common stock equal to the amount of payroll deductions accumulated for the participant
during the Purchase Period divided by the purchase price, limited in any case by the number of shares subject to the participant's Purchase Right for that Offering. The price at which shares are sold
under the Purchase Plan is established by the Board but may not be less than 85% of the lesser of the fair market value per share of common stock on the Offering Date or on the Purchase Date. The fair
market value of the common stock on any relevant date generally will be the closing price per share as reported on the NASDAQ Global Select Market. On April&nbsp;8, 2008, the closing price of our
common stock as reported on the NASDAQ Global Select Market was $1.83 per share. Any payroll deductions under the Purchase Plan not applied to the purchase of shares will be returned to the
participant without interest, unless the amount remaining is less than the amount necessary to purchase a whole share of common stock, in which case the remaining amount may be applied to the next
Purchase Period. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Termination or Amendment.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Purchase Plan will continue until terminated by the Board or until all of the shares reserved for issuance
under the plan have been issued. The Board may amend or terminate the Purchase Plan at any time, except that the approval of Kratos' stockholders is required within 12&nbsp;months of the adoption of
any amendment increasing the number of shares authorized for issuance under the Purchase Plan, or changing the categories of corporations that may be designated by the Board as corporations whose
employees may participate in the Purchase Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Shares Purchased by Certain Persons  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate numbers of shares of common stock purchased by certain persons under the Purchase Plan from its inception through April&nbsp;8, 2008 are as
follows: (i)&nbsp;Eric M. DeMarco, President and Chief Executive Officer, no shares; (ii)&nbsp;Deanna Lund, Chief Financial Officer and Senior Vice President, no shares; (iii)&nbsp;James R.
Edwards, former General Counsel and Senior Vice President, 3,965 shares (Mr.&nbsp;Edwards is no longer employed by us); (iv)&nbsp;D. Robin Mickle, President of the Government Services Division, no
shares; (v)&nbsp;Laura Siegal, Vice President and Controller, 458 shares; (vi)&nbsp;all current executive officers as a group, an aggregate of 4,423 shares; and (vii)&nbsp;all employees,
including current officers who are not executive officers, as a group, an aggregate of 137,500&nbsp;shares. None of our directors who are not executive officers are eligible to participate in the
Purchase Plan. Since its inception, no shares have been issued under the Purchase Plan to any other nominee for election as a director, or any associate of any such director, nominee or executive
officer, and no other person has been issued five percent or more of the total amount of shares issued under the Purchase Plan. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Summary of U.S. Federal Income Tax Consequences  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summary is intended only as a general guide as to the U.S. federal income tax consequences of participation in the Purchase Plan and does not
attempt to describe all possible federal or other tax consequences of such participation or tax consequences based on particular circumstances. </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally,
there are no tax consequences to an employee of either becoming a participant in the Purchase Plan or purchasing shares under the Purchase Plan. The tax consequences of a
disposition of shares vary depending on the period such stock is held before its disposition. If a participant disposes of shares within two years after the Offering Date or within one year after the
Purchase Date on which the shares are acquired (such disposition being referred to as a "disqualifying disposition"), the participant recognizes ordinary income in the year of disposition in an amount
equal to the difference between the fair market value of the shares on the Purchase Date and the purchase price. Such income may be subject to tax withholding by the employer. Any additional gain or
any loss recognized by the participant resulting from the disposition of the shares is a capital gain or loss. If the participant disposes of shares at least two years after the Offering Date and at
least one year after the Purchase Date on which the shares are acquired, the participant recognizes ordinary income in the year of disposition in an amount equal to the lesser of (i)&nbsp;the
difference between the fair market value of the shares on the date of disposition and the purchase price or (ii)&nbsp;the difference between the fair market value of the shares on the Offering Date
and the purchase price (determined as if the Purchase Right were exercised on the Offering Date). Any additional gain recognized by the participant on the disposition of the shares is a capital gain.
If the fair market value of the shares on the date of
disposition is less than the purchase price, there is no ordinary income, and the loss recognized is a capital loss. If the participant still owns the shares at the time of his or her death, the
lesser of (i)&nbsp;the difference between the fair market value of the shares on the date of death and the purchase price or (ii)&nbsp;the difference between the fair market value of the shares on
the Offering Date and the purchase price (determined as if the Purchase Right were exercised on the Offering Date) is recognized as ordinary income in the year of the participant's death. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the participant disposes of the shares in a disqualifying disposition, we should be entitled to a deduction equal to the amount of ordinary income recognized by the participant as a
result of the disposition, except to the extent such deduction is limited by applicable provisions of the Internal Revenue Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Vote Required and Board of Director's Recommendation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approval of this proposal requires the affirmative vote of a majority of the shares entitled to vote on this proposal at a meeting at which a quorum is present.
Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum. Abstentions will have the same effect as a vote against this
proposal. Broker non-votes will have no effect on the outcome of this vote. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>THE KRATOS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE </B></FONT><FONT SIZE=2><B><I><U>FOR</U></I></B></FONT><FONT SIZE=2><B> THIS ITEM
(ITEM&nbsp;3).</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ee42501_proposal_4_approval_of_amendme__pro06076"> </A>
<A NAME="toc_ee42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>PROPOSAL 4    <BR>    <BR>    APPROVAL OF AMENDMENT TO THE KRATOS 2005 EQUITY INCENTIVE PLAN TO INCREASE THE AGGREGATE NUMBER OF SHARES THAT MAY BE ISSUED UNDER THE PLAN BY 3,000,000 SHARES    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the Annual Meeting, the stockholders will be asked to approve an amendment to the Kratos Defense&nbsp;&amp; Security Systems,&nbsp;Inc. 2005 Equity Incentive
Plan, which we refer to as the 2005 Plan, to increase by 3,000,000 the maximum number of shares of common stock that may be issued under the 2005 Plan, to 6,500,000 shares. On February&nbsp;26,
2008, Kratos' Compensation Committee unanimously adopted, subject to stockholder approval, an increase to the share reserve of the 2005 Plan of shares. Kratos' stockholders have previously authorized
the company to issue up to 3,500,000 shares of common stock under the 2005 Plan (subject to adjustment upon certain changes in the capital structure). </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>159</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
is asking its stockholders to approve the increase to the 2005 Plan. The primary purpose of the 2005 Plan is to attract and to encourage the continued employment and service of,
and maximum efforts by, officers, employees and other individuals by offering those persons an opportunity to acquire or increase a direct proprietary interest in Kratos' operations and future
success. Since January 2007, Kratos has pursued this goal primarily through the grant of restricted stock units. The company believes that in its heavily human-capital intensive business, restricted
stock units are an important factor in hiring and retaining talented personnel. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Compensation Committee and the Board of Directors believe that in order to successfully attract and retain the best possible candidates for positions of responsibility, Kratos must
continue to offer a competitive equity incentive program. As of April&nbsp;8, 2008, only 111,298 shares remained available for the future grant of stock awards, including restricted stock unit
awards, under the 2005 Plan, and the Board of Directors believes that additional shares must be made available to meet the company's anticipated needs. Therefore, as described above, the Compensation
Committee has unanimously adopted, subject to stockholder approval, an amendment to increase the maximum number of shares of common stock issuable under the 2005 Plan by 3,000,000 shares to a total of
6,500,000 shares (subject to adjustment upon certain changes in the capital structure of the company), to ensure that the company will continue to have available a reasonable number of shares
available for its restricted stock unit award program. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with its approval of the increase to the share reserve of the 2005&nbsp;Plan, the Compensation Committee further resolved to discontinue making equity award grants under
Kratos' other equity incentive plans, including the Kratos 1999 Equity Incentive Plan and the Kratos 2000 Nonstatutory Stock Option Plan, and to cancel the remaining shares available for grant upon
approval of this Share increase to the 2005 Plan by the Kratos stockholders. Finally, in recommending the approval of this amendment to the 2005 Plan, the Compensation Committee noted that Kratos'
option overhang is relatively low, especially after taking into account the Compensation Committee's resolution to discontinue making equity award grants under the company's other equity incentive
plans. Assuming approval of the issuance of all awards thereunder and the cancellation of all shares available for grant under the Kratos 1999 Equity Incentive Plan and the Kratos 2000 Nonstatutory
Stock Option Plan, shares issuable pursuant to the 2005 Plan and pursuant to any Kratos equity incentive plan, upon the exercise of options or rights to acquire Kratos stock pursuant to restricted
stock unit awards, would represent approximately 15% of our outstanding shares of common stock on a fully-diluted basis. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Summary of the 2005 Plan  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A summary of the 2005 Plan is set forth below. This summary is qualified in its entirety by the specific language of the 2005 Plan, a copy of which is available
to any Kratos stockholder upon request. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Administration  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2005 Plan is administered by the Compensation Committee. Subject to the terms of the 2005 Plan, the Compensation Committee may select participants to receive
awards, determine the types of awards, and terms and conditions of awards, and interpret provisions of the 2005 Plan. The Compensation Committee determines at what time or times each award may be
exercised or settled and the period of time, if any, after retirement, death, disability or termination of employment during which such awards may be exercised, vested or settled. The exercisability
and vesting of any award may be accelerated by the Compensation Committee. The 2005 Plan forbids, without stockholder approval, the repricing of any outstanding stock option or stock appreciation
right by an amendment which lowers the exercise price of such awards. However, the 2005 Plan does authorize, without stockholder approval, a stock option exchange program where such stock options or
stock appreciation rights are either transferred to a financial institution for a cash payment or cancelled and replaced with new stock options or stock appreciation rights. The Board of Directors may
terminate or amend the 2005 Plan at </FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>any
time and for any reason. However, amendments will be submitted for stockholder approval to the extent required by the Internal Revenue Code or other applicable laws. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Common Stock Reserved for Issuance  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The common stock issued or to be issued under the 2005 Plan consists of authorized but unissued shares and treasury shares. If any shares covered by an award are
not purchased or are forfeited, or if an award otherwise terminates without delivery of any common stock, then the number of shares of common stock counted against the aggregate number of shares
available under the plan with respect to the award will, to the extent of any such forfeiture or termination, again be available for making awards under the 2005 Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Eligibility  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Awards may be made under the 2005 Plan to employees, directors and consultants of Kratos, or any present or future parent or subsidiary corporation. Incentive
stock options may be granted only to employees who, as of the time of grant, are employees of Kratos or any parent or subsidiary corporation of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Stock Options  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2005 Plan permits the granting of options to purchase shares of common stock intended to qualify as incentive stock options under the Internal Revenue Code
and stock options that do not qualify as incentive stock options. The exercise price of each stock option may not be less than 100% of the fair market value of our common stock on the date of grant.
In the case of certain 10% stockholders who receive incentive stock options, the exercise price may not be less than 110% of the fair market value of our common stock on the date of grant. An
exception to these requirements is made for options that Kratos grants in substitution for options held by employees of companies that Kratos acquires. In such a case the exercise price is adjusted to
preserve the economic value of the employee's stock option from his or her former employer. The exercise price of each indexed stock option, and the terms and adjustments which may be made to such an
option, will be determined by the Compensation Committee in its sole discretion at the time of grant. On March&nbsp;25, 2008, the closing price of Kratos' common stock on the Nasdaq Global Select
Market was $1.93 per share. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
2005 Plan provides that the option exercise price may be paid in cash, by check, or in cash equivalent, by the assignment of the proceeds of a sale with respect to some or all of the
shares being acquired upon the exercise of the option, to the extent legally permitted, by tender of shares of common stock owned by the optionee having a fair market value not less than the exercise
price, by a net exercise procedure, or such other lawful consideration as approved by the Compensation Committee, or by any combination of these. Nevertheless, the Compensation Committee may restrict
the forms of payment permitted in connection with any option grant. No option may be exercised unless the optionee has made adequate provision for federal, state, local and foreign taxes, if any,
relating to the exercise of the option, including, if permitted or required by Kratos, through the optionee's surrender of a portion of the option shares to Kratos. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options
will become vested and exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Compensation
Committee. The maximum term of any option granted under the 2005 Plan is ten years, provided that an incentive stock option granted to a 10% stockholder must have a term not exceeding five years. The
Compensation Committee will specify in each written option agreement, and solely in its discretion, the period of post-termination exercise applicable to each option. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally,
stock options are nontransferable by the optionee other than by will or by the laws of descent and distribution, and are exercisable during the optionee's lifetime only by the
optionee. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>161</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>However,
a nonstatutory stock option may be assigned or transferred to the extent permitted by the Compensation Committee in its sole discretion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Stock Appreciation Rights  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A stock appreciation right gives a participant the right to receive the appreciation in the fair market value of Kratos common stock between the date of grant of
the award and the date of its exercise. Kratos will pay the appreciation only in the form of shares of common stock. The Compensation Committee may grant stock appreciation rights under the 2005 Plan
in tandem with a related stock option or as a freestanding award. A tandem stock appreciation right is exercisable only at the time and to the same extent that the related option is exercisable, and
its exercise causes the related option to be canceled. Freestanding stock appreciation rights vest and become exercisable at the times and on the terms established by the Compensation Committee. The
maximum term of any stock appreciation right granted under the 2005 Plan is ten years. Stock appreciation rights are generally nontransferable by the participant other than by will or by the laws of
descent and distribution, and are generally exercisable during the participant's lifetime only by the participant. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Restricted Stock Awards  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee may grant restricted stock awards under the 2005 Plan in the form of a restricted stock bonus, for which the participant furnishes
consideration in the form of services to Kratos. Restricted stock awards may be subject to vesting conditions based on such service or performance criteria as the Compensation Committee specifies, and
the shares acquired may not be transferred by the participant until vested. Unless otherwise provided by the Compensation Committee, a participant will forfeit any shares of restricted stock as to
which the restrictions have not lapsed prior to the participant's termination of service. Participants holding restricted stock will have the right to vote the shares and to receive any dividends
paid, except that dividends or other distributions paid in shares will be subject to the same restrictions as the original award. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Restricted Stock Units  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee may grant restricted stock units under the 2005 Plan, which represent a right to receive shares of common stock at a future date
determined in accordance with the participant's award agreement. No monetary payment is required for receipt of restricted stock units or the shares issued in settlement of the award, the
consideration for which is furnished in the form of the participant's services to Kratos. The Compensation Committee may grant restricted stock unit awards subject to the attainment of performance
goals similar to those described below in connection with performance shares and performance units, or may make the awards subject to vesting conditions similar to those applicable to restricted stock
awards. Participants have no voting rights or rights to receive cash dividends with respect to restricted stock unit awards until shares of common stock are issued in settlement of such awards.
However, the Compensation Committee may grant restricted stock units that entitle their holders to receive dividend equivalents, which are rights to receive additional restricted stock units for a
number of shares whose value is equal to any cash dividends we pay. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Performance Awards  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee may grant performance awards subject to such conditions and the attainment of such performance goals over such periods as the
Compensation Committee determines in writing and sets forth in a written agreement between Kratos and the participant. These awards may be designated as performance shares or performance units.
Performance shares and performance units are unfunded bookkeeping entries generally having initial values, respectively, equal to the fair market value determined on the grant date of a share of
common stock and a dollar amount per unit which may be determined by the Compensation Committee. Performance awards will specify a predetermined </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>162</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>amount
of performance shares or performance units that may be earned by the participant to the extent that one or more predetermined performance goals are attained within a predetermined performance
period. To the extent earned, performance awards may be settled in cash, shares of common stock (including shares of restricted stock) or any combination thereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless
otherwise provided by the Compensation Committee, if a participant's service terminates due to the participant's death, disability or retirement prior to completion of the
applicable performance period, the final award value will be determined at the end of the performance period on the basis of the performance goals attained during the entire performance period but
will be prorated for the number of months of the participant's service during the performance period. If a participant's service terminates prior to completion of the applicable performance period for
any other reason, the 2005 Plan provides that, unless otherwise determined by the Compensation Committee, the performance award will be forfeited. No performance award may be sold or transferred other
than by will or the laws of descent and distribution prior to the end of the applicable performance period. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Deferred Stock Awards  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2005 Plan provides that certain participants who are executives or members of a select group of highly compensated employees may elect to receive, in lieu of
payment in cash or stock of all or any portion of such participant's cash and/or stock compensation, an award of deferred stock units. A participant electing to receive deferred stock units will be
granted automatically, on the effective date of such deferral election, an award for a number of stock units equal to the amount of the deferred compensation divided by an amount equal to the fair
market value of a share of Kratos' common stock as quoted by the national or regional securities exchange or market system on which the common stock is listed on the date of grant. A stock unit is an
unfunded bookkeeping entry representing a right to receive one share of our common stock in accordance with the terms and conditions of the deferred stock unit award. Participants are not required to
pay any additional cash consideration in connection with the settlement of a deferred stock unit award. A participant's compensation not paid in the form
of a deferred stock unit award will be paid in cash in accordance with Kratos' normal payment procedures. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
deferred stock unit award will be evidenced by a written agreement between Kratos and the participant specifying the number of stock units subject to the award and the other terms
and conditions of the deferred stock unit award, consistent with the requirements of the 2005 Plan. Deferred stock unit awards are fully vested upon grant and will be settled by distribution to the
participant of a number of whole shares of common stock equal to the number of stock units subject to the award on a date set forth in the participant's written agreement in accordance with the terms
of the 2005 Plan at the time of his or her election to receive the deferred stock unit award. A holder of stock unit has no voting rights or other rights as a stockholder until shares of common stock
are issued to the participant in settlement of the stock unit. However, participants holding stock units will be entitled to receive dividend equivalents with respect to any payment of cash dividends
on an equivalent number of shares of common stock. Such dividend equivalents will be credited in the form of additional whole and fractional stock units determined by the fair market value of a share
of common stock on the dividend payment date. Prior to settlement, no deferred stock unit award may be assigned or transferred other than by will or the laws of descent and distribution. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Other Stock-Based Awards  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee may also grant one or more awards not specifically identified by the terms of the 2005 Plan that would provide a participant with
either: (i)&nbsp;a share of stock; (ii)&nbsp;the right purchase a share of stock; (iii)&nbsp;a value derived from a share of stock; or (iv)&nbsp;an exercise or conversion privilege related to
a share of stock. Other stock-based awards may be subject to vesting conditions </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>163</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>based
on such service or performance criteria as the Compensation Committee specifies, and any such award may not be transferred by the participant until vested. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Change in Control  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2005 Plan defines a "Change in Control" of Kratos as any of the following events upon which the stockholders of the company immediately before the event do
not retain immediately after the event, in substantially the same proportions as their ownership of shares of the company's voting stock immediately before the event, direct or indirect beneficial
ownership of a majority of the total combined voting power of the voting securities of the company, its successor or the corporation to which the assets of the company were transferred: (i)&nbsp;a
sale or exchange by the stockholders in a single or series of related transactions of more than 50% of the company's voting stock; (ii)&nbsp;a merger or consolidation in which the company is a
party; (iii)&nbsp;the sale, exchange or transfer of all or substantially all of the assets of the company; or (iv)&nbsp;a liquidation or dissolution of the company. If a Change in
Control occurs, the surviving, continuing, successor or purchasing corporation or parent corporation thereof may either assume all outstanding awards or substitute new awards having an equivalent
value. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of a Change in Control and the outstanding stock options and stock appreciation rights are not assumed or replaced, then all unexercisable, unvested or unpaid portions of
such outstanding awards will become immediately exercisable, vested and payable in full immediately prior to the date of the Change in Control. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
award not assumed, replaced or exercised prior to the Change in Control will terminate. The 2005 Plan authorizes the Compensation Committee, in its discretion, to provide for
different treatment of any award, as may be specified in such award's written agreement, which may provide for acceleration of the vesting or settlement of any award, or provide for longer periods of
exercisability, upon a Change in Control. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Adjustments for Stock Dividends and Similar Events  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee will make appropriate adjustments in outstanding awards and the number of shares available for issuance under the 2005 Plan, including
the individual limitations on awards, to reflect common stock dividends, stock splits and other similar events. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Section&nbsp;162(m) of the Internal Revenue Code  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;162(m) of the Internal Revenue Code, which we refer to as the Code, limits publicly-held companies such as Kratos to an annual
deduction for federal income tax purposes of $1,000,000 for compensation paid to its chief executive officer, chief financial officer and the three most highly compensated executive officers (other
than the chief executive officer and the chief financial officer) determined at the end of each year (the "covered employees"). However, performance-based compensation is excluded from this
limitation. The 2005 Plan is designed to permit the Compensation Committee to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section&nbsp;162(m). To
qualify as performance-based: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
compensation must be paid solely on account of the attainment of one or more pre-established, objective performance goals;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
performance goal under which compensation is paid must be established by a Compensation Committee comprising two or more directors who qualify as outside directors for
purposes of the exception;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
material terms under which the compensation is to be paid must be disclosed to and subsequently approved by stockholders of the corporation before payment is made in a
separate vote; and </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>164</FONT></P>

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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
Compensation Committee must certify in writing before payment of the compensation that the performance goals and any other material terms were in fact satisfied. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the case of compensation attributable to stock options and stock appreciation rights, the performance goal requirement (summarized above) is deemed satisfied, and the certification
requirement (summarized above) is inapplicable, if the grant or award is made by the Compensation Committee; the plan under which the option or stock appreciation right is granted states the maximum
number of shares with respect to which options and stock appreciation rights may be granted during a specified period to an employee; and under the terms of the option or stock appreciation rights,
the amount of compensation is based solely on an increase in the value of the stock after the date of grant. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One
or more of the following business criteria, on a consolidated basis, and/or with respect to specified subsidiaries or business units (except with respect to the total stockholder
return and earnings per share criteria), are used by the Compensation Committee in establishing performance goals: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>revenue;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>gross
margin;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>operating
margin;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>operating
income;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>pre-tax
profit;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>earnings
before interest, taxes, depreciation and amortization;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>net
income;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>cash
flow;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
market price of Common Stock;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>earnings
per share; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>return
on stockholder equity. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the Section&nbsp;162(m) of the Code, a director is an "outside director" if he or she is not a current employee of the corporation; is not a former employee who receives
compensation for prior services (other than under a qualified retirement plan); has not been an officer of the corporation; and does not receive, directly or indirectly (including amounts paid to an
entity that employs the director or in which the director has at least a five percent ownership interest), remuneration from the corporation in any capacity other than as a director. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to comply with Section&nbsp;162(m) of the Code and ensure compensation attributable to awards under the 2005 Plan are performance based compensation, the maximum number of
shares subject to
stock options or stock appreciation rights that can be awarded under the 2005 Plan to any person is 2,000,000 per year. However, the company may also make a one-time additional grant of
stock options or stock appreciation rights, in an additional amount of 1,000,000 shares, to any newly-hired person bringing such person's first year maximum award to 3,000,000 shares. The maximum
number of shares that can be awarded under the 2005 Plan to any person pursuant to restricted stock or restricted stock units is also 2,000,000 per year, which may also be increased by an additional
1,000,000 shares for the first year for any newly-hired person. The maximum number of shares that may be granted as performance shares to any person is 2,000,000 per fiscal year. The maximum amount
that may be earned as a performance unit or an annual incentive award or other performance cash award in any fiscal year by any one person is $1,000,000. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>165</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Federal Income Tax Consequences of the 2005 Plan  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Incentive Stock Options  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The grant of an option will not be a taxable event for the grantee or for us. A grantee will not recognize taxable income upon exercise of an incentive stock
option, except that the alternative minimum tax may apply, and any gain realized upon a disposition of our common stock received pursuant to the exercise of an incentive stock option will be taxed as
long-term capital gain if the grantee holds the shares for at least two years after the date of grant and for one year after the date of exercise (the "holding period requirement"). We
will not be entitled to any business expense deduction with respect to the exercise of an incentive stock option, except as discussed below. For the exercise of an option to qualify for the foregoing
tax treatment, the grantee generally must be our employee or an employee of one of our subsidiaries from the date the option is granted through a date within three months before the date of exercise
of the option. In the case of a grantee who is disabled, the three-month period for exercise following termination of employment is extended to one year. In the case of a grantee who dies, both the
time for exercising incentive stock options after termination of employment and the holding period for stock received through the exercise of the option are waived. If all of the foregoing
requirements are met except the holding period requirement mentioned above, the grantee will recognize ordinary income upon the disposition of the common stock in an amount generally equal to the
excess of the fair market value of the common stock at the time the option was exercised over the option exercise price (but not in excess of the gain realized on the sale). The balance of the
realized gain, if any, will be capital gain. We will be allowed a business expense deduction to the extent the grantee recognizes ordinary income, subject to our compliance with Section&nbsp;162(m)
of the Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event an incentive stock option is amended in certain respects, such option may be considered deferred compensation and subject to the rules of Section&nbsp;409A of the Code. An
option subject to Section&nbsp;409A of the Code which fails to comply with the rules of Section&nbsp;409A can result in the acceleration of income recognition, an additional 20% tax obligation,
plus potential penalties and interest. In addition, the amendment of an incentive stock option may convert the option from an incentive stock option to a nonqualified stock option. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Non-Qualified Options  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The grant of an option will not be a taxable event for the grantee or us. Upon exercising a non-qualified option, a grantee will recognize ordinary
income in an amount equal to the difference between the exercise price and the fair market value of the common stock on the date of exercise. Upon a subsequent sale or exchange of shares acquired
pursuant to the exercise of a non-qualified option, the grantee will have taxable gain or loss, measured by the difference between the amount realized on the disposition and the tax basis
of the shares (generally, the amount paid for the shares plus the amount treated as ordinary income at the time the option was exercised). If we comply with the restrictions of Section&nbsp;162(m)
of the Code, we will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
grantee who has transferred a non-qualified stock option to a family member by gift will realize taxable income at the time the non-qualified stock option is
exercised by the family member. The grantee will be subject to withholding of income and employment taxes at that time. The family member's tax basis in the shares of common stock will be the fair
market value of the shares of common stock on the date the option is exercised. The transfer of vested non-qualified stock options will be treated as a completed gift for gift and estate
tax purposes. Once the gift is completed, neither the transferred options nor the shares acquired on exercise of the transferred options will be includable in the grantee's estate for estate tax
purposes. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>166</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Absent
special limitations on exercisability, in the event a nonqualified stock option is granted with an exercise price that is below fair market value or is amended in certain
respects, such option may be considered deferred compensation and subject to the rules of Section&nbsp;409A of the Code, which provides rules regarding the timing of payment of deferred
compensation. An option subject to Section&nbsp;409A of the Code which fails to comply with the rules of Section&nbsp;409A can result in the acceleration of income recognition, an additional 20%
tax obligation, plus potential penalties and interest. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Restricted Stock  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A grantee who is awarded restricted stock will not recognize any taxable income for federal income tax purposes in the year of the award, provided that the shares
of common stock are subject to restrictions (that is, the restricted stock is nontransferable and subject to a substantial risk of forfeiture). However, the grantee may elect under
Section&nbsp;83(b) of the Code to recognize compensation income in the year of
the award in an amount equal to the fair market value of the common stock on the date of the award, determined without regard to the restrictions. If the grantee does not make such a
Section&nbsp;83(b) election, the fair market value of the common stock on the date the restrictions lapse will be treated as compensation income to the grantee and will be taxable in the year the
restrictions lapse. If we comply with the restrictions of Section&nbsp;162(m) of the Code, we will be entitled to a deduction for compensation paid in the same amount treated as compensation income
to the grantee in the year the grantee is taxed on the income. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Deferred Common Stock  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no immediate tax consequences of receiving an award of deferred common stock under the 2005 Plan. A grantee who is awarded deferred common stock will be
required to recognize ordinary income in an amount equal to the fair market value of shares issued to such grantee at the distribution date(s) under the deferral election, reduced by the amount, if
any, paid for such shares. If we comply with the restrictions of Section&nbsp;162(m) of the Code, we will be entitled to a deduction for compensation paid in the same amount treated as compensation
income to the grantee in the year the grantee is taxed on the income. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred
common stock can be considered non-qualified deferred compensation and subject to Section&nbsp;409A of the Code. A grant of a deferred common stock that does not
meet the requirements of Section&nbsp;409A of the Code can result in the acceleration of income recognition, an additional 20% tax obligation, plus penalties and interest. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Restricted Stock Units  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no immediate tax consequences of receiving an award of restricted common stock units under the 2005 Plan. A grantee who is awarded restricted common
stock units will be required to recognize ordinary income in an amount equal to the fair market value of shares issued to such grantee at the end of the restriction period or, if later, the payment
date. If we comply with the restrictions of Section&nbsp;162(m) of the Code, we will be entitled to a deduction for compensation paid in the same amount treated as compensation income to the grantee
in the year the grantee is taxed on the income. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Stock Appreciation Rights  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no immediate tax consequences of receiving an award of stock appreciation rights under the 2005 Plan. Upon exercising a stock appreciation right, a
grantee will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the common stock on the date of exercise. If we comply with the
restrictions of Section&nbsp;162(m) of the Code, we will </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>167</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>be
entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
stock appreciation right can be considered non-qualified deferred compensation and subject to Section&nbsp;409A of the Code. A stock appreciation right that does not meet
the requirements of Section&nbsp;409A of the Code can result in the acceleration of income recognition, an additional 20% tax obligation, plus penalties and interest. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Performance Stock Awards  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no immediate tax consequences of receiving an award of performance shares under the 2005 Plan. A grantee who is awarded performance shares will be
required to recognize ordinary income in an amount equal to the fair market value of shares issued to such grantee pursuant to the award, reduced by the amount, if any, paid for such shares. If we
comply with the restrictions of Section&nbsp;162(m) of the Code, we will be entitled to a deduction for compensation paid in the same amount treated as compensation income to the grantee in the year
the grantee is taxed on the income. Upon a grantee's disposition of performance shares, any gain realized in excess of the amount reported as ordinary income will be reportable by the grantee as a
capital gain, and any loss will be reportable as a capital loss. Capital gain or loss will be long-term if the grantee has held the shares for at least one year. Otherwise, the capital
gain or loss will be short-term. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Performance
stock awards can be considered non-qualified deferred compensation and subject to Section&nbsp;409A of the Code. A grant of a performance stock award that does
not meet the requirements of Section&nbsp;409A of the Code can result in the acceleration of income recognition, an additional 20% tax obligation, plus penalties and interest. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Performance and Annual Incentive Awards  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The award of a performance or annual incentive award will have no federal income tax consequences for us or for the grantee. The payment of the award is taxable
to a grantee as ordinary income. If we comply with the restrictions of Section&nbsp;162(m) of the Code, we will be entitled to a business expense deduction in the same amount and generally at the
same time as the grantee recognizes ordinary income. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Performance
and annual incentive awards can be considered non-qualified deferred compensation and subject to Section&nbsp;409A of the Code. A grant of a performance or
annual incentive award that does not meet the requirements of Section&nbsp;409A of the Code can result in the acceleration of income recognition, an additional 20% tax obligation, plus penalties and
interest. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Amended 2005 Plan Benefits  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options granted under the 2005 Plan from the 3,000,000 share reserve increase will be granted at the discretion of the Compensation Committee, and there are no
specific plans to make any grants with respect to such increase, and, accordingly, are not yet determinable. Benefits under the 2005 Plan from the 3,000,000 share reserve increase will depend on a
number of factors, including the fair market value of Kratos' common stock on future dates, actual performance against performance goals established with respect to performance awards and decisions
made by the participants. Consequently it is not possible to determine the benefits that might be received by participants under the 2005 Plan, except that Kratos will issue an annual restricted stock
unit grant to each non-employee director as provided under the 2005 Plan. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>168</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth information with respect to restricted stock units granted under the 2005 Plan during fiscal 2007: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="69%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Executive Officer and Position<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="28%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of<BR>
Restricted Stock Unit Awards<BR>
Granted in Fiscal 2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Eric M. DeMarco, Chief Executive Officer</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,481,250</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Deanna Lund, Senior Vice President and Chief Financial Officer</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>300,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>James R. Edwards, Former Senior Vice President and General Counsel(1)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>255,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>D. Robin Mickle, President, Government Services Division</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Laura Siegal, Vice President, Controller and Principal Accounting Officer</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67,500</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>All current executive officers as a group(2)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,991,250</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>All current employees as a group (excluding executive officers)(2)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>505,200</FONT></TD>
</TR>
</TABLE></DIV>
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<UL>
<UL>
<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Mr.&nbsp;Edwards'
employment with Kratos terminated in November 2007. His restricted stock unit awards vested upon the termination of his employment.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Does
not include Mr.&nbsp;Edwards. </FONT></DD></DL>
</UL>
</UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2><B>Vote Required and Board of Directors Recommendation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approval of this proposal requires the affirmative vote of a majority of the shares entitled to vote on this proposal at a meeting at which a quorum is present.
Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum. Abstentions will have the same effect as a vote against this
proposal. Broker non-votes will have no effect on the outcome of this vote. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>THE KRATOS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE </B></FONT><FONT SIZE=2><B><I><U>FOR</U></I></B></FONT><FONT SIZE=2><B> THIS ITEM
(ITEM&nbsp;4).</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="eg42501_proposal_5_to_approve_issuance__pro03388"> </A>
<A NAME="toc_eg42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>PROPOSAL 5    <BR>    <BR>    TO APPROVE ISSUANCE OF KRATOS COMMON STOCK<BR>  IN CONNECTION WITH THE MERGER    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It is a condition to completion of the merger that Kratos issue shares of Kratos common stock in the merger. When the merger becomes effective, each share of SYS
common stock outstanding immediately before the merger will be converted into the right to receive 1.2582 shares of Kratos common stock. Under Marketplace Rule&nbsp;4350(i) promulgated by The Nasdaq
Stock Market, a company listed on The Nasdaq Stock Market is required to obtain stockholder approval in connection with a merger with another company if the number of shares of common stock or
securities convertible into common stock to be issued is in excess of 20% of the number of shares of common stock then outstanding. If the merger is completed, Kratos will issue up to approximately
25.3&nbsp;million shares of Kratos common stock in the merger. On an as converted basis, the aggregate number of shares of Kratos common stock to be issued in the merger will exceed 20% of the
shares of Kratos common stock outstanding on the record date for the Kratos special meeting, and for this reason Kratos must obtain the approval of Kratos stockholders for the issuance of these
securities to SYS shareholders in the merger. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>169</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2><B>Vote Required and Board of Directors Recommendation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approval of this proposal requires the affirmative vote of a majority of the shares entitled to vote on the proposal at a meeting at which a quorum is present.
Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum. Abstentions will have the same effect as a vote against this proposal. Broker
non-votes will have no effect on the outcome of this vote. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
is asking its stockholders to approve the Share Issuance. The issuance of these securities to SYS shareholders is necessary to effect the merger. The approval of this Proposal 5
is required for completion of the merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>THE KRATOS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE </B></FONT><FONT SIZE=2><B><I><U>FOR</U></I></B></FONT><FONT SIZE=2><B> THIS ITEM
(ITEM&nbsp;5).</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="eg42501_proposal_6_possible_adjournmen__pro03127"> </A>
<A NAME="toc_eg42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>PROPOSAL 6    <BR>    <BR>    POSSIBLE ADJOURNMENT OR POSTPONEMENT OF THE KRATOS ANNUAL MEETING    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kratos annual meeting may be adjourned or postponed to another time or place to permit, among other things, further solicitation of proxies if necessary to
obtain additional votes in favor of the items listed on the Proxy Card. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Vote Required and Board of Directors Recommendation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approval of this proposal requires the affirmative vote of a majority of the total votes cast on the proposal at a meeting at which a quorum is present.
Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum. Abstentions will have the same effect as a vote against this proposal. Broker
non-votes will have no effect on the outcome of this vote. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>THE KRATOS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE </B></FONT><FONT SIZE=2><B><I><U>FOR</U></I></B></FONT><FONT SIZE=2><B> THIS ITEM
(ITEM&nbsp;6)</B></FONT><FONT SIZE=2>. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="eg42501_other_matters"> </A>
<A NAME="toc_eg42501_3"> </A>
<BR></FONT><FONT SIZE=2><B>OTHER MATTERS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos' management does not know of any other matters that may come before Kratos' annual meeting. However, if any other matters are properly presented to Kratos'
annual meeting, it is the intention of the persons named in the accompanying proxy to vote, or otherwise act, in accordance with their judgment on such matters. </FONT></P>

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<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>By Order of the Kratos Board of Directors,</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><BR><FONT SIZE=2><B>
<IMG SRC="g257133.jpg" ALT="GRAPHIC" WIDTH="168" HEIGHT="30">
 </B></FONT><FONT SIZE=2><BR>
<BR>
Eric M. DeMarco<BR></FONT> <FONT SIZE=2><I>President and Chief Executive Officer</I></FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>170</FONT></P>

<HR NOSHADE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="eg42501_kratos_stock_ownership_of_cert__kra02680"> </A>
<A NAME="toc_eg42501_4"> </A>
<BR></FONT><FONT SIZE=2><B>KRATOS STOCK OWNERSHIP OF CERTAIN<BR>  BENEFICIAL OWNERS AND MANAGEMENT    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Principal Stockholders  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Ownership of more than 5%  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables show stock ownership information as of April&nbsp;8, 2008 with respect to beneficial ownership of Kratos' common stock and Series&nbsp;B
Convertible preferred stock by each person known to Kratos to be the beneficial owner of more than 5% of such stock. As of April&nbsp;8, 2008, there were 78,998,922 shares of Kratos common stock and
10,000 shares of Kratos Series&nbsp;B preferred stock issued and outstanding. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information
with respect to beneficial owners of more than 5% of the common stock is based upon the most recent Schedule&nbsp;13G or 13D these owners have filed with SEC. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Non-Affiliated Stockholders  </I></B></FONT></P>

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<TH WIDTH="29%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Beneficial Ownership(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="29%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Common Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Series&nbsp;B Convertible<BR>
Preferred Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Common Shares On An<BR>
As-Converted Basis</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="29%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Identity of Owner or Group<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>% Ownership</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>% Ownership</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>% Ownership</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="29%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>T. Rowe Price<BR>
100 E. Pratt Street<BR>
Baltimore, MD 21202</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>7,656,005</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(2)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>9.69</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>7,656,005</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>9.57</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="29%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>State of Wisconsin Investment Board<BR>
P.O.&nbsp;Box&nbsp;7842<BR>
Madison, WI 53707</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>7,397,886</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>9.36</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>7,397,886</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>9.25</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="29%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>Massih Tayebi<BR>
BridgeWest&nbsp;LLC<BR>
4350 La Jolla Village Drive, Suite&nbsp;450<BR>
San Diego, CA 92121</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>5,554,898</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(3)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>7.03</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>5,554,898</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>6.94</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="29%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>Masood Tayebi<BR>
BridgeWest&nbsp;LLC<BR>
4350 La Jolla Village Drive, Suite&nbsp;450<BR>
San Diego, CA 92121</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>5,749,185</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(4)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>7.28</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>%</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>5,749,185</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>7.19</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>%</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>This
table is based upon information supplied by officers, directors and principal stockholders and Schedules&nbsp;13G filed with the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment
power and any shares as to which the individual or entity has the right to acquire beneficial ownership within 60&nbsp;days of April&nbsp;8, 2008 through the exercise of any stock option or other
right. The inclusion of such shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of, or receives the economic benefit from, such
shares. Applicable percentages are based on 78,998,922 shares of common stock, and 10,000 shares of Series&nbsp;B convertible preferred stock outstanding on April&nbsp;8, 2008.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>These
securities are owned by various individual and institutional investors, which Price Associates serves as an investment adviser with power to direct investments and/or sole power
to vote the securities. For purposes of the reporting requirements of the Exchange Act, Price Associates is deemed to be a beneficial owner of such securities; however Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such securities.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Does
not include 52,762 shares held by spouse of Massih Tayebi. Massih Tayebi disclaims beneficial ownership of such shares.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Includes
5,749,185 shares held directly by Masood K. Tayebi or over which Dr.&nbsp;Tayebi has sole voting power. Excludes: 404,693 shares held directly by Dr.&nbsp;Tayebi's
spouse; 2,000,000 shares held in a revocable living trust of which Dr.&nbsp;Tayebi's spouse is trustee; and 646,137 shares held in a grantor retained annuity trust of which Dr.&nbsp;Tayebi's
spouse is trustee. Dr.&nbsp;Tayebi disclaims beneficial ownership of all such shares. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>171</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=181,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=247992,FOLIO='171',FILE='DISK112:[08ZAT1.08ZAT42501]EG42501A.;35',USER='ABEAULI',CD=';9-APR-2008;16:05' -->
<A NAME="page_eg42501_1_172"> </A>

<P style="font-family:times;"><FONT SIZE=2><B><I>Ownership by Directors and Executive Officers  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the amount of Kratos' common stock and Series&nbsp;B convertible preferred stock beneficially owned by (i)&nbsp;Kratos' directors,
(ii)&nbsp;each of the named executive officers in the Summary Compensation Table, and (iii)&nbsp;Kratos' directors and executive officers as a group. All information in the following table is
presented as of April&nbsp;8, 2008. Unless otherwise indicated in the table set forth below, each person named below has an address in care of Kratos' principal executive offices. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="87%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Beneficial Ownership(1)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Common Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Series&nbsp;B Convertible<BR>
Preferred Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Common Shares On An<BR>
As-Converted Basis</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Identity of Owner or Group<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>% Ownership</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>% Ownership</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>% Ownership</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><B>Directors</B></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>Scott I. Anderson<BR>
c/o Cedar Grove Investments,&nbsp;LLC<BR>
3825 Issaquah Pine Lake Road<BR>
Sammamish, WA 9807</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>734,012</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(2)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>734,012</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>Bandel L. Carano<BR>
Oak Investment Partners<BR>
525 University Avenue, Suite&nbsp;1300<BR>
Palo Alto, CA 94302</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>5,547,434</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(3)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>7.02%</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>5,547,434</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>6.93%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>Eric M. DeMarco</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>2,032,949</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(4)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>2.57%</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>2,032,949</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>2.54%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>William A. Hoglund<BR>
434 35th&nbsp;Avenue<BR>
Seattle, WA 98122</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>195,000</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(5)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>195,000</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>Scot B. Jarvis<BR>
c/o Cedar Grove Investments,&nbsp;LLC<BR>
3825 Issaquah Pine Lake Road<BR>
Sammamish, WA 9807</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>734,012</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(6)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>734,012</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><B>Officers</B></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>Deanna Lund</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>407,615</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(7)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>407,615</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>James R. Edwards</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>7,251</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(8)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>7,251</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>Laura L. Siegal</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>130,881</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(9)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>130,881</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>D. Robin Mickle</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>155,823</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>(10)</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>155,823</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>*</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><B>All Directors and Officers as a Group</B></FONT><BR>
<FONT SIZE=1><B>(8 persons, does not include Mr.&nbsp;Edwards)</B></FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><B>9,937,726</B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><B>12.58%</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><B>&#151;</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><B>&#151;</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><B>9,937,726</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><B>12.42%</B></FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>Total Shares Outstanding</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><B>78,998,922</B></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>Adjusted for Preferred Shares Conversion Series&nbsp;B</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="27%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>If Converted Additional Shares</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>1,000,000</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>Adjusted Common Shares (If Converted)</FONT></TD>
<TD WIDTH="1%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><B>79,998,922</B></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>*</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Less
than one percent.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>This
table is based upon information supplied by officers, directors and principal stockholders and Schedule&nbsp;13G filed with the Securities and Exchange Commission (the "SEC"),
and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual or entity has
sole or shared voting power or investment power and any shares as to which the individual or entity has the right to acquire beneficial ownership within 60&nbsp;days of April&nbsp;8, 2008 through
the exercise of any stock option or other right. The inclusion of such shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial ownership of, or
receives the economic benefit from, such shares. Applicable percentages are based on 78,998,922 shares of common stock, and 10,000 shares of Series&nbsp;B convertible preferred stock outstanding on
April&nbsp;8, 2008.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Includes
130,000 shares subject to options exercisable within 60&nbsp;days of April&nbsp;8, 2008.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Includes
149,546 shares subject to options exercisable within 60&nbsp;days of April&nbsp;8, 2008. Includes 2,554 shares of common stock held directly by Mr.&nbsp;Carano, 14,828
shares of common stock held by Oak Investment Partners VI,&nbsp;L.P., 346 shares of common stock held by Oak VI Affiliates Fund,&nbsp;L.P., 1,402,084 shares of common stock held by Oak Investment
Partners IX, Limited Partnership, 14,942 shares of common stock held by Oak IX Affiliates Fund, Limited Partnership, 33,655 shares </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>172</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<UL>

<P style="font-family:times;"><FONT SIZE=1>of
common stock held by Oak IX Affiliates Fund-A, Limited Partnership, 48,597 shares held by Oak IX Affiliates,&nbsp;LLC, 3,808,026 shares of common stock held by Oak Investment Partners
X, Limited Partnership, 61,123 shares of common stock held by Oak X Affiliates Fund, Limited Partnership. Bandel Carano is a general partner of Oak Investment Partners VI,&nbsp;L.P., Oak VI
Affiliates Fund,&nbsp;L.P., Oak Investment Partners IX,&nbsp;L.P., Oak IX Affiliates Fund,&nbsp;L.P., Oak IX Affiliates Fund-A,&nbsp;L.P., Oak IX Affiliates,&nbsp;LLC, Oak
Investment Partners X,&nbsp;L.P. and Oak X Affiliates Fund,&nbsp;L.P. Mr.&nbsp;Carano has indirect ownership of these shares and has shared power to vote and dispose of these shares.
Mr.&nbsp;Carano disclaims beneficial ownership of the shares held by Oak Investment Partners VI,&nbsp;L.P., Oak VI Affiliates Fund,&nbsp;L.P., Oak Investment Partners IX,&nbsp;L.P., Oak IX
Affiliates Fund,&nbsp;L.P., Oak IX Affiliates Fund-A,&nbsp;L.P., Oak IX Affiliates,&nbsp;LLC, Oak Investment Partners X,&nbsp;L.P. and Oak X Affiliates Fund,&nbsp;L.P. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Includes
7,949 shares held in Kratos' 401(k) Plan and 1,975,000 shares subject to options exercisable within 60&nbsp;days from April&nbsp;8, 2008.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(5)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Includes
195,000 shares subject to options exercisable within 60&nbsp;days from April&nbsp;8, 2008.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(6)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Includes
130,000 shares subject to options exercisable within 60&nbsp;days from April&nbsp;8, 2008.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(7)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Includes
7,615 shares held in Kratos' 401(k) Plan and 400,000 shares subject to options exercisable within 60-days from April&nbsp;8, 2008.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(8)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Includes
7,251 shares held in Kratos' 401(k) Plan Mr.&nbsp;Edwards' employment with the Company terminated in November 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(9)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Includes
4,835 shares held in Kratos' 401(k) Plan and 122,588 shares subject to options exercisable within 60&nbsp;days from April&nbsp;8, 2008.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(10)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Includes
5,823 shares held in Kratos' 401(k) Plan and 150,000 shares subject to options exercisable within 60-days of April&nbsp;8, 2008. </FONT></DD></DL>


<P style="font-family:times;"><FONT SIZE=2><B>Management  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos' executive officers and their respective positions are set forth in the following table. Biographical information of each executive officer who is not also
a director is set forth following the table. There are no family relationships between any director or executive officer and any other directors or executive officers. Executive officers serve at the
discretion of the Kratos Board. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Executive Officers  </I></B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="82%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="24%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="48%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Position</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Age</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="16%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year in Which<BR>
He/She<BR>
Became Officer</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="24%" style="font-family:times;"><FONT SIZE=2>Eric M. DeMarco</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Chief Executive Officer and President</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2003</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="24%" style="font-family:times;"><FONT SIZE=2>Deanna H. Lund</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Senior Vice President and Chief Financial Officer</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>40</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2004</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="24%" style="font-family:times;"><FONT SIZE=2>Laura L. Siegal</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Vice President, Corporate Controller and Acting Secretary</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2006</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="24%" style="font-family:times;"><FONT SIZE=2>D. Robin Mickle</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>President, Government Services Division</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2006</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
term of office of each executive officer is until his or her respective successor is elected and has been qualified, or until his or her earlier death, resignation or removal.
Historically, the Board has elected officers annually at its first meeting following the Annual Meeting of Stockholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;DeMarco's
biographical information is included with those of the other members of the Kratos Board. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Ms.&nbsp;Lund</I></FONT><FONT SIZE=2> has served as Kratos' Senior Vice President and Chief Financial Officer since April 2004. Prior to joining Kratos,
Ms.&nbsp;Lund most recently served as Vice President of The Titan Corporation from July 1998 and Titan's Corporate Controller from December 1996. Ms.&nbsp;Lund was also Titan's Corporate Manager
of Operations Analysis from 1993 to 1996. Prior thereto, Ms.&nbsp;Lund worked for Arthur Andersen&nbsp;LLP. Ms.&nbsp;Lund received her bachelor's degree in accounting from San Diego State
University, magna cum laude, and is a Certified Public Accountant. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>173</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>Ms.&nbsp;Siegal</I></FONT><FONT SIZE=2> has served as Kratos' Vice President and Corporate Controller since April&nbsp;4, 2006. Prior thereto
Ms.&nbsp;Siegal served as Vice President, Finance and Treasurer and Risk Management since September 2004. Ms.&nbsp;Siegal joined Kratos in August 2000 and has served as Treasurer since December
2003, our Director of Corporate Planning from August 2002 to December 2003, Director of Financial Planning and Analysis from January 2001 to August 2002, and Director of Purchasing from August 2000 to
January 2001. Throughout her career, Ms.&nbsp;Siegal has held a variety of financial management positions in technology and consulting companies including Controller of MEC Analytical Systems.
Ms.&nbsp;Siegal received a bachelor's degree in Economics from the University of California, San Diego. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Mr.&nbsp;Mickle</I></FONT><FONT SIZE=2> has served as President of Kratos' wholly-owned subsidiary Kratos Government Solutions,&nbsp;Inc. and the Government
Network Services Segment since December 2005. Mr.&nbsp;Mickle joined Kratos in January 2005 as a vice president in the Government Network Services segment. Prior thereto, Mr.&nbsp;Mickle had been
Vice President of the Fleet Systems Engineering Business Unit at Northrop Grumman Mission Systems since June 1996. From January 1994 to June 1996, Mr.&nbsp;Mickle had been an Executive Manager of
Naval Engineering Services, Western Operations. Mr.&nbsp;Mickle is a retired Captain of the U.S. Naval Reserve and served in the U.S. Navy from 1977 to 1983. Mr.&nbsp;Mickle is a graduate of the
U.S. Naval Academy and received an MBA in Management Science from San Diego State University. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ei42501_certain_relationships___ei402230"> </A>
<A NAME="toc_ei42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;30, 2002, Kratos issued an aggregate of 90,000 shares of Series&nbsp;B Convertible Preferred Stock, at an aggregate purchase price of
$45.0&nbsp;million, in a private placement to entities affiliated with one of the directors of Kratos (40,000 shares), to a brother of the previous Chairman and Chief Executive Officer of Kratos
(10,000 shares) and to an unrelated third-party investor (40,000 shares). Kratos received $44.9&nbsp;million of net proceeds. Each share of Series&nbsp;B Convertible Preferred Stock is initially
convertible into 100 shares of common stock for a conversion price of $5.00 per share, which was the fair market value of the common stock at the closing, at the option of the holder at any time,
subject to certain provisions in the Series&nbsp;B Preferred Stock Purchase Agreement. Prior to December&nbsp;31, 2004, 64,517 shares of Series&nbsp;B Convertible Preferred Stock were converted
into 6,451,700 shares of the Kratos' common stock. On April&nbsp;5, 2006, 15,483 shares of Series&nbsp;B Convertible Preferred Stock were converted into 1,548,300 shares of Kratos' common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
December&nbsp;31, 2007, Kratos has received notices from the holders to convert an aggregate number of 80,000 shares of Series&nbsp;B Convertible Preferred Stock into an
aggregate 8,000,000 shares of Kratos' common stock. On December&nbsp;31, 2007, the total liquidation preference equaled $5.0&nbsp;million. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;17, 2006, Kratos entered into a definitive agreement to divest all of its operations in Mexico for total approximate cash consideration of $18.0&nbsp;million subject
to adjustments for the closing net asset calculations, with $1.5&nbsp;million payable in cash on signing of the Equity Purchase Agreement and $16.5&nbsp;million by means of a secured promissory
note payable in installments through December 2006, which approximates the net book value of the operations. The purchaser, Sakoki&nbsp;LLC, is a newly-formed entity controlled by Massih Tayebi.
Although Massih Tayebi has no current role with Kratos, he was a co-founder of Kratos, having served as Chief Executive Officer from inception in 1994 through September 2000 and as a
director from inception through April 2002. In addition, as of July&nbsp;31, 2007, Massih Tayebi owns or controls approximately 8.2% of the total voting power of Kratos' capital stock. He is also
the brother of Masood Tayebi, who was Kratos' Chairman of the board of directors until March&nbsp;6, 2007. Masood Tayebi had no personal financial interest in the transaction and has no role with
the entity that has purchased the Mexico Operations. The transaction was approved by the disinterested members of Kratos' board of directors after consideration of other expressions of interest and an
independent valuation analysis. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>174</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
final closing balance sheet as of February&nbsp;17, 2006 resulted in net asset adjustments aggregating to a total approximate $18.9&nbsp;million consideration,
$1.5&nbsp;million which was paid on February&nbsp;17, 2006, with the remaining $17.4&nbsp;million payable by means of the promissory note in installments through December&nbsp;31, 2006 with an
interest rate of 7.5% per annum. On June&nbsp;26, 2006, Kratos entered into an Addendum with the buyer to finalize the closing net asset calculations, pursuant to which the parties agreed that the
resulting total purchase price was $18.9&nbsp;million. The Addendum also provided for a conditional waiver that permits the purchaser to make the payment due on August&nbsp;17, 2006 by
September&nbsp;30, 2006, and for the installments due on November&nbsp;17, 2006 and December&nbsp;31, 2006 to be made on or before December&nbsp;29, 2006. Failure to make the payments on such
later dates would have resulted in a restoration of the original terms of the note. The first scheduled note payment of $3.3&nbsp;million was received from the buyer on May&nbsp;19, 2006, and the
second scheduled note payment of $5.5&nbsp;million was received in installments of $5.2&nbsp;million on September&nbsp;29, 2006 and $0.3&nbsp;million on October&nbsp;10, 2006. The remaining
note receivable balance of $9.5&nbsp;million which included accrued interest through December&nbsp;29, 2006, was paid in full on December&nbsp;29, 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
than as disclosed above, since January&nbsp;1, 2005, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which Kratos was or
is a party in which the amount involved exceeds $120,000 and in which any director, officer or beneficial holder of more than 5% of any class of voting securities or member of such person's immediate
family had or will have a direct or indirect material&nbsp;interest. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Procedures for Approval of Related Party Transactions  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under its charter the Audit Committee of the Kratos board of directors is charged with reviewing all potential related party transactions. Kratos' policy has been
that the Audit Committee, which is comprised solely of independent, disinterested directors, then recommends such related party transactions to the entire Kratos board of directors for further review
and approval. All such related party transactions are then required to be reported under applicable SEC rules. Otherwise, Kratos has not adopted procedures for review of, or standards for approval of,
these transactions, but instead reviews such transactions on a case-by-case basis. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>175</FONT></P>

<HR NOSHADE>
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NAME="ei42501_kratos_executive_compensation"> </A>
<A NAME="toc_ei42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>KRATOS EXECUTIVE COMPENSATION    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Compensation Discussion and Analysis  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Overview  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This compensation discussion and analysis explains the material elements of the compensation awarded to, earned by, or paid to each of the Kratos executive
officers who served as named executive officers of Kratos during the last completed fiscal year. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Compensation Program Objectives and Philosophy  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee of the Kratos board of directors, which we refer to in this section as the Committee, currently oversees the design and administration
of the executive compensation program at Kratos. The Committee has adopted an executive compensation policy that has as its primary objective serving Kratos' stockholders by attracting, retaining and
motivating talented and qualified individuals to manage and lead Kratos' business. The Committee's primary objectives in structuring and administering the executive compensation policy are to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>attract,
motivate and retain talented and dedicated executive officers;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>tie
annual and long-term cash and stock incentives to achievement of measurable corporate and individual performance objectives;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reward
individual performance; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reinforce
business strategies and objectives for enhanced stockholder value. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Committee evaluates both performance and compensation of employees to ensure that Kratos has the ability to attract and retain employees and that compensation provided to employees
remains competitive relative to the compensation paid to similarly situated employees of peer companies. The Committee endeavors to ensure that the total paid to executive officers is fair, reasonable
and competitive. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
principal elements of the current executive compensation program are base salary, annual incentive cash bonus awards, long-term equity incentives in the form of
restricted stock units, a deferred compensation plan, other benefits and perquisites, post-termination severance and accelerated vesting of previously granted equity awards upon
termination and/or a change in control. Other benefits and perquisites at Kratos consist of life and health insurance benefits and a qualified 401(k) savings plan equivalent to those offered to all
employees. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Committee views these components of compensation as related but distinct. Although the Committee does review total compensation, Kratos does not believe that significant compensation
derived from one component of compensation should negate or offset compensation from other components. Kratos determines the appropriate level for each compensation component based in part, but not
exclusively, on compensation for similar positions at peer companies, the Committee's view of internal equity and consistency, and other considerations it deems relevant, such as rewarding
extraordinary performance. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Determination of Compensation Awards  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Committee has historically performed at least annually a strategic review of executive officers' compensation to determine whether they provide adequate
incentives and motivation to Kratos' executive officers and whether they adequately compensate executive officers relative to comparable officers in other similarly situated companies. The Committee's
most recent review occurred in March&nbsp;2008. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>176</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Committee
meetings typically have included, for all or a portion of each meeting, not only the Committee members but also Kratos' chief executive officer, chief financial officer and
general counsel. For compensation decisions relating to executive officers other than the chief executive officer, the Committee typically considers recommendations from the chief executive officer.
When determining compensation for the chief executive officer, the Committee takes into account, but does not rely upon, the recommendation of the chief executive officer. Compensation for the chief
executive officer has been determined by discussion among and action by the members of the Committee acting in consultation with the other independent members of the Board and market data obtained on
behalf of the Committee. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It
is Kratos' policy generally to qualify compensation paid to executive officers for deductibility under Section&nbsp;162(m) of the Internal Revenue Code. Section&nbsp;162(m)
generally prohibits the company from deducting the compensation of officers that exceeds $1,000,000 unless that compensation is based on the achievement of objective performance goals. Kratos believes
that its 1999 and 2005 Equity Incentive Plans, which we refer to collectively as the Equity Plans, are structured to qualify stock options, restricted share and stock unit awards under such Equity
Plans as performance-based compensation and to maximize the tax deductibility of such awards. However, Kratos reserves the discretion to pay compensation to its officers that may not be deductible. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Base Compensation  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos provide its named executive officers and other executives with base salaries that it believes enables it to hire and retain individuals in a competitive
environment and to reward individual performance and contribution to its overall business goals, while taking into account the unique circumstances of the company. Kratos reviews base salaries for its
named executive officers annually and increases, if any, are based on the executive's success in contributing to its short-term and long-term objectives as well as unique
challenges faced by it. Kratos also takes into account the base compensation that is payable by companies that it believes to be its competitors and by other public companies with which we believe we
generally compete for executives in our market and geography. The base salary of our chief executive officer is reviewed and recommended by the Committee acting in consultation with the other
independent members of our Board. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April 2007, the Committee applied the principals described above and increased the base salary of our chief executive officer, Eric DeMarco, by 10% to $440,000, effective as of
April&nbsp;1, 2007. The Committee considered, among other things, Mr.&nbsp;DeMarco's effectiveness in dealing with the challenges related to the divestiture of certain of Kratos business segments
and the refocusing of the business on the Kratos Government Solutions business segment. The Committee reviewed similar considerations for each of the other named executives, and in April 2007
increased the base salaries of the other named executive officers as follows: Deanna Lund, senior vice president and chief financial officer, by 10.9% to $305,000; James Edwards, former senior vice
president and general counsel, by 12.5% to $270,000; Laura Siegal, vice president, controller and principal accounting officer, by 10.8% to $205,000; and D. Robin Mickle, president of the Government
Services division, by 7.3% to $220,000, all effective as of April&nbsp;1, 2007. In April&nbsp;2008, the Committee applied the above principles and decided to maintain the executive officers'
salaries at their current levels through the remainder of&nbsp;2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Retention Cash Bonus Awards  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All members of the Kratos corporate management team (including all named executive officers other than Mr.&nbsp;Mickle) were eligible to receive cash retention
awards under the Kratos 2007 retention cash bonus awards program (the "Retention Program"). In establishing the Retention Program, the Committee considered the significant challenges faced by the
Kratos corporate management team related to, among other things, the divestiture of the commercial wireless-related businesses and the refocusing of the business as a defense contractor and security
systems integrator for the federal </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>177</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>government
and for state and local agencies, as well the recently completed investigation of Kratos' past stock option granting practices and related securities litigation. The Committee determined
that the Retention Program should be established in order to retain these key executive officers through this difficult transition period for Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
cash awards under the Retention Program vested over the course of fiscal 2007, with the last vesting date occurring on January&nbsp;1, 2008, and were paid out in increments over
this period. These awards were contingent only upon continued employment through the vesting period. If the executive officer's employment terminated during fiscal 2007, the executive forfeited all
subsequent payouts. The value of the award for each executive officer was determined at the recommendation of the chief executive officer based on an assessment of the retention risk for each
executive officer and that individual's impact on the organization. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth the awards and vesting periods for each of the named executive officers under this program. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="22%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Named Executive Officer</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Vesting<BR>
July&nbsp;1, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Vesting<BR>
October&nbsp;1, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Vesting<BR>
January&nbsp;1, 2008</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total Possible<BR>
Payments</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total Payments<BR>
Received</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=2>Eric DeMarco</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>220,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>110,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>220,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>550,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>550,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=2><BR>
Deanna Lund</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
114,375</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
57,188</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
114,375</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
285,938</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
285,938</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=2><BR>
James Edwards</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
81,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
40,500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
81,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>(a)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
202,500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
121,500</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=2><BR>
D. Robin Mickle(b)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="22%" style="font-family:times;"><FONT SIZE=2><BR>
Laura Siegal</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
41,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
20,500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
41,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
102,500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
102,500</FONT></TD>
</TR>
</TABLE>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Mr.&nbsp;Edwards'
employment with us terminated in November 2007; as a result, he was not eligible to receive this payment.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Mr.&nbsp;Mickle
was not eligible to participate in the Retention Program. </FONT></DD></DL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April&nbsp;2008, the Committee considered the factors identified above and determined to continue the Retention Program for fiscal&nbsp;2008, with cash bonuses to vest on
July&nbsp;1, 2008, October&nbsp;1, 2008 and January&nbsp;1, 2009, for the same executive officers at the same compensation level as&nbsp;2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Annual Cash Bonus Awards  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to base salary, Kratos has in the past provided executive officers and other key managers the opportunity to receive incentive compensation in the
form of annual discretionary bonuses of cash based upon the achievement of certain individual and company performance objectives during the fiscal year. Typically, target cash bonus awards are based
upon a percentage of the executive's salary and range from 25% to 100% of the executive officer's salary. In determining the appropriate level of target bonus for each officer, the Committee considers
the recommendation of the chief executive officer and other information collected from public sources for similar positions at peer companies. Under the bonus plan, each executive typically received
50% of his or her target bonus amount if the executive achieves specific individualized operational objectives and the other 50% if we achieved certain financial targets for the fiscal year, which
typically include targets related to some combination of earnings per share, EBITDA, cash flow, revenues and gross profits. If the financial metrics fell within a certain specified range (with the
target metric at the high end of the range), then the executive would
typically receive a pro rata percentage of their bonus target based on linear interpolation between the bottom and top of the range. Generally, the executive would not receive any of the company
performance-based portion of the target bonus if the financial metrics fall below the bottom of the range. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>178</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Committee retains wide discretion to interpret the terms of the cash bonus plan and to identify the extent to which an individual's performance objectives have been met in any
particular fiscal year. The Committee also retains the right to exclude extraordinary charges or other special circumstances in determining whether the objectives were met during any particular fiscal
year and may decide to grant 100% of the targeted cash bonus award even if our earnings per share do not fall within the specified range, based upon an evaluation of business conditions and industry
trends. In addition, the Committee may approve cash bonuses outside of the cash bonus plan. For example, the Committee may approve bonus awards in connection with an executive officer's efforts and
accomplishments with respect to our strategic initiatives and milestones, and such bonus awards may overlap with or be in addition to bonus awards under the cash bonus plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Mickle,
who serves as president of Kratos' Government Services division, was the only named executive officer eligible to participate in the above cash bonus award plan for
fiscal 2007. Under the plan, Mr.&nbsp;Mickle was eligible to receive up to a maximum of $110,000, or 50% of his annual salary. He was eligible to receive up to 25% of his annual target bonus amount
if he achieved certain individualized performance targets such as improvement in identifying, winning and retaining new business through implementation of better processes, improvement of program
management, aggressive management of overhead and utilization rates, limitation of unallowable usage compared to budgets, improvement of voluntary retention, improvement of division proposal skills,
and support of corporate initiatives, and 75% of his annual target bonus amount if Kratos achieved certain financial targets such as earnings per share goals of Kratos, and the Kratos' Government
Services division achieving EBIT, revenue, win rate, and cash collection goals. In April 2008, Mr.&nbsp;Mickle received a cash payment equal to $92,000. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
described in more detail above, for fiscal 2007, the Committee did not establish a cash bonus award plan for Kratos' other named executive officers. Instead, these annual cash bonus
awards were replaced for fiscal 2007 by the cash awards under the Retention Program described above for all named executive officers other than Mr.&nbsp;Mickle. As a result, Mr.&nbsp;DeMarco,
Ms.&nbsp;Lund and Ms.&nbsp;Siegal did not participate in the cash bonus award plan in 2007. As described above, the Committee expects to continue the Retention Program for these executive officers
in 2008, and expects to reestablish a cash bonus award plan for all executive officers consistent with prior year plans for fiscal 2009. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Equity Compensation  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos believes that equity ownership by its executive officers provides important incentives to make decisions and take actions that maximize
long-term stockholder value. The Committee develops its equity award determinations based on its judgments as to whether the complete compensation packages provided to Kratos' executives,
including prior equity awards, provide sufficient incentive to build stockholder value and align the interests or executive officers with its stockholders, and are sufficient to retain, motivate and
adequately award each of its executives. This judgment is based in part on information provided by reviewing the equity compensation practices of companies that Kratos believes to be its competitors
and by other public companies with which it believes it generally competes for executives. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
grants equity compensation to its executive officers and other employees under its Equity Plans. Most initial option grants currently vest over a four year period from the date of
grant, with 25% vesting on the first anniversary of the date of grant and the balance vesting monthly over a three year period. Subsequent option grants to employees with over one year of service vest
on a monthly basis over a four year period. Our stock options have a 10-year contractual term. Beginning on January&nbsp;1, 2006, Kratos began accounting for stock-based payments in
accordance with the requirements of FASB Statement 123R. In addition, as of April&nbsp;1, 2008, its employees, including its executive officers, are able to purchase shares of Kratos common stock
under our 1999 Employee Stock Purchase Plan. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>179</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Committee reviews and approves all grants made to its officers under the Equity Plans and in connection with the initial hiring, promotions, extraordinary achievements or
compensation adjustments. In addition to these factors, the size and timing of grants are generally subject to policies established by the Committee regarding the position of the grantee within the
company, the overall number of options actually granted to the optionee in the past and the extent of vesting of prior grants. In general, the option grants are also subject to
post-termination and change in control provisions. In January 2007, for various business reasons, Kratos generally discontinued the use of stock options as a form of equity compensation
and instead began to issue restricted stock units on a limited basis. No options were granted to executive officers during fiscal 2006 or 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;28, 2006, the Kratos Board approved the acceleration of vesting of all unvested options to purchase shares of Kratos common stock issued prior to June&nbsp;30, 2006
held by its employees and directors under the 1999 Equity Incentive Plan and 2000 Nonqualified Stock Option Plan. The acceleration was effective as of December&nbsp;29, 2006. Executive officers held
options to purchase 687,000 shares at a weighted average exercise price of $6.28 per share. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning
in fiscal 2007, the Board adopted a policy of equity ownership to Kratos' executive officers through restricted stock units. These restricted stock units vest at the earlier of
(i)&nbsp;ten years from the date of grant, (ii)&nbsp;upon a change in control of the company, or (iii)&nbsp;upon termination of employment without cause. Consistent with its belief that equity
ownership by executive officers provides important incentives to make decisions and take actions that maximize long-term stockholder value, on January&nbsp;30, 2007, the Committee
granted restricted stock unit awards to named executive officers, as follows: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Eric
M. DeMarco: 987,500 shares
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Deanna
Lund: 200,000 shares
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>James
R. Edwards: 170,000 shares
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>D.
Robin Mickle: 75,000 shares
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Laura
L. Siegal: 45,000 shares </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
view of the significant challenges facing Kratos related primarily to legacy issues which pre-date the current management team, on March&nbsp;26, 2007, the Committee
granted restricted stock unit awards as a retention tool as follows: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Eric
M. DeMarco: 493,750 shares
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Deanna
Lund: 100,000 shares
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>James
R. Edwards: 85,000 shares
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Laura
L. Siegal: 22,500 shares </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the termination of Mr.&nbsp;Edwards' employment in November 2007, 100% of his above restricted stock unit awards vested in their entirety. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, on January&nbsp;4, 2008, the Committee granted additional restricted stock unit awards as follows: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Eric
M. DeMarco: 450,000 shares
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Deanna
Lund: 100,000 shares
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Laura
L. Siegal: 22,500 shares </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>180</FONT></P>

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<A NAME="page_ei42501_1_181"> </A>
<UL>
<UL>
</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B><I>Deferred Compensation Plan  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In fiscal 2007 and in prior years Kratos has provided its executive officers and other eligible highly compensated employees with the opportunity to defer up to
80% of their cash compensation derived from base salary, bonus awards and/or commissions pursuant to a Nonqualified Deferred Compensation Plan ("Deferred Compensation Plan"). The deferrals reduce a
participant's current taxable income and allow the participant to accumulate savings on a tax deferred basis. In addition, Kratos may, in its sole and absolute discretion, make annual discretionary
contributions, including matching contributions, to the Deferred Compensation Plan. To date, Kratos has not made any such contributions. Deferrals and
contributions (if applicable) are adjusted for gain or loss based on the performance of one or more investment options selected by the participant from among investment funds chosen by a Committee
appointed by the Committee to administer the Deferred Compensation Plan. Generally, all distributions under the Deferred Compensation Plan will be made in a single lump sum, although participants that
terminated their employment as a result of retirement may elect to receive distributions in annual installments. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 2007, the Committee determined to "freeze" the plan such that no new deferral elections will be permitted after December&nbsp;31, 2007. Irrevocable deferral elections that
have already been made will continue in effect for compensation for services performed in 2007 that would otherwise be payable in 2008. On December&nbsp;1, 2008 any remaining account balances will
be distributed to participants in a single lump sum. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Executive Benefits and Perquisites  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of Kratos executives are eligible to participate in our employee benefit plans, including medical, dental, life insurance and 401(k) plans. These plans are
available to all salaried employees and do not discriminate in favor of executive officers. It is generally our policy not to extend significant perquisites to executives that are not available to
employees generally. Kratos has no current plans to make changes to levels of benefits and perquisites provided to executives. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Change in Control and Severance Benefits  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to an employment agreement with Mr.&nbsp;DeMarco and change in control agreements with Ms.&nbsp;Lund and Ms.&nbsp;Siegal, Kratos provides these
officers the opportunity to receive additional compensation and benefits in the event of severance or change in control. Severance and change in control provisions are summarized below in "Employment
Agreements; Potential Payments upon Termination or Change in Control." The Committee's analysis indicates that Kratos' severance and change in control provisions are consistent with the provisions and
benefit levels of other companies disclosing such provisions as reported in public SEC filings. Kratos believes its arrangements with its executive officers are reasonable. As further described below,
Kratos entered into an agreement with Mr.&nbsp;Edwards in connection with the termination of his employment with us, the terms of which are described below. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>181</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_ei42501_1_182"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ei42501_compensation_committee_report"> </A>
<A NAME="toc_ei42501_3"> </A>
<BR></FONT><FONT SIZE=2><B>COMPENSATION COMMITTEE REPORT    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item&nbsp;402(b) of Regulation&nbsp;S-K with
management and, based on such review and discussions, the Committee recommended to the Kratos board of directors that the Compensation Discussion and Analysis be included in our Annual Report on
Form&nbsp;10-K and this proxy statement. </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="49%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="49%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>THE COMPENSATION COMMITTEE</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2><BR>
Bandel L. Carano<BR>
Scot B. Jarvis, Chairperson<BR>
William A. Hoglund</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2><B>Compensation Committee Interlocks and Insider Participation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Compensation Committee is comprised entirely of independent directors. None of the members of the Compensation Committee is or has ever been one of our
officers or employees. No interlocking relationship exists between the Kratos board of directors or Compensation Committee and the board of directors or compensation committee of any other entity. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>182</FONT></P>

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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ek42501_fiscal_year_2007_summary_compensation_table"> </A>
<A NAME="toc_ek42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>FISCAL YEAR 2007 SUMMARY COMPENSATION TABLE    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(a)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(b)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(c)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(d)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(e)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(f)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(g)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(i)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(j)</B></FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="14%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name and Principal Position</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Salary<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Bonus<BR>
($)(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Stock<BR>
Awards<BR>
($)(2)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Option<BR>
Award(s)<BR>
($)(2)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B><BR>
Non-Equity<BR>
Incentive Plan<BR>
Compensation<BR>
($)(3)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>All Other<BR>
Compensation<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total<BR>
Compensation<BR>
($)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=1>Eric M. DeMarco<BR>
President and Chief Executive Officer</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2007<BR>
2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>440,000<BR>
373,465</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;<BR>
200,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>295,466<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;<BR>
1,988,385</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>550,000<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12,750<BR>
12,750</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>(4)<BR>(4)</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,298,216<BR>
2,574,600</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=1><BR>
Deanna Lund<BR>
Senior Vice President and Chief Financial Officer</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
2007<BR>
2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
305,000<BR>
261,767</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
&#151;<BR>
82,500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
59,841<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
&#151;<BR>
550,716</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
285,938<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
650,779<BR>
894,983</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=1><BR>
James R. Edwards(5)<BR>
Former Senior Vice President, General Counsel and Secretary</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
2007<BR>
2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
270,000<BR>
234,215</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
&#151;<BR>
72,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
584,800<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
&#151;<BR>
467,187</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
121,500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
976,300<BR>
773,402</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=1><BR>
D. Robin Mickle<BR>
President, Advanced Technical Solutions Division</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
2007<BR>
2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
220,000<BR>
206,054</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
16,231<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
&#151;<BR>
470,382</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
92,000<BR>
51,250</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
328,231<BR>
727,686</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=1><BR>
Laura L. Siegal<BR>
Vice President, Corporate Controller and Acting Secretary</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
2007<BR>
2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
205,000<BR>
181,118</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
&#151;<BR>
37,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
13,464<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
&#151;<BR>
120,602</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
102,500<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
320,964<BR>
338,720</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Represents
cash bonus awards to named executive officers earned in the referenced fiscal year as set forth above. Annual cash bonus awards under Kratos' cash bonus plans are typically
paid based on the achievement of certain objectives approved by the Committee as described in further detail above.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>The
amounts shown in columns (e)&nbsp;and (f)&nbsp;represent the compensation costs of restricted stock unit awards and stock options for financial reporting purposes for fiscal
years 2006 and 2007 under FAS&nbsp;123(R), rather than an amount paid to or realized by the named executive officer. A discussion of the relevant fair value assumptions is set forth in
note&nbsp;18 to Kratos' consolidated financial statements included in its 2007 Annual Report on Form&nbsp;10-K. Kratos cautions that the amount ultimately realized from the restricted
stock unit awards and option awards will likely vary based on a number of factors, including the company's actual operating performance, stock price fluctuations and the timing of exercises (in the
case of options only) and sales.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Represents
bonus under the cash bonus plan to named executive officers earned in 2007 and paid in 2007 and 2008 as described in further detail above. Annual cash bonus awards under
the cash bonus plan are typically paid based on the achievement of certain individual and Kratos performance objectives approved by the Committee as described in further detail above. For fiscal 2007,
the chief executive officer, not the Committee, determined individualized and company performance objectives for Mr.&nbsp;Mickle's cash bonus award. However, the Committee evaluated whether
Mr.&nbsp;Mickle achieved his individualized performance objectives and approved the payment of his bonus under the cash bonus plan.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Represents
the taxable income attributable to Mr.&nbsp;DeMarco for his use of a company automobile in the referenced fiscal year.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(5)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Mr.&nbsp;Edwards'
employment with Kratos terminated in November 2007. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>183</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=193,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=590401,FOLIO='183',FILE='DISK112:[08ZAT1.08ZAT42501]EK42501A.;15',USER='KSOLTER',CD=';9-APR-2008;01:06' -->
<A NAME="page_ek42501_1_184"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><A
NAME="ek42501_fiscal_year_2007_grants_of_plan-based_awards"> </A>
<A NAME="toc_ek42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>FISCAL YEAR 2007 GRANTS OF PLAN-BASED AWARDS    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="18%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(a)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(b)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(c)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(d)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(e)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(i)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(l)</B></FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="18%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B><BR>
All Other<BR>
Stock Awards:<BR>
Number of<BR>
Shares of<BR>
Stock or Units<BR>
(#)(2)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Grant Date<BR>
Fair Value<BR>
of Stock<BR>
and Option<BR>
Awards<BR>
($)(3)</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="18%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Approval<BR>
Date</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Grant<BR>
Date</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Threshold<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Target<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Maximum<BR>
($)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2>Eric M. DeMarco</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1/10/2007<BR>
2/28/2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1/30/2007<BR>
3/26/2007<BR>
7/1/2007<BR>
10/1/2007<BR>
1/2/2008</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
&#151;<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
220,000<BR>
110,000<BR>
220,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
&#151;<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>987,500<BR>
493,750</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,330,500<BR>
1,066,500</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><BR>
Deanna H. Lund</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1/10/2007<BR>
2/28/2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1/30/2007<BR>
3/26/2007<BR>
7/1/2007<BR>
10/1/2007<BR>
1/2/2008</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
&#151;<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
91,500<BR>
45,750<BR>
91,500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
&#151;<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
200,000<BR>
100,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
472,000<BR>
216,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><BR>
James R. Edwards(4)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1/10/2007<BR>
2/28/2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1/30/2007<BR>
3/26/2007<BR>
7/1/2007<BR>
10/1/2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
81,000<BR>
40,500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
170,000<BR>
85,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
401,200<BR>
183,600</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><BR>
D. Robin Mickle</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1/10/2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1/30/2007<BR>
N/A</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
100,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
110,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
75,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
177,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><BR>
Laura L. Siegal</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1/10/2007<BR>
2/28/2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1/30/2007<BR>
3/26/2007<BR>
7/1/2007<BR>
10/1/2007<BR>
1/2/2008</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
&#151;<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
41,000<BR>
20,500<BR>
41,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
&#151;<BR>
&#151;<BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
45,000<BR>
22,500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
106,200<BR>
48,600</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Amounts
shown in columns (d)&nbsp;are the estimated possible payouts for fiscal year 2007 under the Retention Program set forth above for Mr.&nbsp;DeMarco, Ms.&nbsp;Lund,
Mr.&nbsp;Edwards and Ms.&nbsp;Siegal, and under the annual cash bonus program for Mr.&nbsp;Mickle, based on certain assumptions. The actual bonuses awarded to the named executive officers for
the 2007 fiscal year are reporting in the Fiscal Year 2007 Summary Compensation Table under the column "Non-Equity Incentive Plan Compensation."
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Amounts
shown in column (i)&nbsp;represent restricted stock unit awards to the named executive officers in fiscal year 2007 as more fully described above.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Amounts
shown in column (l)&nbsp;represent the FAS&nbsp;123(R) "fair value" of such Restricted Stock Unit Awards to the named executive officers on the date of grant.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Mr.&nbsp;Edwards'
employment with Kratos terminated in November 2007. </FONT></DD></DL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
did not grant any equity based awards under incentive compensation plans to any named executive officers during the fiscal year ended December&nbsp;31, 2007. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>184</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=194,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=817813,FOLIO='184',FILE='DISK112:[08ZAT1.08ZAT42501]EK42501A.;15',USER='KSOLTER',CD=';9-APR-2008;01:06' -->
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_em42501_1_185"> </A>


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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="em42501_outstanding_equity_awards_at_fiscal_year-end"> </A>
<A NAME="toc_em42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="21%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(a)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(b)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(e)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(f)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(g)</B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(h)</B></FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=7 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B><BR>
Option Awards</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Stock Awards</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="21%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of<BR>
Securities<BR>
Underlying<BR>
Unexercised<BR>
Options (#)<BR>
Exercisable<BR>
(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Option<BR>
Exercise Price<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Option<BR>
Expiration Date<BR>
(2)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of<BR>
Shares or<BR>
Units of Stock<BR>
That Have Not<BR>
Vested<BR>
(#)(9)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Market Value of<BR>
Shares or Units of<BR>
Stock That Have Not<BR>
Vested<BR>
($)(10)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=2>Eric M. DeMarco</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,250,000<BR>
500,000<BR>
225,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.19<BR>
6.05<BR>
5.38</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>(3)<BR>(8)<BR>(8)</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11/17/2013<BR>
8/18/2014<BR>
8/9/2015</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
1,481,250</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
3,480,937</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=2><BR>
Deanna Lund</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
200,000<BR>
100,000<BR>
100,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
6.19<BR>
6.05<BR>
5.38</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>(4)<BR>(8)<BR>(8)</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
4/20/2014<BR>
8/18/2014<BR>
8/9/2015</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
<BR>
300,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
<BR>
705,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="21%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
James R. Edwards(12)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=2><BR>
D. Robin Mickle</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
40,000<BR>
10,000<BR>
100,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
6.19<BR>
5.90<BR>
5.43</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>(5)<BR>(8)<BR>(8)</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
4/12/2015<BR>
9/29/2015<BR>
12/20/2015</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
<BR>
75,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
<BR>
176,250</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=2><BR>
Laura L. Siegal</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
5,088<BR>
36,000<BR>
20,000<BR>
18,000<BR>
8,500<BR>
35,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
4.47<BR>
4.23<BR>
6.19<BR>
6.19<BR>
6.05<BR>
5.38</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>(6)<BR>(6)<BR><BR><BR>(7)<BR>(7)</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10/1/2011<BR>
4/30/2012<BR>
5/23/2013<BR>
10/2/2013<BR>
8/19/2015<BR>
8/9/2015</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
67,500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
158,625</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>All
options listed are fully vested and exercisable.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Expiration
date assumes that optionee remains in service of the company through the full term of the stock option grant.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Represents
option shares originally granted to Mr.&nbsp;DeMarco on November&nbsp;17, 2003 with respect to which the vesting was accelerated on May&nbsp;18, 2005 pursuant to the
Compensation Committee's determination to accelerate the vesting on all outstanding and unvested stock options held by employees, officers and directors of the company with an exercise price of more
than $10.00 per share. The option was cancelled and re-issued on December&nbsp;30, 2005 as part of a repricing of all outstanding employee stock options that were originally granted at
exercise prices greater than 120% of the company's closing stock price on the Nasdaq Global Select Market on December&nbsp;30, 2005.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Represents
option shares originally granted to Ms.&nbsp;Lund on April&nbsp;20, 2004 with respect to which the vesting was accelerated on May&nbsp;18, 2005 pursuant to the
Compensation Committee's determination to accelerate the vesting on all outstanding and unvested stock options held by employees, officers and directors of the company with an exercise price of more
than $10.00 per share. These options were cancelled and re-issued on December&nbsp;30, 2005 as part of a repricing of all outstanding employee stock options that were originally granted
at exercise prices greater than </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>185</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_em42501_1_186"> </A>
<UL>

<P style="font-family:times;"><FONT SIZE=2>120%
of the company's closing stock price on the Nasdaq Global Select Market on December&nbsp;30, 2005. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Represents
option shares granted to Mr.&nbsp;Mickle on April&nbsp;12, 2005, which options were cancelled and re-issued on December&nbsp;30, 2005 as part of a
repricing of all outstanding employee stock options that were originally granted at exercise prices greater than 120% of the company's closing stock price on the Nasdaq Global Select Market on
December&nbsp;30, 2005. The vesting of these options was subsequently accelerated on December&nbsp;31, 2006 when the Board of Directors approved the acceleration of vesting on all outstanding
options issued prior to June&nbsp;30, 2006 under our 1999 Equity Incentive and 2000 Nonqualified Stock Option Plans.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Represents
option shares that were originally granted to Ms.&nbsp;Siegal on May&nbsp;23, 2003 with respect to which the vesting was accelerated on September&nbsp;19, 2005
pursuant to the Compensation Committee's determination to accelerate the vesting on all outstanding and unvested stock options held by employees, officers and directors of the company with an exercise
price of more than $8.00 per share. The option was cancelled and re-issued on December&nbsp;30, 2005 as part of a repricing of all outstanding employee stock options that were originally
granted at exercise prices greater than 120% of the company's closing stock price on the Nasdaq Global Select Market on December&nbsp;30, 2005.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(7)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Represents
option shares originally granted to Ms.&nbsp;Siegal on October&nbsp;2, 2003, with respect to which the vesting was accelerated on May&nbsp;18, 2005 pursuant to the
Compensation Committee's determination to accelerate the vesting on all outstanding and unvested stock options held by employees, officers and directors of the company with an exercise price of more
than $10.00 per share. The option was cancelled and re-issued on December&nbsp;30, 2005 as part of a repricing of all outstanding employee stock options that were originally granted at
exercise prices greater than 120% of the company's closing stock price on the Nasdaq Global Select Market on December&nbsp;30, 2005.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(8)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Represents
option shares granted to Ms.&nbsp;Lund, Ms.&nbsp;Siegal and Messrs.&nbsp;DeMarco and Mickle with respect to which the vesting was subsequently accelerated on
December&nbsp;29, 2006, when the Board of Directors approved the acceleration of vesting of all outstanding options issued prior to June&nbsp;30, 2006 under the 1999 Equity Incentive and 2000
Nonqualified Stock Option Plans.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(9)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Amounts
listed in column (g)&nbsp;reflect restricted stock unit awards to the named executive officers outstanding at December&nbsp;31, 2007 as described more fully above,
including 987,500 shares for Mr.&nbsp;DeMarco, 200,000 shares for Ms.&nbsp;Lund, 45,000 shares for Ms.&nbsp;Siegal and 75,000 shares for Mr.&nbsp;Mickle, all of which vest at the earlier of
(a)&nbsp;10&nbsp;years from the date of grant; (b)&nbsp;upon a change in control of the issuer; or (c)&nbsp;upon termination of employment without cause, and 493,750 shares for
Mr.&nbsp;DeMarco, 100,000 shares for Ms.&nbsp;Lund and 22,500 shares for Ms.&nbsp;Siegal, all of which vest at the earlier of (a)&nbsp;10&nbsp;years from the date of grant; (b)&nbsp;upon a
change in control of the issuer; or (c)&nbsp;upon termination of employment without cause, except in the case of voluntary termination of employment within the first two years from date of grant.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(10)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Amounts
listed in column (h)&nbsp;represent the aggregate market value of the unvested restricted stock units awards held by the named executive officers as of December&nbsp;31,
2007 based on the closing price of a share of Kratos common stock of $2.35 on December&nbsp;31, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(11)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>All
restricted stock unit awards vested in connection with the termination of Mr.&nbsp;Edwards' employment with us in November 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(12)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Mr.&nbsp;Edwards'
employment with Kratos terminated in November 2007. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>186</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_em42501_1_187"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="em42501_fiscal_year_2007_options_exercises_and_stock_vested"> </A>
<A NAME="toc_em42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>FISCAL YEAR 2007 OPTIONS EXERCISES AND STOCK VESTED    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None of the named executive officers acquired any shares of Kratos common stock through the exercise of stock options during the fiscal year ended
December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table shows stock vested for the named executive officers during the fiscal year ended December&nbsp;31, 2007: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="58%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(a)</B></FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="16%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(d)</B></FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="21%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(e)</B></FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="58%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B><BR>
Stock Awards</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="58%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="16%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of<BR>
Shares<BR>
Acquired on<BR>
Vesting (#)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="21%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Value Realized on<BR>
Vesting ($)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="58%" style="font-family:times;"><FONT SIZE=2>Eric M. DeMarco</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="58%" style="font-family:times;"><FONT SIZE=2>Deanna Lund</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="58%" style="font-family:times;"><FONT SIZE=2>James R. Edwards(1)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>255,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>586,500</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="58%" style="font-family:times;"><FONT SIZE=2>D. Robin Mickle</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="58%" style="font-family:times;"><FONT SIZE=2>Laura L. Siegal</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>
<UL>
<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>All
of Mr.&nbsp;Edwards' Restricted Stock Unit Awards became fully vested and were released in connection with the termination of his employment with us in November 2007. </FONT></DD></DL>
</UL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="em42501_non-qualified_deferred_compensation"> </A>
<A NAME="toc_em42501_3"> </A>
<BR></FONT><FONT SIZE=2><B>NON-QUALIFIED DEFERRED COMPENSATION    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Company's Nonqualified Deferred Compensation Plan (the "Deferred Compensation Plan"), certain employees, including the named executive officers,
may defer up to eighty percent (80%) of their cash compensation derived from base salary, bonus awards and/or commissions. The
deferrals reduce a participant's current taxable income and allow the participant to accumulate savings on a tax deferred basis. In addition, the Company may, in its sole and absolute discretion, make
annual discretionary contributions to the Deferred Compensation Plan on behalf of participants, including matching contributions. To date, the Company has not made any contributions to the Deferred
Compensation Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferrals,
and company contributions, if applicable, are adjusted for gain or loss based on the performance of one or more investment options selected solely by the participant from time
to time from among investment funds chosen by a Plan Committee appointed by the Compensation Committee to administer the Deferred Compensation Plan. Generally, all distributions under the Deferred
Compensation Plan will be made in a single lump sum, although participants that terminate their employment as a result of their retirement may elect to receive distributions in annual installments.
The company may, in its sole discretion, suspend or terminate the Deferred Compensation Plan or revise it in any respect whatsoever; provided, however, that no such action may reduce amounts credited
to deferral accounts and such accounts will continue to be owed to the participants or </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>187</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=197,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=693873,FOLIO='187',FILE='DISK112:[08ZAT1.08ZAT42501]EM42501A.;26',USER='ABEAULI',CD=';9-APR-2008;14:36' -->
<A NAME="page_em42501_1_188"> </A>
<BR>

<P style="font-family:times;"><FONT SIZE=2>beneficiaries.
Further, as more fully described above, the Deferred Compensation Plan has been "frozen" such that no new deferral elections will be permitted after December&nbsp;31, 2007. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="77%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="34%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(a)</B></FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(b)</B></FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(d)</B></FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(e)</B></FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(f)</B></FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="34%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B><BR>
Executive<BR>
Contributions<BR>
in Last FY<BR>
($)(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Aggregate<BR>
Earnings in<BR>
Last FY<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Aggregate<BR>
Withdrawals/<BR>
Distributions<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Aggregate<BR>
Balance at<BR>
Last FYE<BR>
($)(2)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Eric M. DeMarco</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>134,615</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,427</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>151,373</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Deanna Lund</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31,442</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,923</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,908</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>James R. Edwards</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,098</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>468</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,163</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>D. Robin Mickle</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,369</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,230</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,754</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Laura L. Siegal</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,700</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>371</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,606</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>
<UL>
<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
amounts in this column are also included in the Fiscal Year 2007 Summary Compensation Table.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Of
the totals in this column, the following totals have previously been reported in the Summary Compensation Table for this year, and for 2006: </FONT></DD></DL>
</UL>
</UL>
<BR>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="64%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="54%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006 ($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total ($)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Eric M. DeMarco</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>134,615</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>91,731</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>226,346</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Deanna Lund</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31,442</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25,096</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>56,538</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>James R. Edwards</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,098</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,490</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25,588</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>D. Robin Mickle</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,369</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,226</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,595</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Laura L. Siegal</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,700</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,700</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B>Employment Agreements; Potential Payments Upon Termination or Change in Control  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to other compensation arrangements described elsewhere in this proxy statement, Kratos has entered into agreements with four of the named executive
officers herein as follows: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November&nbsp;14, 2003, Kratos entered into an Executive Employment Agreement with Mr.&nbsp;DeMarco in connection with his duties as an executive of the company. Among other
things, the terms of the agreement provide for Mr.&nbsp;DeMarco's compensation, eligibility to receive annual incentive awards and to participate in long-term incentive, employee benefit
and retirement programs. In the event that Mr.&nbsp;DeMarco is terminated without cause, he will be entitled to a lump sum equal to three times the sum of his current base salary, plus three times
his target bonus potential for the year, less any bonus already received for such year, vesting of all outstanding stock options and participation for
Mr.&nbsp;DeMarco and his dependents in our employee health care program for one-year or, if earlier, until Mr.&nbsp;DeMarco procures health care coverage through another employer.
Additionally, in the event that there is a change of control of the Company, Mr.&nbsp;DeMarco shall be entitled to accelerated vesting of 50% of all outstanding and unvested stock options.
Furthermore, Mr.&nbsp;DeMarco shall also be entitled to the severance compensation described above should Mr.&nbsp;DeMarco's employment be terminated as a result of such change in control. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
Mr.&nbsp;DeMarco had been terminated on December&nbsp;31, 2007 without cause or in connection with a change in control, he would have received the following benefits under his
employment agreement: (i)&nbsp;a lump sum payment of $2,970,000, equal to three times his current base salary and three times his target bonus potential for the year, (ii)&nbsp;the accelerated
vesting of his restricted stock unit awards with an aggregate market value on December&nbsp;31, 2007 of $3,987,450, (iii)&nbsp;continued participation by Mr.&nbsp;DeMarco and his family in the
company's group health insurance benefits on the same terms as during his employment until the earlier of one year following his termination or procurement of health care coverage through another
employer, provided that if the company's insurance carrier will not allow </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>188</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_em42501_1_189"> </A>
<BR>

<P style="font-family:times;"><FONT SIZE=2>for
such benefits continuation the company shall pay the premiums required to continue Mr.&nbsp;DeMarco's group health care coverage during the period under the applicable provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), with an aggregate annual cost of $16,512. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
Mr.&nbsp;DeMarco's agreement, a change in control is deemed to have occurred in the event of any one of the following occurrences: (i)&nbsp;the acquisition by an individual
person or entity or a group of individuals or entities acting in concert, directly or indirectly, through one transaction or a series of related transaction, of more than 50% of the company's
outstanding voting securities; (ii)&nbsp;a merger or consolidation of the company with or into another entity after which the company's stockholders immediately prior to such transaction hold less
than 50% of the voting securities of the surviving entity; (iii)&nbsp;a sale of all or substantially all of the company's assets; or (iv)&nbsp;the change in the majority of the Board of Directors
pursuant to a successful hostile proxy contest. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
March&nbsp;28, 2005, we entered into Change in Control Agreement with Ms.&nbsp;Lund, which was subsequently amended and restated on March&nbsp;28, 2006. The term of this
agreement provide that upon a change in control of the company, Ms.&nbsp;Lund shall be entitled to accelerated vesting of 50% of all of her outstanding and unvested stock options and any applicable
stock appreciation rights. Upon the one-year anniversary of a Change in Control or a Triggering Event (as defined below), whichever occurs first, all remaining unvested stock options and
applicable stock appreciation rights shall be fully vested. Additionally, in the event of a termination without cause Ms.&nbsp;Lund shall be entitled to accelerated vesting of 100% of her
outstanding and unvested stock options and any applicable stock appreciation rights. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Change in Control Agreement also provides for severance payments to Ms.&nbsp;Lund as follows: (i)&nbsp;if Ms.&nbsp;Lund is terminated without cause, she is entitled to
(A)&nbsp;severance compensation equal to one year of her base salary then in effect, (B)&nbsp;continuation of her then current health insurance coverage at the
same cost to her as prior to termination for a period of one year following termination, and (C)&nbsp;the vesting of any then unvested stock options held by her or (ii)&nbsp;if she voluntarily
resigns after a change in control as a result of a material change in the nature of her role or job responsibilities or the relocation of her principal place of work to a location more than
30&nbsp;miles from her work location immediately prior to the change in control each of which we refer to as a ("Triggering Event"), she is entitled to: (A)&nbsp;severance compensation, equal to
two years of her base salary then in effect, plus her maximum bonus amount for two years and (B)&nbsp;continuation of her then current health insurance coverage at the same cost to her as prior to
termination for a period of two years following termination or resignation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
change in control is deemed to have occurred in the event of (i)&nbsp;the acquisition by an individual person or entity or a group of individuals or entities acting in concert,
directly or indirectly, through one transaction or a series of transactions, of more than 50% of the outstanding voting securities of the company; (ii)&nbsp;a merger or consolidation of the company
with or into another entity after which the stockholders of the company immediately prior to such transaction hold less than 50% of the voting securities of the surviving entity; (iii)&nbsp;any
action or event that results in the Board of Directors consisting of fewer than a majority of Incumbent Directors ("Incumbent Directors" shall mean directors who either (A)&nbsp;are directors of the
company as of the date of the Change in Control Agreements, or (B)&nbsp;are elected or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination); or (iv)&nbsp;a sale of all or substantially all of the assets of the company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
her change in control agreement, if Ms.&nbsp;Lund had been terminated without cause on December&nbsp;31, 2007, she would have received the following benefits:
(i)&nbsp;severance compensation equal to one year of her base salary then in effect, in the amount of $305,000 and (ii)&nbsp;continuation of her then current health insurance coverage at the same
cost to her as prior to her termination for a period of one year following termination with an aggregate annual cost of $4,882, and the accelerated vesting </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>189</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>of
her restricted stock unit awards with an aggregate market value on December&nbsp;31, 2007 of $705,000. If Ms.&nbsp;Lund had voluntarily resigned on December&nbsp;31, 2007 following a
Triggering Event and a Change in Control she would have received the following benefits: (i)&nbsp;severance compensation equal to two years of her base salary then in effect, in the amount of
$610,000 (ii)&nbsp;continuation of her then current health insurance coverage at the same cost to her as prior to her termination for a period of two years following termination totaling $9,764, and
(iii)&nbsp;the accelerated vesting of her restricted stock unit awards with an aggregate market value on December&nbsp;31, 2007 of $705,000. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Edwards'
employment with the Company terminated in November 2007. Mr.&nbsp;Edwards had previously entered into a change in control agreement with the company. However, in
connection with the termination of his employment, Kratos and Mr.&nbsp;Edwards agreed that Mr.&nbsp;Edwards would receive (i)&nbsp;$23,876 per month for 12&nbsp;months in exchange for
providing outside consulting services to the company and (ii)&nbsp;pursuant to the terms and conditions of his restricted stock unit award agreements, the accelerated vesting of such restricted
stock unit awards. The former change in control agreement was terminated and Mr.&nbsp;Edward has no rights under that agreement. No payments under the terms of that agreement were made in 2007 or
will be made in the future. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July&nbsp;12, 2007, we entered into a change in control agreement with Ms.&nbsp;Siegal providing that, upon a change of control Ms.&nbsp;Siegal shall be entitled to
(i)&nbsp;the immediate vesting of 50% of all stock options and any applicable stock appreciation rights granted to Ms.&nbsp;Siegal that remain unvested as of the date of the change in control and
(ii)&nbsp;the vesting of the remaining stock options and stock appreciation rights on the earlier of the one year anniversary date of the change of control or the termination of, or resignation by,
Ms.&nbsp;Siegal as a result of certain triggering events following the change in control. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, if following a change of control Ms.&nbsp;Siegal is terminated without cause, Ms.&nbsp;Siegal shall be entitled to receive a severance payment equal to nine months of
her base salary and, if needed, her then current health insurance coverage at the then current employee cost during the nine month period following such termination. If Ms.&nbsp;Siegal resigns from
the Company as a result of certain triggering events following a change in control, Ms.&nbsp;Siegal is entitled to receive a severance payment equal to nine months of her base salary plus her
maximum bonus amount for such nine month period and, if needed, her then current health insurance coverage at the then current employee cost during the nine month period following such resignation.
Further, in the event that Ms.&nbsp;Siegal is terminated without cause, Ms.&nbsp;Siegal is entitled to the immediate vesting of 100% of all stock options and stock appreciation rights granted to
Ms.&nbsp;Siegal as of the date of such termination. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
her change in control agreement, if Ms.&nbsp;Siegal had been terminated without cause on December&nbsp;31, 2007, she would have received the following benefits:
(i)&nbsp;severance compensation equal to nine months of her base salary then in effect, in the amount of $153,750 (ii)&nbsp;continuation of her then current health insurance coverage at the same
cost to her as prior to her termination for a period of nine months following termination totaling $1,229 and (iii)&nbsp;the accelerated vesting of her restricted stock unit awards with an aggregate
market value on December&nbsp;31, 2007 of $158,625. If Ms.&nbsp;Siegal had voluntarily resigned on December&nbsp;31, 2007 following a Triggering Event and a Change in Control she would have
received the following benefits: (i)&nbsp;severance compensation equal to nine months of her base salary then in effect in the amount of $153,750 (ii)&nbsp;continuation of her then current health
insurance coverage at the same cost to her as prior to her termination for a period of nine months following termination totaling $1,229, and (iii)&nbsp;the accelerated vesting of her restricted
stock unit awards with an aggregate market value on December&nbsp;31, 2007 of $158,625. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>190</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="eo42501_director_compensation"> </A>
<A NAME="toc_eo42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>DIRECTOR COMPENSATION    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following quarterly retainer and committee fees were payable to Kratos' non-employee directors during the fiscal year ended December&nbsp;31,
2007: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="63%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Quarterly Retainer</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$3,500</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Audit Committee Chair</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$3,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Audit Committee Chair Regular Meeting Fee</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$2,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Audit Committee Chair Calls</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$1,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Other Audit Committee Matters</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$1,000 to $4,000<BR>
(as determined<BR>
by Board Chairman)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Committee Chair Retainer</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$1,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Board Meetings</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$4,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Board Conference Calls</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$2,000</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Committee Meetings</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$1,000</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Committee Conference Calls</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$500</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Annual Restricted Stock Unit Award</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,000 shares</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>All
fees are paid quarterly in arrears. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
directors compensation schedule was approved by the Board of Directors on June&nbsp;2, 2004 upon recommendation of the Compensation Committee and was modified on
November&nbsp;18, 2004 with respect to Audit Committee and Audit Committee Chair fees in light of the increased responsibilities of the Audit Committee as a result of the Sarbanes-Oxley Act.
Additionally, in February 2005 the Board of Directors approved a Non-Management Directors Stock Fee Program whereby our non-management directors may elect to receive all or a
portion of their fees in shares of our common stock. Further, in July 2005, the Board of Directors approved a Non-Management Directors Stock Option Fee Program similar to the
Non-Management Directors Stock Fee Program, whereby our non-management directors may elect to receive all or a portion of their accrued directors fees in the form of a
fully-vested stock option grant. If elected under either of these plans, the common stock, or the exercise price of the stock option grant, each such director shall receive, is valued based on the
closing trading price of our common stock on the trading day immediately preceding the regularly scheduled Board of Directors meeting for the respective quarter in which the directors fees are being
paid. Additionally, on December&nbsp;21, 2006, the Kratos board of directors approved a change in the stock component of director compensation to restricted stock unit awards and provided for an
annual restricted stock unit award of 10,000 shares to each non-employee director. Kratos' directors also receive reimbursement for all out-of-pocket expenses related to their
duties, including, but not limited to, travel, car rental and lodging fees. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>191</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth the fees paid to those members of Kratos' Board of Directors for the fiscal year ended December&nbsp;31, 2007: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(a)</B></FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(b)</B></FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(c)</B></FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(d)</B></FONT><BR></TH>
<TH WIDTH="7%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(j)</B></FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Name</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B><BR>
Fees Earned<BR>
or Paid in<BR>
Cash<BR>
($)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Stock<BR>
Awards<BR>
($)(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Option<BR>
Awards<BR>
($)(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="7%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total<BR>
($)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%" style="font-family:times;"><FONT SIZE=2>Scott I. Anderson</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,411</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>80,411</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%" style="font-family:times;"><FONT SIZE=2>Bandel L. Carano</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,672</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>(2)</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,672</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%" style="font-family:times;"><FONT SIZE=2>William A. Hoglund</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,411</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>58,411</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%" style="font-family:times;"><FONT SIZE=2>Scot B. Jarvis</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,000</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,411</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>66,411</FONT></TD>
</TR>
</TABLE></DIV>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<UL>
<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
amounts shown in columns (c)&nbsp;and (d)&nbsp;represent the compensation costs of restricted stock unit awards and stock options for financial reporting purposes for fiscal
year 2007 under FAS&nbsp;123(R), rather than an amount paid to or realized by Kratos' Directors. A discussion of the relevant fair value assumptions is set forth in note&nbsp;18 to our
consolidated financial statements included in our 2007 Annual Report on Form&nbsp;10-K. We caution that the amount ultimately realized from the stock and option awards will likely vary
based on a number of factors, including our actual operating performance, stock price fluctuations and the timing of exercises (in the case of options only) and sales.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
fully vested stock options granted to Mr.&nbsp;Carano in lieu of accrued Directors Fees as follows:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>a.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>February&nbsp;28,
2007, stock option to purchase 5,925 shares of common stock granted at $2.11/share in lieu of $12,500 accrued Directors Fees, which option is fully vested, has an
exercise price of $2.11 per share and expires on February&nbsp;28, 2017.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>b.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>May&nbsp;16,
2007, stock option to purchase 2,555 shares of common stock granted at $1.37/share in lieu of $3,500 accrued Directors Fees, which option is fully vested, has an
exercise price of $3.69 per share and expires on May&nbsp;16, 2017;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>c.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>September&nbsp;5,
2007, stock option to purchase 3,833 shares of common stock granted at $2.74/share in lieu of $10,500 accrued Directors Fees, which option is fully vested, has an
exercise price of $2.74 per share and expires on September&nbsp;5, 2017; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>d.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>November&nbsp;14,
2007, stock option to purchase 2,392 shares of common stock granted at $2.30/share in lieu of $5,500 accrued Directors Fees, which option is fully vested, has an
exercise price of $2.30 per share and expires on November&nbsp;14, 2017. </FONT></DD></DL>
</DD></DL>
</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Section&nbsp;16(a) Beneficial Ownership Reporting Compliance  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;16(a) of the Exchange Act requires directors and executive officers, and persons who own more than ten percent of a registered class of Kratos'
equity securities (the "Reporting Persons"), to file with the SEC initial reports of ownership and reports of changes in ownership of Kratos common stock and other equity securities. Additionally, the
reporting persons are required by SEC regulations to furnish Kratos with copies of all such Section&nbsp;16(a) forms they file. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
the best of Kratos' knowledge and based solely upon its review of the copies of such reports furnished to it for the year ended December&nbsp;31, 2007, and the information provided
to it by the reporting persons, Kratos believes that the reporting persons complied with Section&nbsp;16(a). </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>192</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="eq42501_sys_special_meeting"> </A>
<A NAME="toc_eq42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SYS SPECIAL MEETING    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Date, Time and Place  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These proxy materials are delivered in connection with the solicitation by the SYS board of directors of proxies to be voted at the SYS special meeting, which is
to be held at 5050 Murphy Canyon Road, Suite&nbsp;200, San Diego, CA 92123, at 10:00&nbsp;a.m., local time,
on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008. On or
about&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008, SYS commenced mailing
this
Proxy Statement and the enclosed form of proxy to its stockholders entitled to vote at the meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Purpose of the SYS Special Meeting  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS stockholders will be asked to vote on the following two proposals: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
adopt and approve the Agreement and Plan of Merger and Reorganization, dated February&nbsp;20, 2008, by and among SYS, Kratos Defense Security
Solutions,&nbsp;Inc., and White Shadow,&nbsp;Inc. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
approve any motion to adjourn or postpone the special meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at
the time of the special meeting to approve the proposal to adopt the merger agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
transact such other business as may properly come before the special meeting or any adjournment or postponement thereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>SYS Record Date  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Only stockholders of record as of the close of business
on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008 (the official record
date) will be entitled to notice of and to vote at the
special meeting or at any subsequent meeting due to an adjournment of the original meeting. </FONT><FONT SIZE=2><B>We are mailing this proxy statement and the accompanying proxy card on or
about</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
</FONT><FONT SIZE=2><B>2008 to all stockholders of record as of</B></FONT><FONT
SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>,
2008</B></FONT><FONT SIZE=2>. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Shares Outstanding and Voting Rights  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On the record date,
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008, SYS had one class of
voting stock outstanding. At&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2008,
 [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;]
shares of SYS common stock were issued and outstanding. Each outstanding share of common stock entitles the holder to one vote on all matters to be voted upon at the special meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
complete list of stockholders entitled to vote at the SYS special meeting will be available for examination by any SYS stockholder at SYS's headquarters, for purposes pertaining to the
SYS special meeting, during normal business hours for a period of ten days before the SYS special meeting, and at the time and place of the SYS special meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Quorum and Votes Required  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to carry on the business of the meeting, SYS must have a quorum. A quorum requires the presence, in person or by proxy, of the holders of a majority of
the votes entitled to be cast at the meeting. The affirmative vote of a majority of the outstanding shares of SYS common stock is required to adopt and approve the merger agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Treatment of Abstentions, Not Voting and Incomplete Proxies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you are an SYS stockholder and you fail to vote or fail to instruct your broker or other nominee how to vote on the merger agreement, your failure to vote or
instruct your broker or other nominee how to vote will have the effect of a negative vote on the merger proposal. Similarly, if you "abstain" </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>193</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>from
voting, the shares represented by your proxy will be counted as present for purposes of determining whether a quorum exists, and your abstention will have the effect of a negative vote on the
merger proposal. If you submit a proxy but do not indicate how you want your shares to be voted on the merger proposal, your proxy will be counted as present for purposes of determining whether a
quorum exists and will be counted as voting in favor of the merger proposal. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Voting by SYS Directors and Executive Officers  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On the SYS record date, directors and executive officers of SYS and their affiliates owned and were entitled to
vote&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of SYS common stock,
or approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the total voting power of the shares of SYS common stock outstanding on that date. Two of SYS's directors and executive officers have executed voting agreements
pursuant to which each has agreed to vote their shares of common stock in favor of the items listed on the Proxy Card. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Voting of Proxies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Giving a proxy means that an SYS stockholder authorizes the persons named in the enclosed proxy card to vote its shares at the SYS special meeting in the manner
it directs. An SYS stockholder may vote by proxy or in person at the meeting. To vote by proxy, an SYS stockholder may use one of the following methods if it is a registered holder (that is, it holds
its stock in its own name): </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>Telephone voting,</B></FONT><FONT SIZE=2> by dialing the toll-free number and following the instructions on the proxy card;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>Via the Internet,</B></FONT><FONT SIZE=2> by going to the web address http://www.proxyvoting.com/sys and following the instructions on the proxy
card; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>Mail,</B></FONT><FONT SIZE=2> by completing and returning the proxy card in the enclosed envelope. The envelope requires no additional postage if
mailed in the United States. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
requests that SYS stockholders complete and sign the accompanying proxy and return it to SYS as soon as possible in the enclosed postage-paid envelope. When the
accompanying proxy is returned properly executed, the shares of SYS stock represented by it will be voted at the SYS special meeting in accordance with the instructions contained on the proxy card. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any proxy is returned without indication as to how to vote, the SYS stock represented by the proxy will be considered a vote in favor of the merger proposal. Unless an SYS stockholder
checks the box on its proxy card to withhold discretionary authority, the proxyholders may use their discretion to vote on other matters relating to the SYS special meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
an SYS stockholder's shares are held in "street name" by a broker or other nominee, the stockholder should check the voting form used by that firm to determine whether it may vote by
telephone or the Internet. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Every SYS stockholder's vote is important. Accordingly, each SYS stockholder should sign, date and return the enclosed proxy card, or vote via the Internet or by
telephone, whether or not it plans to attend the SYS special meeting in person.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Revocability of Proxies and Changes to an SYS Stockholder's Vote  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An SYS stockholder has the power to change its vote at any time before its shares are voted at the special meeting by: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>notifying
SYS's Corporate Secretary, Michael W. Fink, in writing at 5050 Murphy Canyon Road, Suite&nbsp;200, San Diego, CA 92123;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>that
you are revoking your proxy; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>194</FONT></P>

<HR NOSHADE>
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<UL>
<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>executing
and delivering a later dated proxy card or submitting a later dated vote by telephone or through the internet; or
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>voting
in person at the special meeting. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>However, if an SYS stockholder has shares held through a brokerage firm, bank or other custodian, it may revoke its instructions only by informing the custodian
in accordance with any procedures it has established.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Solicitation of Proxies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The solicitation of proxies from SYS stockholders is made on behalf of the SYS board of directors. Kratos and SYS will generally share equally the cost and
expenses of printing and mailing this Proxy Statement and all fees paid to the SEC. SYS will pay the costs of soliciting and obtaining these proxies, including the cost of reimbursing brokers, banks
and other financial institutions for forwarding proxy materials to their customers. Proxies may be solicited, without extra compensation, by SYS officers and employees by mail, telephone, fax,
personal interviews or other methods of communication. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Delivery of Proxy Materials to Households Where Two or More Stockholders Reside  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As permitted by the Exchange Act, only one copy of this Proxy Statement is being delivered to stockholders residing at the same address, unless SYS stockholders
have notified SYS of their desire to receive multiple copies of the Proxy Statement. This is known as householding. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
will promptly deliver, upon oral or written request, a separate copy of this Proxy Statement to any stockholder residing at an address to which only one copy was mailed. Requests for
additional copies for this year or future years should be directed to: SYS, Attention: Corporate Secretary, 5050 Murphy Canyon Road, Suite&nbsp;200, San Diego, CA 92123. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Attending the Meeting  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to space availability, all stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited,
admission to the meeting will be on a first-come, first-served basis. Registration and seating will begin at 10:30&nbsp;a.m., local time. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you are a registered stockholder (that is, if you hold your stock in certificate form), an admission ticket is enclosed with your proxy card. If you wish to attend the special
meeting, please vote your proxy but keep the admission ticket and bring it with you to the special meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
your shares are held in "street name" (that is, through a bank, broker or other holder of record) and you wish to attend the special meeting, you need to bring a copy of a bank or
brokerage statement to the special meeting reflecting your stock ownership as of the SYS record date. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="eq42501_proposal_1_approval_of_merger"> </A>
<A NAME="toc_eq42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>PROPOSAL 1<BR>  <BR>    APPROVAL OF MERGER    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS, Kratos, and White Shadow,&nbsp;Inc. have entered into an Agreement and Plan of Merger and Reorganization dated as of February&nbsp;20, 2008, whereby
White Shadow will merger with and into SYS and SYS will become a wholly-owned subsidiary of Kratos. California law requires that this Agreement be adopted and approved by the holders of at least a
majority of the outstanding shares of SYS common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>THE SYS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SYS SHAREHOLDERS VOTE <U>FOR</U> THE PROPOSAL TO ADOPT AND APPROVE THE MERGER
AGREEMENT.</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>195</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="eq42501_proposal_2_possible_adjournmen__pro03042"> </A>
<A NAME="toc_eq42501_3"> </A>
<BR></FONT><FONT SIZE=2><B>PROPOSAL 2    <BR>    <BR>    POSSIBLE ADJOURNMENT OR POSTPONEMENT OF THE SYS SPECIAL MEETING    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SYS special meeting may be adjourned or postponed to another time or place to permit, among other things, further solicitation of proxies if necessary to
obtain additional votes in favor of the items listed on the Proxy Card. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Vote Required and Board of Directors Recommendation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approval of this proposal requires the affirmative vote of a majority of the total votes cast on the proposal at a meeting at which a quorum is present.
Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum. Abstentions and broker non-votes will have no effect on the outcome of this vote. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>THE SYS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE </B></FONT><FONT SIZE=2><B><I>FOR</I></B></FONT><FONT SIZE=2><B> THIS ITEM (ITEM&nbsp;2)</B></FONT><FONT SIZE=2>. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="eq42501_other_matters"> </A>
<A NAME="toc_eq42501_4"> </A>
<BR></FONT><FONT SIZE=2><B>OTHER MATTERS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS's management does not know of any other matters that may come before SYS's special meeting. However, if any other matters are properly presented to SYS's
special meeting, it is the intention of the persons named in the accompanying proxy to vote, or otherwise act, in accordance with their judgment on such matters. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Householding of Proxy Materials  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SEC has adopted rules that permit companies and intermediaries (e.g.,&nbsp;brokers) to satisfy the delivery requirements for proxy statements and annual reports
with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process,
which is commonly referred to as "householding," potentially means extra convenience for stockholders and cost savings for companies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
year, a number of brokers with account holders who are SYS's stockholders will be "householding" our proxy materials. A single proxy statement will be delivered to multiple
stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be "householding"
communications to your address, "householding" will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in "householding" and
would prefer to receive a separate proxy statement and annual report, please notify your broker, direct your written request to SYS, c/o Corporate Secretary, 5050 Murphy Canyon Road, Suite&nbsp;200,
San Diego, CA 92123 or call Michael W. Fink at (858)&nbsp;244-7393. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request
"householding" of their communications should contract their brokers. </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="49%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="49%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>By Order of the SYS Board of Directors</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><BR><FONT SIZE=2><B>
<IMG SRC="g939552.jpg" ALT="SIGNATURE" WIDTH="216" HEIGHT="82">
 </B></FONT><FONT SIZE=2><BR>
<BR>
Clifford L. Cooke, Jr.<BR>
President and Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>196</FONT></P>

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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="es42501_unaudited_pro_forma_co__es402420"> </A>
<A NAME="toc_es42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The unaudited pro forma condensed combined balance sheet combines the historical consolidated balance sheets of Kratos (which includes Haverstick) and SYS, giving
effect to the merger as if it had been consummated on December&nbsp;31, 2007. The unaudited pro forma condensed combined statement of operations for the year ended December&nbsp;31, 2007, combines
the Kratos consolidated statement of operations for the year ended December&nbsp;31, 2007 with (i)&nbsp;the Haverstick Consulting,&nbsp;Inc. (Haverstick) statement of operations for the year
ended December&nbsp;31, 2007 and (ii)&nbsp;the SYS statement of operations for the year ended December&nbsp;31, 2007 which were compiled by aggregating quarterly statement of operations data,
giving effect to the mergers as if they had occurred on January&nbsp;1, 2007. The historical consolidated financial information has been adjusted to give effect to pro forma events that are
(i)&nbsp;directly attributable to the merger, (ii)&nbsp;factually supportable, and (iii)&nbsp;with respect to the statement of operations, expected to have a continuing impact on the combined
results. Kratos and Haverstick report their financial results on a calendar year basis ending December&nbsp;31. SYS reports its financial results on a fiscal year basis ending on June&nbsp;30 of
each year. In addition, Kratos', Haverstick's and SYS's interim periods do not end on the same dates. The fiscal period covering 2007 ended on December&nbsp;28, 2007 for SYS and on
December&nbsp;31, 2007 for Kratos and Haverstick. SYS's balance sheet as of December&nbsp;28, 2007 has been used to prepare the unaudited pro forma condensed combined balance sheet as of
December&nbsp;31, 2007, and SYS's results for the year ended December&nbsp;28, 2007 have been used to prepare the unaudited pro forma condensed combined statement of operations for the year ended
December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
unaudited pro forma condensed combined financial statements should be read in conjunction with the historical audited and unaudited consolidated financial information and
accompanying notes of Kratos and SYS, which have been included in this Proxy Statement. The unaudited pro forma condensed combined financial statements are not necessarily indicative of the operating
results or financial position that would have occurred if the merger had been completed at the dates indicated. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
unaudited pro forma condensed combined financial statements were prepared using the purchase method of accounting with Kratos treated as the acquiring entity. Accordingly,
consideration expected to be paid by Kratos to complete the merger with SYS will be allocated to SYS's assets and liabilities based upon their estimated fair values as of the date of completion of the
merger. The allocation is dependent upon certain valuations and other studies that have not progressed to a stage where there is sufficient information to make a final allocation. Additionally, a
final determination of the fair value of SYS's assets and liabilities, which cannot be made prior to the completion of the transaction, will be based on the actual fair values of the net tangible and
intangible assets of SYS that exist as of the date of completion of the merger. Accordingly, the pro forma purchase price adjustments are preliminary, subject to further adjustments as additional
information becomes available and as additional analyses are performed and
have been made solely for the purpose of providing the unaudited pro forma condensed combined financial information presented below. Kratos estimated the fair value of SYS's assets and liabilities
based on discussions with SYS's management, due diligence and information presented in public filings. Valuations of tangible and intangible assets and liabilities and related pro forma adjustments
are based on Kratos management's good faith estimates of fair value. Upon completion of the merger, final valuations will be performed. Increases or decreases in the fair value of relevant balance
sheet amounts including property and equipment, debt and intangible assets will result in adjustments to the unaudited pro forma condensed combined balance sheet and/or statement of operations. There
can be no assurance that the final determination will not result in material changes. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, the unaudited pro forma condensed combined financial statements do not include the realization of any cost savings from operating efficiencies, synergies or other
restructurings resulting from the acquisition. Therefore, the actual amounts recorded as of the completion of the mergers and thereafter may differ materially from the information presented herein. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying notes are an integral part of these unaudited pro forma combined financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>197</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="eu42501_unaudited_pro_forma_combined_b__una02388"> </A>
<A NAME="toc_eu42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>UNAUDITED PRO FORMA COMBINED BALANCE SHEET    <BR>    <BR>    December&nbsp;31, 2007    <BR>    <BR>    (in millions)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="94%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Kratos</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>SYS</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>SYS Pro<BR>
Forma<BR>
adjustments</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Pro Forma<BR>
Combined</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Assets</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Current assets:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(7.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>)&nbsp;a,b</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accounts receivable, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>77.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>18.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>95.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Note receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Income taxes receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Prepaid expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Deferred tax assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>)&nbsp;c</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Other current assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Current assets of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=1>Total current assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>106.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>22.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(8.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>121.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Property and equipment, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Goodwill</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>194.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>23.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>18.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;a,c,d,e</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>235.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Other intangibles, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>19.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;f</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>27.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Deferred tax assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Investments in unconsolidated affiliates</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Other assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Non current assets of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=1>Total assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>335.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>53.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>401.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=1><B>Liabilities and Stockholders' Equity</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Current liabilities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accounts payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>22.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>27.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accrued expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>14.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>14.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accrued compensation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>13.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Line of credit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>) b</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Billings in excess of costs and earnings on uncompleted contracts</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>10.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Deferred tax liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accrual for contingent acquisition consideration</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accrual for unused office space</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Income taxes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>)&nbsp;d</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Other current liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>13.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>14.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Current portion of long-term debt</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>)&nbsp;b</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Current portion of capital lease</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Current liabilities of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=1>Total current liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>83.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>11.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>94.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Long-term debt, net of current portion</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>72.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>) b</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>72.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Convertible notes payable, related</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Convertible notes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Accrual for unused office space, net of current portion</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Capital lease</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Deferred tax liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>)&nbsp;c</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Other liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Non current liabilities of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=1>Total liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>168.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>16.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>182.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1><BR>
Stockholders' equity:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Preferred stock, 5,000,000 shares authorized, Series&nbsp;B Convertible Preferred Stock, 5,000,000 shares authorized Series&nbsp;B Convertible Preferred Stock, $.001 par value; 10,000 shares outstanding at December&nbsp;31,
2006 and 2007 (liquidation preference $5.0&nbsp;million at December&nbsp;31, 2006 and 2007)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Common Stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Additional paid-in capital</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>412.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>36.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>14.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;c,d,e,f</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>463.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accumulated deficit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(245.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;c,d,e,f</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(245.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=1>Total stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>167.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>36.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>14.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>218.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="45%" style="font-family:times;"><FONT SIZE=1>Total liabilities and stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>335.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>53.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>401.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See the accompanying notes. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>198</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=208,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=829882,FOLIO='198',FILE='DISK112:[08ZAT1.08ZAT42501]EU42501A.;10',USER='KSOLTER',CD=';9-APR-2008;01:06' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_ew42501_1_199"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ew42501_unaudited_pro_forma_combined_s__una04626"> </A>
<A NAME="toc_ew42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS    <BR>    <BR>    FOR THE YEAR ENDED DECEMBER 31, 2007    <BR>    <BR>    (in millions, except per share amounts)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Kratos</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Haverstick</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Haverstick<BR>
Pro Forma<BR>
adjustments</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Pro Forma<BR>
Combined</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>SYS</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>SYS<BR>
Pro Forma<BR>
Adjustments</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Pro Forma<BR>
Combined</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Revenues</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>193.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>94.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>287.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>79.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>366.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Cost of revenues</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>162.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>73.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>235.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>59.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>294.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=1>Gross profit</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>31.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>20.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>52.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>19.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>72.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>39.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>17.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>)&nbsp;(g),(h)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>56.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>15.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)&nbsp;(l)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>71.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Research, engineering and development expenses</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Stock option investigation and related fees</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>14.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>14.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>14.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Recovery of unauthorized issuance of stock options</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Settlement of securities litigation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Contingent acquisition consideration</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Impairment and restructuring charges</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=1>Operating income (loss)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(24.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(20.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(20.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Other income (expense), net:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Interest income (expense), net</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(14.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;(i)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(9.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(10.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Impairment of investment in unconsolidated affiliates</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(1.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Other income, net</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=1>Other income (expense), net</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(14.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(10.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(11.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Income (loss) from continuing operations before income taxes</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(26.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(11.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(31.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(32.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Provision (benefit) for income taxes</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>)&nbsp;(j)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;(m)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Income (loss) from continuing operations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(28.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(11.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(33.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(34.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Basic loss per common share:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Loss from continuing operations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.38</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.42</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.04</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.33</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Diluted loss per common share:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Loss from continuing operations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.38</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.42</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.04</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.33</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Weighted average common shares outstanding:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Basic</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>74.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;(k)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>79.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>19.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;(n)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>104.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Diluted</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>74.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;(k)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>79.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>19.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;(n)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>104.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See the accompanying notes. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>199</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_ey42501_1_200"> </A>


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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ey42501_notes_to_unaudited_pro__ey402419"> </A>
<A NAME="toc_ey42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 1. BASIS OF PRO FORMA PRESENTATION  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2007, Kratos acquired Indianapolis, Indiana headquartered Haverstick Consulting,&nbsp;Inc. (Haverstick). On February&nbsp;21, 2008,
Kratos and SYS jointly announced the execution of an Agreement and Plan of Merger and Reorganization. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying unaudited pro forma condensed combined financial statements present: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
pro forma combined consolidated balance sheet of the combined companies based upon the historical financial statements of Kratos (which includes Haverstick) and SYS, after giving
effect to the SYS merger and adjustments described in these footnotes.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
pro forma consolidated results of operations of the combined companies based upon the historical financial statements of Kratos, Haverstick and SYS, after giving effect to the
Haverstick and SYS mergers and adjustments described in these footnotes. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
unaudited pro forma condensed combined balance sheet reflects the merger as if it was completed on December&nbsp;31, 2007 and includes pro forma adjustments for Kratos' preliminary
estimates of the fair value of SYS's assets and liabilities, including intangible assets. SYS's line of credit and debt excluding convertible notes payable is assumed to be repaid upon completion of
the merger (see note&nbsp;2(b)). These adjustments are subject to further adjustment as additional information becomes available and additional analyses are performed. The unaudited pro forma
condensed combined statement of operations reflect the merger as if it had been completed on January&nbsp;1, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
pro forma condensed combined balance sheet has been adjusted to reflect the acquisition of SYS and the preliminary allocation of the preliminary estimated purchase consideration to
identifiable tangible and intangible assets acquired and liabilities assumed, with the remainder recognized as goodwill. The purchase price allocation included within these unaudited pro forma
condensed combined financial statements is based upon a purchase price of approximately $53.1&nbsp;million, which includes estimated direct transaction costs of $2.0&nbsp;million to be paid by
Kratos. This amount was derived from the estimated number of shares of Kratos common stock to be issued of approximately 25.3&nbsp;million, based on the 20.1&nbsp;million shares of SYS common
stock outstanding on February&nbsp;20, 2008 and the exchange ratio of 1.2582 per each SYS share, at a price of $2.022 per share, the average closing price of Kratos shares of common stock for the
two days prior to, including, and two days subsequent to the public announcement of the merger on February&nbsp;21, 2008. The shares of SYS common stock outstanding includes the stock options that
will become fully vested as a result of the change in control provision in SYS's Stock Option Plan. The proforma statement of operations does not include a proforma expense related to the expense that
will occur with the accelerated vesting. The actual number of newly issued shares of Kratos common stock to be delivered in connection with the merger will be based upon the actual number of SYS
shares issued and outstanding when the merger closes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not give effect to any cost savings, revenue synergies or
restructuring costs which may result from the integration of Kratos, Haverstick and SYS's operations. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Preliminary Estimated Purchase Price Allocation  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preliminary allocation of the purchase price to SYS's tangible and identifiable intangible assets acquired and liabilities assumed was based on their
estimated fair values. The valuation of these tangible and identifiable intangible assets and liabilities is subject to further management review and may change materially between the preliminary
valuation date and the completion of the merger. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>200</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_ey42501_1_201"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 1. BASIS OF PRO FORMA PRESENTATION (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
calculation of purchase price and goodwill and other intangible assets is estimated as follows (dollars in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Estimated fair value of Kratos common stock issued to SYS shareholders</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>51.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Estimated transaction costs</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Assumed total purchase price</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Purchase price allocated to:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="82%" style="font-family:times;"><FONT SIZE=2>Tangible assets acquired less liabilities assumed</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="82%" style="font-family:times;"><FONT SIZE=2>Deferred tax adjustments</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="82%" style="font-family:times;"><FONT SIZE=2>Identifiable intangible assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="82%" style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>41.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B><I>Tangible assets acquired and liabilities assumed  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has estimated the fair value of tangible assets acquired and liabilities assumed. These estimates are based on a preliminary valuation dated as of
December&nbsp;31, 2007 and are subject to further review by management, which may result in material adjustments at the completion of the mergers. The fair values of the assets acquired and
liabilities assumed may be affected and materially changed by the results of SYS's operations and changes in market values up to the completion of the mergers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Identifiable intangible assets  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has estimated the fair value of the acquired identifiable intangible assets, which are subject to amortization, using the income approach. These estimates
are based on a preliminary valuation and are subject to further review by management and adjustments (which may be material) at the completion of the mergers, which may reflect, among other
considerations, the effect of SYS's operations between the preliminary valuation and the closing date. The following table sets forth the components of these intangible assets and their estimated
useful lives (dollars in millions): </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="69%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Fair Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Estimated<BR>
Useful Life</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Funded backlog</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5&nbsp;years</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Unfunded backlog</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5&nbsp;years</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Existing contractual relationships</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9&nbsp;years</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Developed technology</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10&nbsp;years</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10&nbsp;years</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>NOTE 2. PRO FORMA ADJUSTMENTS  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of the adjustments to the pro forma balance sheet: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>a.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
reflect the payment of $5.8&nbsp;million in transaction costs of which $3.8&nbsp;million is paid by SYS, which include legal and financial advisory costs as well as compensation
costs associated with change of control provisions and incentive compensation, and $2.0&nbsp;million is paid by Kratos. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>201</FONT></P>

<HR NOSHADE>
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<A NAME="page_ey42501_1_202"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 2. PRO FORMA ADJUSTMENTS (Continued) </B></FONT></P>

<UL>
<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>b.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
reflect the payment of SYS line of credit and debt excluding convertible notes payable prior to closing.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>c.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
record adjustments to deferred taxes resulting from the inclusion of SYS tax accounts including impact of indefinite lived deferred tax liability.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>d.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
record current adjustment to proforma tax expense.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>e.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
record the residual goodwill resulting from the merger. The amount of goodwill reflects the goodwill of $41.4&nbsp;million resulting from the merger offset by the elimination of
preexisting SYS goodwill of $23.1&nbsp;million.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>f.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
reflect a preliminary allocation of the preliminary estimated purchase consideration to SYS's identifiable intangible assets of $7.7&nbsp;million offset by the elimination of
preexisting SYS intangible assets of $5.6&nbsp;million. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a summary of the adjustments to the statement of operations: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>g.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
include amortization expense related to identifiable intangible assets of $2.3&nbsp;million. The identifiable intangible assets of Haverstick are $9.3&nbsp;million with assumed
useful lives of 1-9&nbsp;years. The assets will be amortized on a straight line basis and the adjustments to SG&amp;A to give effect to the acquisition are presented below (in millions): </FONT></DD></DL>
</UL>
<BR>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Amortization of:</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year ended<BR>
December&nbsp;31,<BR>
2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Funded backlog</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Unfunded backlog</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Existing contractual relationships</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Total amortization expense</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>h.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
eliminate transaction costs of $2.4&nbsp;million.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>i.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
present the adjustments related to interest expense. This is comprised of:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Interest
expense of $7.9&nbsp;million on the outstanding balance of $66.7&nbsp;million drawn on the credit facility provided by KeyBank National Association (KeyBank) on
December&nbsp;31, 2007, as described in the Current Report on Form&nbsp;8-K, dated December&nbsp;31, 2007 and filed with the U.S. Securities and Exchange Commission on
January&nbsp;6, 2008 as though the balance was outstanding for the entire period. The pro forma adjustment for interest expense related to the Company's line of credit is based upon a variable rate
of interest that was 11.8&nbsp;percent as of December&nbsp;31, 2007.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Amortization
of deferred financing costs of $0.7&nbsp;million related to the KeyBank credit facility.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Elimination
of Haverstick interest expense of $14.9&nbsp;million on debt and amortization of deferred financing costs and discount on Haverstick's term note. </FONT></DD></DL>
</DD></DL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>The
amount of interest expense in each of the periods presented would not change by more than $0.1&nbsp;million if the interest rate changed by 1/8&nbsp;percent. </FONT></P>

</UL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>202</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_ey42501_1_203"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>NOTE 2. PRO FORMA ADJUSTMENTS (Continued) </B></FONT></P>

<UL>
<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>j.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
record a tax benefit related to Haverstick indefinite life items not previously recognized by Haverstick.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>k.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
adjust the common shares outstanding to reflect the number of Kratos weighted average common shares that would have been outstanding had the Haverstick Acquisition been completed at
the beginning of the period presented.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>l.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
preliminary estimate of the identifiable intangible assets of SYS is $7.7&nbsp;million with estimated assumed useful lives of 5-9&nbsp;years. The assets will be
amortized on a straight line basis and the adjustments to SG&amp;A to give effect to the acquisition are presented below (in millions): </FONT></DD></DL>
</UL>
<BR>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Amortization of:</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year ended<BR>
December&nbsp;31,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Funded backlog</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Unfunded backlog</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Existing contractual relationships</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Developed technology</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Elimination of SYS's previously-recorded amortization of acquisition-related intangible assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Pro Forma adjustment to amortization of acquisition-related intangible assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>The
amount of purchase price allocated to tangible and intangible assets, and the associated assumptions regarding useful lives, represent preliminary estimates by Kratos management that were derived
using estimated discounted cash flows and are subject to change pending completion of a final valuation. The amount of purchase price allocated to tangible and intangible assets, as well as the
associated useful lives, may increase or decrease and could materially affect the amount of pro forma depreciation and amortization expense. </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>m.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
adjust tax expense for amount as if SYS had been combined with Kratos for this period.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>n.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
record issuance of 25.3&nbsp;million common shares to the stockholders of SYS to effect the transaction as if the shares were outstanding as of the beginning of the period
presented. SYS shares outstanding, which includes the stock options that will become fully vested as a result of the change in control provision in SYS's stock option plan, were converted at the
exchange ratio of 1.2582. </FONT></DD></DL>
</UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2><B>(2) Reclassifications  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain reclassifications have been made to the financial statements of Haverstick to conform to Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.'s
presentation. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>203</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_ez42501_1_204"> </A>


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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ez42501_description_of_kratos_capital_stock"> </A>
<A NAME="toc_ez42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>DESCRIPTION OF KRATOS CAPITAL STOCK    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>We have summarized below the material terms of Kratos' capital stock that will be in effect if the merger is completed. The following
description of the material terms of the capital stock of Kratos does not purport to be complete and is qualified in its entirety by reference to the certificate of incorporation and bylaws of Kratos,
which documents are incorporated by reference as exhibits to the registration statement of which this Proxy Statement is a part, and the applicable provisions of the Delaware General Corporate Law.
All references within this section to common stock mean the common stock of Kratos unless otherwise noted.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Authorized Capital Stock of Kratos  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Kratos amended and restated certificate of incorporation, which will be in effect if the merger is completed, provides that the total number of shares of
capital stock that may be issued by Kratos is 200,000,000 shares, the designation, the number of authorized shares and the par value of the shares of each class or series will be as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="84%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="59%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Designation<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Class</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>No. of Shares Authorized</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Par Value</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="59%" style="font-family:times;"><FONT SIZE=2>Common Stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>Common</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>195,000,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.001</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="59%" style="font-family:times;"><FONT SIZE=2>Undesignated Preferred Stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>Preferred</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,646,363</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.001</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="59%" style="font-family:times;"><FONT SIZE=2>Series&nbsp;A Preferred Stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>63,637</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.001</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="59%" style="font-family:times;"><FONT SIZE=2>Series&nbsp;B Preferred Stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>90,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.001</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="59%" style="font-family:times;"><FONT SIZE=2>Series&nbsp;C Preferred Stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,200,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.001</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>Description of Kratos Common Stock  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Voting Rights  </I></B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> General  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise provided by law or as set forth in the amended and restated certificate of incorporation of Kratos or as otherwise provided by any outstanding
series of preferred stock, the holders of Kratos common stock will have general voting power on all matters as a single class. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> Votes Per Share  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On each matter to be voted on by the holders of Kratos common stock, each outstanding share of Kratos common stock will be entitled to one vote per share. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> Cumulative Voting  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of Kratos common stock are not entitled to cumulative voting of their shares in elections of directors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Liquidation Rights  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of a voluntary or involuntary liquidation, dissolution or winding up of Kratos, the prior rights of the creditors of Kratos and the liquidation
preference of any preferred stock then outstanding must first be satisfied. The holders of common stock will be entitled to share in the remaining assets of Kratos on a pro rata basis. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>204</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B><I>Dividends  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares of Kratos common stock are entitled to participate equally in dividends when and as dividends may be declared by the board of directors of Kratos out of
funds legally available for the payment of dividends. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Preemptive Rights  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of Kratos common stock have no preemptive, conversion, subscription or other rights. There are no redemption or sinking fund provisions applicable to the
common stock of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Transfer Agent and Registrar  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transfer agent and registrar for the Kratos common stock is Wells Fargo Shareowner Services. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Anti-Takeover Provisions  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Delaware General Corporation Law, which we refer to as the DGCL, and the amended and restated certificate of incorporation and amended and restated bylaws of
Kratos contain provisions that could discourage or make more difficult a change in control of Kratos, including an acquisition of Kratos by means of a tender offer, an acquisition of Kratos by means
of a proxy contest and removal of the incumbent officers and directors of Kratos, without the support of the board of directors of Kratos. A summary of these provisions follows. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Election and Removal of Directors  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of directors of Kratos are elected annual by all holders of the capital stock of Kratos. Directors may be removed without cause by the affirmative vote
of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided however, that unless the entire board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election in which the same total
number of votes were cast (or if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such directors most
recent election were then being elected. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Stockholder Meetings  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the amended and restated bylaws of Kratos, only the president, board of directors, or one or more stockholders owning a majority in amount of the entire
capital stock issued, outstanding and entitled to vote may call a special meetings of the stockholders of Kratos, and any business conducted at any special meeting will be limited to the purpose or
purposes specified in the order calling for the special meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Requirements for Advance Notification of Stockholder Nominations and Proposals  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amended and restated bylaws of Kratos contain provisions requiring stockholders to give advance written notice to Kratos of a proposal or director nomination
in order to have the proposal or the nominee considered at an annual meeting of stockholders. The written notice must usually be given not less than 90 nor more than 120&nbsp;days before the third
Wednesday in December (or, if the board of directors has designated another date for an annual meeting, not less than 90 nor more than 120&nbsp;days before such date, or, if such other date has not
been publicly disclosed or announced at least 105&nbsp;days in advance, then not less than 15&nbsp;days after the initial public disclosure or announcement of the date), and must set forth a brief
description of the proposal, the name and address of the stockholder, the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>205</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>class
and number of shares owned by the stockholder and any material interest of the stockholder in such proposal. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Series&nbsp;C Preferred Stock  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amended and restated certificate of incorporation of Kratos authorizes the issuance of Series&nbsp;C preferred stock. The authorization of the
Series&nbsp;C preferred stock makes it possible for the board of directors of Kratos to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt
to change control of Kratos. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of Kratos. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Amendment of Charter Provisions  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amendment of any of the above provisions (other than the provisions establishing the undesignated preferred stock) would require approval by holders of at
least a majority of entire capital stock issued and outstanding at the time of any such proposed amendment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Description of Kratos Preferred Stock  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Preferred stock may be issued from time to time in one or more series, each of which is to have the voting powers, designation, preferences and relative,
participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed in the amended and
restated certificate of incorporation of Kratos, or in a resolution or resolutions providing for the issue of that series adopted by the board of directors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
board of directors has the authority to create one or more series of preferred stock and, with respect to each series, to fix or alter as permitted by law, among other things: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
number of shares and the distinctive designation of the series;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
voting power, if any;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>dividend
rights;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>redemption
rights;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>liquidation
preferences;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>conversion
rights; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any
other relative rights, preferences and limitations. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>206</FONT></P>

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<UL>
<UL>
</UL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ez42501_comparison_of_rights_of_kratos__com02669"> </A>
<A NAME="toc_ez42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>COMPARISON OF RIGHTS OF KRATOS STOCKHOLDERS AND SYS SHAREHOLDERS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS is a California corporation and is governed by the California General Corporation Law, which we refer to as the CGCL. Kratos is a Delaware corporation and is
governed by the Delaware General Corporation Law, which we refer to as the DGCL. Upon completion of the merger, SYS' stockholders will become Kratos stockholders. The rights of the former SYS
stockholders and the Kratos stockholders will therefore be governed by the DGCL, the amended and restated certificate of incorporation of Kratos and the amended and restated bylaws of Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following description summarizes the material differences that may affect the rights of the stockholders of Kratos and SYS, but is not a complete statement of all those differences,
or a complete description of the specific provisions referred to in this summary. Stockholders should read carefully the relevant provisions of the CGCL and the DGCL and the respective certificates of
incorporation and bylaws of both Kratos and SYS. For more information on how to obtain the documents that are not attached to this Proxy Statement, see "Where You Can Find More Information" beginning
on page&nbsp;215. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Capitalization  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total number of shares of all classes of capital stock authorized under the amended and restated certificate of incorporation of Kratos, as in effect both
prior and subsequent to the merger, is 200,000,000 shares, which is divided into: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>195,000,000
shares of common stock, par value $0.001 per share; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>5,000,000
shares of preferred stock, par value $0.001 per share. </FONT></DD></DL>
</UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total number of shares of all classes of capital stock authorized under SYS' amended and restated certificate of incorporation is 50,250,000 shares, which is
divided into: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>48,000,000
shares of common stock, no par value per share;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>250,000
shares of preferred stock, par value $0.50 per share; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>2,000,000
shares of preference stock, par value $1.00 per share. </FONT></DD></DL>
</UL>


<P style="font-family:times;"><FONT SIZE=2><B>Voting Rights  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The holders of the common stock of Kratos are entitled to vote one vote per share on all matters to be voted on by stockholders, and the holders of the Kratos
Series&nbsp;B Preferred Stock are entitled to 100 votes per share on all matters to be voted on by stockholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each holder of SYS common stock is entitled to one vote per share of common stock held of record by such holder on all matters on which stockholders generally are
entitled to vote; the holders of SYS
Preferred and Preference stock are not entitled to vote on any matters on which stockholders are entitled to vote. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>207</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Stockholder Action By Written Consent  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Delaware Corporation Law  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Both the CGCL and the DGCL allow actions to be taken by stockholders by written consent to be made by the holders of the minimum number of votes that would be
needed to approve a matter at an annual or special meeting of stockholders, unless this right to act by written consent is denied in the certificate of incorporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amended and restated certificate of incorporation of Kratos does not prohibit the stockholders of Kratos to take actions by written consent. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>SYS  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SYS amended and restated certificate of incorporation does not prohibit the stockholders of SYS to take actions by written consent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Dividends  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Delaware Corporation Law  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Both the CGCL and the DGCL permit a corporation to declare and pay dividends out of "surplus" or, if there is no "surplus," out of its net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year. "Surplus" is defined as the excess of the net assets of the corporation over the amount determined to be the capital of the
corporation by the board of directors. The capital of the corporation is typically calculated to be (and cannot be less than) the aggregate par value of all issued shares of capital stock. Net assets
equals the fair value of the total assets minus total liabilities. Both the CGCL and the DGCL also provide that dividends may not be paid out of net profits if, after the payment of the dividend,
capital is less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amended and restated bylaws of Kratos provide that the board of directors of Kratos may, out of funds legally available therefor at any regular or special
meeting, declare dividends upon the capital stock of Kratos as and when the board of directors of Kratos deems expedient. Further, the amended and restated bylaws of Kratos provide that the board of
directors of Kratos may set apart out of any funds available for dividends a sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to
meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of Kratos. The senior bank facilities of Kratos restrict its ability to
pay cash dividends to its common stockholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amended and restated articles of incorporation of SYS provide that there shall be a 4% per annum dividend paid to all holders of any outstanding shares of SYS
Preferred Stock. As of the date of the filing of this Proxy Statement, there were no shares of SYS Preferred Stock issued and outstanding. The amended and restated articles of incorporation of SYS
further provide for a dividend to be paid upon any issued and outstanding shares of the Preference Stock of SYS; such dividends, however, are subordinate to the 4% dividend on the SYS Preferred Stock.
As of the date of this Proxy Statement, there were no shares of SYS Preference Stock issued and outstanding. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>208</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Number, Election, Vacancy and Removal of Directors  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Delaware Corporation Law  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless otherwise provided by the DGCL or the certificate of incorporation, a majority of the directors in office can fill any vacancy or newly created
directorship. Except where the board of directors is classified or the certificate of incorporation provides for cumulative voting, a director may be removed with or without cause by a majority of the
shares entitled to vote at an election of the directors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of directors of Kratos currently consists of five members. The amended and restated bylaws of Kratos provide that the number of directors may not be
less than three nor more than seven, as determined from time to time by resolutions adopted by the affirmative vote of a majority of the directors then in office. Generally, directors are elected by
the holders of a plurality of the voting power of stockholders present in person or represented by proxy and entitled to vote at the annual meeting of stockholders. Any vacancy on the board of
directors that results from an increase in the number of directors may be filled by a majority of the directors then in office, provided that a quorum is present, and any other vacancy may be filled
only by a majority of the directors then in office, even if less than a quorum is present, or by a sole remaining director. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors
may be removed without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of directors of SYS currently consists of seven members. The amended and restated bylaws of SYS provide that the number of directors may not be less
than five nor more than nine, as determined from time to time by resolutions adopted by the affirmative vote of a majority of the directors then in office. Generally, directors are elected by the
holders of a plurality of the voting power of stockholders present in person or represented by proxy and entitled to vote at the annual meeting of stockholders. Any vacancy on the board of directors
that results from an increase in the number of directors may be filled by a majority of the directors then in office, provided that a quorum is present, and any other vacancy may be filled only by a
majority of the directors then in office, even if less than a quorum is present, or by a sole remaining director. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors
may be removed without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Amendments to Certificate of Incorporation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the DGCL, an amendment to the certificate of incorporation requires that the board of directors approve the amendment, declare it advisable and submit it to
stockholders for adoption. Such amendment must be adopted by a majority in voting power of all issued and outstanding shares and any greater vote required by the certificate of incorporation. Except
in limited circumstances, any proposed amendment to the certificate of incorporation that would increase or decrease the authorized shares of a class of stock, increase or decrease the par value of
the shares of a class of stock, or alter or change the powers, preferences or special rights of the shares of a class of stock (so as to affect them adversely) requires approval of the holders of a
majority of the outstanding shares of the affected class, voting as a separate class, in addition to the approval of a majority of the shares entitled to vote on that proposed amendment. If any
proposed amendment would alter or change the powers, preferences or special rights of any series of a class of stock so as to affect them adversely, but does </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>209</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>not
affect the entire class, then only the shares of the series affected by the proposed amendment is considered a separate class for purposes of the immediately preceding sentence. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither
SYS' articles of incorporation, as amended, nor its bylaws contain any special provisions regarding approval of amendments to the articles of incorporation. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos'
amended and restated certificate of incorporation requires the approval of not less than 66<SUP>2</SUP>/<SMALL>3</SMALL>% of the voting power of all of the outstanding shares of capital
stock of Kratos entitled to vote in the election of directors to amend or repeal the following articles: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Fivth
(regarding the size and classification of the board of directors);
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Sixth
(regarding liability of directors and indemnification of agents);
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Seventh
(regarding amendments to the bylaws). </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Amendments to Bylaws  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos' amended and restated certificate of incorporation provide that their amended and restated bylaws may be adopted, altered or amended by the affirmative
vote of at least sixty-six and two-thirds percent (66<SUP>2</SUP>/<SMALL>3</SMALL>%) of the voting power of all of the then-outstanding shares of the voting stock of Kratos
that are entitled to vote. The board of directors shall also have the power to adopt, amend, or repeal the amended and restated bylaws. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS' bylaws provide that the bylaws may be adopted, amended or repealed by the approval of the outstanding shares; provided, however, that if the number of
directors is set forth in the articles of incorporation, that provision may only be modified by an amendment to the articles of incorporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Notice of Certain Stockholder Actions  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither Kratos' certificate of incorporation nor its bylaws contain special provisions regarding advance stockholder notice proposals or director nominees. Under
Rule&nbsp;14a-8 promulgated by the SEC under the Exchange Act, proposals must be received by Kratos not less than 120 calendar days before the date Kratos releases its proxy statement to its
stockholders in connection with the previous year's annual meeting. However, if Kratos did not hold an annual meeting the previous year, or if the date of the annual meeting has been changed by more
than 30 days from the date of the previous year's meeting, then the deadline is a reasonable time before Kratos begins to print and send its proxy materials. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>SYS  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither SYS' articles of incorporation nor its bylaws contain special provisions regarding advance stockholder notice for proposals or director nominees. Under
Rule&nbsp;14a-8 promulgated by the SEC under the Exchange Act, proposals must be received by SYS not less than 120 calendar days before the date SYS releases its proxy statement to its
stockholders in connection with the previous year's annual meeting. However, if SYS did not hold an annual meeting the previous year, or if the date of the annual meeting has been changed by more than
30&nbsp;days from the date of the previous year's meeting, then the deadline is a reasonable time before SYS begins to print and send its proxy materials. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>210</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B>Special Stockholder Meetings  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Delaware Corporation Law  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the DGCL, a special meeting of a corporation's stockholders may be called by the board or by any other person authorized by the corporation's articles or
certificate of incorporation or bylaws. Generally, all stockholders of record entitled to vote must receive notice of stockholder meetings not less than 10 nor more than 60&nbsp;days before the date
of the stockholder meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Kratos' amended and restated bylaws, a special meeting of stockholders may be called by the President, and shall be called by the President or Secretary at
the request in writing of a majority of the board of directors or one or more stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. The business conducted at any special meeting will be limited to the purpose or purposes specified in the order calling for the special meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under SYS' bylaws, special meetings of stockholders may be called by the board of directors, the chairman of the board of directors, or the president or by one or
more shareholders holding shares in the aggregate entitled to cast not less than 10% of the votes at such meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Limitation of Personal Liability of Directors and Indemnification  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Article&nbsp;VI of Kratos' amended and restated certificate of incorporation provides that the personal liability of members of Kratos' board of directors is
eliminated to the fullest extent permitted by Delaware Law. Section&nbsp;102(b)(7) of the DGCL provides that a corporation may eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director (i)&nbsp;for any breach of the director's duty of loyalty to the corporation or
its stockholders, (ii)&nbsp;for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii)&nbsp;under Section&nbsp;174 of the DGCL
(regarding, among other things, the payment of unlawful dividends) or (iv)&nbsp;for any transaction from which the director derived an improper personal benefit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, Section&nbsp;145 of the DGCL provides that a Delaware corporation has the power to indemnify its officers and directors in certain circumstances. Article&nbsp;III of
Kratos' amended and restated bylaws provides that Kratos shall indemnify all persons whom it may indemnify as permitted by Delaware law. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;145(a)
of the DGCL empowers a corporation to indemnify any director, officer, employee or agent, or former director, officer, employee or agent, who was or is a party or
is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right
of the corporation) by reason of his service as a director, officer, employee or agent of the corporation, or his service, at the corporation's request, as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such
action, suit or proceeding provided that such director or officer acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, provided that such director or officer had no reasonable cause to believe his conduct was unlawful. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>211</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;145(b)
of the DGCL empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee or agent of another enterprise, against expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of such action or suit provided that such director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such director or officer shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such director or officer is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;145
of the DGCL further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to
in Section&nbsp;145(a) or Section&nbsp;145(b) of the DGCL or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, provided that indemnification provided for by Section&nbsp;145 of the DGCL
or granted pursuant thereto shall not be deemed exclusive of any other rights to which the indemnified party may be entitled, and empowers the corporation to purchase and maintain insurance on behalf
of a director or officer of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would
have the power to indemnify him against such liabilities under Section&nbsp;145 of the DGCL. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Article Seventh of SYS' articles of incorporation provides that a director of SYS shall not be liable to SYS or its stockholders for monetary damages to the
fullest extent permitted by California law. In addition, Article Sixth of SYS' bylaws provides that SYS shall, to the maximum extent permitted by the General Corporation Law of California, indemnify
each of its agents against expenses against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact
any such person is or was an agent of SYS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Commission Position on Indemnification for Securities Act Liabilities  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Kratos or SYS pursuant
to the foregoing provisions, Kratos and SYS have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Mergers, Consolidations and Other Transactions  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the DGCL, the board of directors and the holders of a majority of the outstanding shares entitled to vote must approve a merger, consolidation or sale of
all or substantially all of a corporation's assets. However, unless the corporation provides otherwise in its certificate of incorporation, no stockholder vote of a constituent corporation surviving a
merger is required if: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the
merger agreement does not amend the constituent corporation's articles or certificate of incorporation; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>212</FONT></P>

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<UL>
</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>each
share of stock of the constituent corporation outstanding immediately before the merger is to be an identical outstanding or treasury share of the surviving corporation
after the merger; and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>either
no shares of common stock of the surviving corporation and no shares, securities or obligations convertible into such stock are to be issued or delivered under the
plan of merger, or the authorized unissued shares or the treasury shares of common stock of the surviving corporation to be issued or delivered under the plan of merger plus those initially issuable
upon conversion of any other shares, securities or obligations to be issued or delivered under such plan do not exceed 20% of the shares of common stock of such constituent corporation outstanding
immediately prior to the effective date of the merger. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B><I>Kratos  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither Kratos' amended and restated certificate of incorporation nor its bylaws contains any super-majority voting requirements governing mergers,
consolidations, sales of substantially all of the assets, liquidations, reclassifications or recapitalizations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>SYS  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither SYS' articles of incorporation nor its bylaws contain any super-majority or class voting requirements governing mergers, consolidations, sales of
substantially all of the assets, liquidations, reclassifications or recapitalizations. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>State Anti-Takeover Statutes  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;203 of the DGCL may, under certain circumstances, make it more difficult for a person who would be an "interested stockholder" (defined generally
as a person with 15% or more of a corporation's outstanding voting stock) to effect a "business combination" (defined generally as mergers, consolidations and certain other transactions, including
sales, leases or other dispositions of assets with an aggregate market value equal to 10% or more of the aggregate market value of the corporation) with the corporation for a three-year
period. Under Section&nbsp;203, a corporation may under certain circumstances avoid the restrictions imposed by Section&nbsp;203. Moreover, a corporation's certificate of incorporation or bylaws
may exclude a corporation from the restrictions imposed by Section&nbsp;203. In Kratos' certificate of incorporation, it has opted out of Section&nbsp;203 of the DGCL. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;California
does not have an anti-takeover statute. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Appraisal Rights  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos' stockholders do not have appraisal rights in the merger. SYS shareholders who vote against the merger have appraisal rights in accordance with
Chapter&nbsp;13 of the California Corporations Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Stockholder Rights Plan  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos has a stockholder rights plan, while SYS does not have a stockholder rights plan in place as of the date of this Proxy Statement. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>213</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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<BR></FONT><FONT SIZE=2><B>LEGAL MATTERS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The validity of the Kratos common stock and certain U.S. federal income tax consequences relating to the merger will be passed upon for Kratos by DLA Piper
US&nbsp;LLP, and certain U.S. federal income tax consequences relating to the merger will be passed upon for SYS by Luce, Forward, Hamilton&nbsp;&amp; Scripps&nbsp;LLP. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ez42501_experts"> </A>
<A NAME="toc_ez42501_4"> </A>
<BR></FONT><FONT SIZE=2><B>EXPERTS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements of Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., SYS and Haverstick Consulting,&nbsp;Inc. included in this
registration statement have been so included in reliance upon the reports of Grant Thornton&nbsp;LLP, independent registered public accounting firm, upon the authority of Grant Thornton LLP, as
experts in giving said reports. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
consolidated financial statements of SYS as of June&nbsp;30, 2006, and for each of the years in the two-year period ended June&nbsp;30, 2006, have been included
herein in reliance upon the report of KPMG&nbsp;LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and
auditing. The audit report covering the June&nbsp;30, 2006 consolidated financial statements contains an explanatory paragraph that states that the Company adopted the provisions of Statement of
Financial Accounting Standards No.&nbsp;123(R), "Share-Based Payment," and accordingly, changed its method of accounting for share-based compensation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS
has agreed to indemnify and hold KPMG harmless against and from any and all legal costs and expenses incurred by KPMG in successful defense of any legal action or proceeding that
arises as a result of KPMG's consent to the inclusion of its audit report on SYS's past financial statements included in this proxy statement/prospectus. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ez42501_future_stockholder_proposals"> </A>
<A NAME="toc_ez42501_5"> </A>
<BR></FONT><FONT SIZE=2><B>FUTURE STOCKHOLDER PROPOSALS    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Kratos  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To be eligible for inclusion in the proxy statement and form of proxy for Kratos' next annual meeting, stockholder proposals must have been submitted in writing
by the close of business on [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;]. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any proposal that has not been submitted for inclusion in next year's proxy statement (as described in the preceding paragraph) is instead sought to be presented directly at next
year's annual meeting, such proposal may be considered if written notice of such proposal is timely received by our Secretary. Generally, a notice is timely given if received by our Secretary not less
than 90 or more than 120&nbsp;days before the date of the annual meeting. If, however, the date of the annual meeting has not been publicly disclosed or announced at least 105&nbsp;days in advance
of the annual meeting, then our Secretary must have received the notice within 15&nbsp;days of such initial public disclosure or announcement. If, however, the date of the annual meeting has not
been publicly disclosed or announced at least 105&nbsp;days in advance of the annual meeting, then Kratos' Secretary must have received the notice within 15&nbsp;days of such initial public
disclosure or announcement. Management will be entitled to vote proxies in its discretion with respect to any proposal that is presented at the Kratos 2008 annual meeting of stockholders but not
included in the proxy statement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>SYS  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any proposal or proposals by a shareholder intended to be included in SYS's proxy statement and form of proxy relating to the 2008 annual meeting of SYS
shareholders must be received by SYS no later than [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;], pursuant to the proxy solicitation rules of the
SEC. Nothing in this paragraph shall be deemed to require
SYS to include in its proxy statement and proxy relating to the 2008 annual meeting of SYS shareholders any shareholder proposal which may be omitted from SYS's </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>214</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>proxy
materials pursuant to applicable regulations of the SEC in effect at the time such proposal is received. For any proposal that is not submitted for inclusion in next year's proxy statement but
is instead presented directly at the 2008 annual meeting of SYS shareholders, notice of such proposal must be received in writing by the Secretary of SYS not less than 90 and not more than
120&nbsp;days before the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the annual meeting is called for a date not within 30&nbsp;days before
or after the anniversary of the preceding year's annual meeting, notice by the shareholder to be timely must be so received not later than the close of business on the 10th&nbsp;day following the
day on which such notice of the annual meeting was mailed or such public disclosure was made. Failure to provide notice in this manner and within this time period means that such proposal will be
considered untimely. Management will be entitled to vote proxies in its discretion with respect to any proposal that is presented at the SYS 2008 annual meeting of shareholders but not included in the
proxy statement. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ez42501_where_you_can_find_more_information"> </A>
<A NAME="toc_ez42501_6"> </A>
<BR></FONT><FONT SIZE=2><B>WHERE YOU CAN FIND MORE INFORMATION    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos and SYS file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any of this information at
the SEC's public reference room at 100&nbsp;F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or 202-942-8090
for further information on the public reference room. The SEC also maintains an Internet website that contains reports, proxy statements and other information regarding issuers, including Kratos and
SYS, who file electronically with the SEC. The address of that site is www.sec.gov. The information contained on the SEC's website is expressly not incorporated by reference into this Proxy Statement.
Kratos' internet website is </FONT><FONT SIZE=2><I>www.kratosdefense.com</I></FONT><FONT SIZE=2>, and Kratos makes available free of charge at such website Kratos' annual reports, quarterly reports,
current reports, reports filed pursuant to Section 16 and amendments to those reports as soon as reasonably practical after such reports are electronically filed or furnished to the SEC. The
information on Kratos' website is not incorporated by reference into this proxy statement/prospectus. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
has filed with the SEC a registration statement of which this Proxy Statement is a part. The registration statement registers the shares of Kratos common stock to be issued to SYS
shareholders in connection with the merger. The registration statement, including the attached exhibits and annexes, contains additional relevant information about the common stock of Kratos and SYS,
respectively. The rules and regulations of the SEC allow Kratos and SYS to omit certain information included in the registration statement from this Proxy Statement. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
document is a prospectus of Kratos and is a joint proxy statement of Kratos and SYS for the Kratos annual meeting and the SYS special meeting. Neither Kratos nor SYS has authorized
anyone to give any information or make any representation about the merger or Kratos or SYS that is different from, or in addition to, that contained in this Proxy Statement. Therefore, if anyone does
give you information of this sort, you should not rely on it. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that
another date applies. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>215</FONT></P>

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NAME="fa42501_kratos_financial_statements"> </A>
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<BR></FONT><FONT SIZE=2><B>KRATOS FINANCIAL STATEMENTS    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fa42501_index_of_kratos_financial_statements"> </A>
<A NAME="toc_fa42501_2"> </A></FONT> <FONT SIZE=2><I>INDEX OF KRATOS FINANCIAL STATEMENTS    <BR>    </I></FONT></P>

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<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
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<TD WIDTH="92%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Report of Independent Registered Public Accounting Firm&#151;Grant Thornton&nbsp;LLP</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>FI-2</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="92%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Consolidated Balance Sheets as of December&nbsp;31, 2006 and 2007</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>FI-3</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="92%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Consolidated Statements of Operations&#151;Fiscal Years Ended December&nbsp;31, 2005, 2006 and 2007</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>FI-4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="92%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Consolidated Statements of Stockholders' Equity&#151;Fiscal Years Ended December&nbsp;31, 2005, 2006 and 2007</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>FI-5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="92%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Consolidated Statements of Cash Flows&#151;Fiscal Years Ended December&nbsp;31, 2005, 2006 and 2007</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>FI-6</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="92%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Notes to Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>FI-8</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-1</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fc42501_report_of_independent___fc402276"> </A>
<A NAME="toc_fc42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Board
of Directors and Stockholders<BR>
Kratos Defense and Security Solutions,&nbsp;Inc. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have audited the accompanying consolidated balance sheets of Kratos Defense and Security Solutions,&nbsp;Inc. (a Delaware Corporation) and subsidiaries (the "Company") as of
December&nbsp;31, 2006 and 2007, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December&nbsp;31, 2007.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kratos Defense and Security
Solutions,&nbsp;Inc. and subsidiaries as of December&nbsp;31, 2006 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended
December&nbsp;31, 2007 in conformity with accounting principles generally accepted in the United States of America. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
discussed in Note&nbsp;1 of the notes to consolidated financial statements, on January&nbsp;1, 2006, the Company has adopted Financial Accounting Standards Board Statement
No.&nbsp;123(R), </FONT><FONT SIZE=2><I>"Share-Based Payments</I></FONT><FONT SIZE=2>". </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
discussed in Note&nbsp;10 of the notes to consolidated financial statements, on January&nbsp;1, 2007, the Company has adopted Financial Accounting Standards Board issued
Interpretation No.&nbsp;48, "</FONT><FONT SIZE=2><I>Accounting for Uncertainty in Income Taxes&#151;An Interpretation of FASB Statement No.&nbsp;109</I></FONT><FONT SIZE=2>". </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Kratos Defense and Security Solutions,&nbsp;Inc.'s internal
control over financial reporting as of December&nbsp;31, 2007 based on criteria established in </FONT><FONT SIZE=2><I>Internal Control&#151;Integrated Framework</I></FONT><FONT SIZE=2>
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March&nbsp;27, 2008 expressed an unqualified opinion thereon. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>/s/
</FONT><FONT SIZE=2>GRANT THORNTON&nbsp;LLP</FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Irvine,
California<BR>
March 27, 2008 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-2</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fe42501_kratos_defense___security_solu__kra05039"> </A>
<A NAME="toc_fe42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.    <BR>    <BR>    Consolidated Balance Sheets    <BR>    <BR>    December&nbsp;31, 2006 and 2007    <BR>    <BR>    (in millions, except par value and number of
shares)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1><B>Assets</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Current assets:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Restricted cash</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accounts receivable, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>59.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>77.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Income taxes receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Prepaid expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Notes receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Other current assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Current assets of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>67.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=1>Total current assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>140.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>106.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1><BR>
Property and equipment, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
6.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
6.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Goodwill</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>129.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>194.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Other intangibles, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>13.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>19.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Deferred tax assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Investments in unconsolidated affiliates</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Other assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Non current assets of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>37.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=1>Total assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>337.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>335.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1><B>Liabilities and Stockholders' Equity</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Current liabilities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accounts payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>16.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>22.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accrued expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>14.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accrued compensation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Line of credit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>51.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Billings in excess of costs and earnings on uncompleted contracts</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>10.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Deferred tax liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accrual for contingent acquisition consideration</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>9.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Income taxes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accrual for unused office space</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Other current liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>13.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Current portion of long-term debt</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Current portion of capital lease</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Current liabilities of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>49.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=1>Total current liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>144.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>83.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Long-term debt, net of current portion</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>72.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Accrual for unused office space, net of current portion</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Capital lease</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Deferred tax liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Other liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Non current liabilities of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=1>Total liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>150.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>168.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Commitments and contingencies (Notes&nbsp;1, 2, 6, 8, 9, 10, 16 and 17)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Stockholders' equity:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Preferred stock, 5,000,000 shares authorized Series&nbsp;B Convertible Preferred Stock, $.001 par value, 10,000 shares outstanding at December&nbsp;31, 2006 and 2007 (liquidation preference $5.0&nbsp;million at
December&nbsp;31, 2006 and 2007)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Common stock, $.001 par value, 195,000,000 shares authorized; 73,883,950 and 78,998,922 shares issued and outstanding at December&nbsp;31, 2006 and 2007, respectively</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Additional paid-in capital</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>391.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>412.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Accumulated deficit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(204.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(245.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=1>Total stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>187.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>167.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=1>Total liabilities and stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>337.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>335.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-3</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=228,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=626713,FOLIO='FI-3',FILE='DISK112:[08ZAT1.08ZAT42501]FE42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_fg42501_1_4"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fg42501_kratos_defense___securities_so__kra05525"> </A>
<A NAME="toc_fg42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITIES SOLUTIONS,&nbsp;INC.    <BR>    <BR>    Consolidated Statements of Operations    <BR>    <BR>    Years ended December&nbsp;31, 2005, 2006 and 2007    <BR>    <BR>    (in millions, except
per share amounts)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>152.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>153.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cost of revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>115.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>124.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>162.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>36.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>38.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>39.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Stock option investigation and related fees</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Estimated cost for settlement of securities litigation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Recovery of unauthorized issuance of stock options</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Contingent acquisition consideration and restatement fees</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Impairment and restructuring charges</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2>Operating income (loss) from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(31.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(24.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other income (expense):</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest income (expense), net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Foreign currency gain</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Impairment of investments in unconsolidated affiliates</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other income and (expenses), net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2>Total other income (expense), net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Income (loss) from continuing operations before income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(32.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(26.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Provision (benefit) for income taxes from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Income (loss) from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(46.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(28.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Loss from discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(57.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(40.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Basic earnings (loss) per common share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income (loss) from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.63</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.38</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Loss from discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.17</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2>Net income (loss) per common share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.79</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.55</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Diluted earnings (loss) per common share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income (loss) from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.63</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.38</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Loss from discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.17</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2>Net income (loss) per common share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.79</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.55</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Weighted average common shares outstanding:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>73.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>73.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-4</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=229,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=864886,FOLIO='FI-4',FILE='DISK112:[08ZAT1.08ZAT42501]FG42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P style="font-family:times;"><FONT SIZE=2><A
NAME="page_fi42501_1_5"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2>

<!-- COMMAND=ROTATED_TABLE WIDTH="150%" -->

 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.<BR>
Consolidated Statements of Stockholders' Equity<BR>
Years ended December&nbsp;31, 2005, 2006 and 2007<BR>
(in millions)  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="125%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ROWSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Convertible<BR>
Preferred Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Common Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Additional Paid-In Capital</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Deferred Compensation</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Retained Earnings (Accumulated Deficit)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Accumulated Other Comprehensive Loss</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total Stockholders' Equity</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1><B>Balance, December 31, 2004</B></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>71.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>374.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(148.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>219.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Issuance of common stock for exercise of stock options</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Issuance of common stock under employee stock purchase plan</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Stock based compensation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Components of comprehensive income:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Net income</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Foreign currency translation gain, net of income taxes of $0.2&nbsp;million</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="23%" style="font-family:times;"><FONT SIZE=1>Total comprehensive income</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1><B>Balance, December 31, 2005</B></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>72.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>379.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(146.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>229.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Conversion of Series B convertible preferred stock</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Issuance of common stock for exercise of stock options</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Stock based compensation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>11.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>11.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Components of comprehensive income:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Net loss</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(57.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(57.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Foreign currency translation gain, net of income taxes of $0.3&nbsp;million</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Reclassification adjustment&#151;foreign currency translation gain, included in net loss</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="23%" style="font-family:times;"><FONT SIZE=1>Total comprehensive loss</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(55.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1><B>Balance, December 31, 2006</B></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>73.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>391.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(204.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>187.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Issuance of common stock for exercise of stock options</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Common stock issued for acquisitions</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Paid in capital for contingent consideration</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>7.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Cumulative effect adjustment upon adoption of FIN No.&nbsp;48</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Stock based compensation</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Net loss and total comprehensive loss</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(40.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(40.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1><B>Balance, December 31, 2007</B></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>79.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>412.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(245.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>167.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-5</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=230,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=126105,FOLIO='FI-5',FILE='DISK112:[08ZAT1.08ZAT42501]FI42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_fk42501_1_6"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fk42501_kratos_defense___security_solu__kra04412"> </A>
<A NAME="toc_fk42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.    <BR>    <BR>    Consolidated Statements of Cash Flows    <BR>    <BR>    Years ended December&nbsp;31, 2005, 2006 and 2007    <BR>    <BR>    (in millions)    <BR>
  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=5 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Operating activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(57.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(40.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Less: Loss from discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Income (loss) from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(46.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(28.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Adjustments to reconcile income (loss) from continuing operations to net cash used in operating activities from continuing operations:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Depreciation and amortization</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accrual for settlement of securities litigation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Asset impairment charges</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Disposal of property and equipment</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Provision for doubtful accounts</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Stock based compensation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Changes in assets and liabilities, net of acquisitions:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued compensation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrual for contingent acquisition consideration</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrual for unused office space</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Billings in excess of costs and earnings on uncompleted contracts</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income tax receivable or payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2>Net cash provided by (used in) operating activities from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Investing activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Sale/maturity of short-term investments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash paid for contingent acquisition consideration</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(17.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash paid for acquisitions, net of cash acquired</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(33.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(59.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(63.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Proceeds from the disposition of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash transferred (to) from restricted cash</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Capital expenditures</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2>Net cash used in investing activities from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(47.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(50.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(15.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-6</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=231,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=602051,FOLIO='FI-6',FILE='DISK112:[08ZAT1.08ZAT42501]FK42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fk42501_1_7"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Consolidated Statements of Cash Flows (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (in millions) </B></FONT></P>

<!-- end of table folio -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Financing activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Proceeds from issuance of common stock</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Proceeds from issuance of common stock under employee stock purchase plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Borrowings under credit facility and line of credit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>85.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>88.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Repayment under line of credit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(34.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(64.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Repayment of capital lease obligations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Debt issuance costs</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2>Net cash provided by financing activities from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Net cash flows of continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(43.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Cash flows of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Operating cash flows</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Investing cash flows</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Financing cash flows</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Effect of exchange rates on cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2>Net cash flows of discontinued operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Net increase (decrease) in cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(42.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents at beginning of year</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents at end of year</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Supplemental disclosure of cash flow information:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash paid during the year for interest</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Net cash received during the year for income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Noncash investing and financing activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Common stock issued for acquisitions</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Paid in capital for contingent consideration</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Liability for contingent cash consideration</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2>Supplemental disclosures of non-cash investing and financing transactions:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Fair value of assets acquired in acquisitions</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>40.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>80.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>111.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Fixed assets financed</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Liabilities assumed in acquisitions</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-7</FONT></P>

<HR NOSHADE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fm42501_kratos_defense___security_solu__kra04170"> </A>
<A NAME="toc_fm42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.    <BR>    <BR>    Notes to Consolidated Financial Statements    <BR>    <BR>    Years ended December&nbsp;31, 2005, 2006 and 2007    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>(a)&nbsp;&nbsp;&nbsp;Description of Business  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc. ("Kratos" or "the Company") was initially incorporated in the state of New York on December&nbsp;19,
1994, commenced operations in March 1995 and was reincorporated in Delaware in 1998. Kratos historically conducted business in three segments: Wireless Network Services, Government Network Services
and Enterprise Network Services. The Company was an independent, global provider of outsourced communications and security systems engineering and integration services for the wireless communications
industry through its Wireless Network Services division ("WNS"), the U.S. government through its Government Network Services division ("GNS"), now referred to as the Kratos Government Solutions
("KGS") segment, and enterprise customers through its Enterprise Network Services division ("ENS"), now referred to as the Public Safety&nbsp;&amp; Security ("PSS") segment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2006 and 2007, the Company undertook a transformation strategy that culminated in the divestiture in 2007 of its wireless-related businesses and has aggressively pursued business with
the federal government, primarily the U.S. Department of Defense, through strategic acquisition. See Note&nbsp;5, Acquisitions. The Company's divestiture of its European wireless engineering
services business which was discontinued and held for sale in December 2006 was completed in March 2007. In addition, the Company's divestiture of its domestic wireless engineering services business
was completed in June 2007 and the divestiture of its wireless deployment services business was completed in July 2007. Accordingly, the accompanying financial statements reflect the divestiture of
the domestic wireless engineering services and wireless network deployment business and the results of operations through the date of divestiture are reflected as discontinued operations in the
accompanying statements of operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of the divestment of the Company's wireless related assets and businesses in 2007, the Company changed its name from Wireless Facilities, Inc to Kratos Defense&nbsp;&amp;
Security Solutions,&nbsp;Inc. on September&nbsp;12, 2007. The name was changed to reflect the Company's revised focus as a defense contractor and security systems integrator for the federal
government and for state and local agencies and reflects the Company's business going forward. All previous financial statements prior to September&nbsp;12, 2007 were issued under the Company's
previous name, Wireless Facilities,&nbsp;Inc. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(b)&nbsp;&nbsp;&nbsp;Principles of Consolidation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include the accounts of Kratos and its wholly-owned subsidiaries for which all inter-company transactions have been
eliminated in consolidation. Kratos and its subsidiaries are collectively referred to herein as the "Company." </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments
in unconsolidated affiliates are accounted for using the cost method as the Company owns less than 20% and has no significant influence over the affiliates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(c)&nbsp;&nbsp;&nbsp;Calendar Year  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's calendar year end is on the last day of the year, December&nbsp;31st. The interim fiscal periods are on the last day of the calendar month of each
quarter. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-8</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>(d)&nbsp;&nbsp;&nbsp;Use of Estimates  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (US&nbsp;GAAP) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Such estimates include revenue recognition, allowance for doubtful accounts, valuation of long-lived assets
including identifiable intangibles and goodwill, accounting for income taxes including the related valuation allowance on the deferred tax asset, accruals for partial self-insurance,
contingencies and litigation and contingent acquisition consideration. In the future, the Company may realize actual results that differ from the current reported estimates and if the estimates that
we have used change in the future, such changes could have a material impact on the Company's consolidated financial position, results of operations and cash flows. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(e)&nbsp;&nbsp;&nbsp;Reclassifications  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying consolidated statements of cash flows separately reflect the operating, investing and financing portions of the cash flows attributable to the
Company's discontinued operations for each of the periods presented. These amounts were reported on a combined basis as a single amount in prior consolidated statements of cash flows. In addition, the
consolidated balance sheets and statements of operations have been reclassified to present the discontinued operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(f)&nbsp;&nbsp;&nbsp;&nbsp;Revenue Recognition  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company provides services to customers under three primary types of contracts: fixed-price; time and materials; and cost reimbursable plus fixed fee. The
Company realizes a portion of its revenue from long-term contracts and accounts for these contracts under the provisions of Statement of Position (SOP) 81-1, "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts." Revenue on fixed-price contracts is recognized using the
percentage-of-completion method of accounting based on the ratio of total costs incurred to date compared to estimated total costs to complete the contract. Estimates of costs
to complete include materials, direct labor, overhead, and allowable general and administrative expenses (for government contracts). While the Company generally does not incur a material amount of
set-up fees for its projects, such costs, if any, are excluded from the estimated total costs to complete the contract. Cost estimates are reviewed monthly on an individual contract basis,
and are revised periodically throughout the life of the contract such that adjustments to profit resulting from revisions are made cumulative to the date of the revision. The full amount of an
estimated loss associated with a contract is accrued and charged to operations in the period it is determined that it is probable a loss will be realized from the performance of the contract. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant
management judgments and estimates, including the estimated costs to complete projects, which determine the project's percentage of completion and profit margin must be made
and used in connection with the revenue recognized in any accounting period. In the future, the Company may realize actual results that differ from current estimates and the differences could be
material. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accordingly,
the revenue the Company recognizes in a given financial reporting period depends on (1)&nbsp;the costs the Company has incurred for individual projects, (2)&nbsp;the
Company's then current estimate of the total remaining costs to complete the individual projects and (3)&nbsp;current estimated </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-9</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>contract
value associated with the projects. If, in any period, we significantly increase or decrease our estimate of the total costs to complete a project, and/or reduce or increase the associated
contract value, revenue for that period would be impacted. To the extent that the Company's estimates fluctuate over time or differ from actual results, gross margins in subsequent periods may vary
significantly from previous estimates. Material differences may result in the amount and timing of the Company's revenue for any period if management made different judgments or utilized different
estimates. In the event the Company is unable to provide reliable cost estimates on a given project, the Company records revenue using the completed contract method. There are no contracts for which
the Company utilized the completed contract method for the years ended December&nbsp;31, 2005, 2006 and 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the terms of substantially all of the Company's fixed price contracts, if a contract is terminated without proper cause by the customer, if the customer creates
unplanned/unreasonable time delays, or if the customer modifies the contract tasks/scope, the Company has contractual rights to reimbursement in accordance with the terms and conditions regarding
payment for work performed, but not yet billed (i.e.,&nbsp;unbilled trade accounts receivable) at a gross profit margin that is consistent with the overall project margin. Furthermore, certain
additional provisions compensate the Company for additional or excess costs incurred, whereby any scope reductions or other modifications are subject to reimbursement of costs incurred to date with a
reasonable profit margin based on the contract value and completed work at that time. The inherent aforementioned risks are reflected in the Company's ongoing periodic assessment of the "total
contract value" and the associated revenue recognized. Total net unbilled accounts receivable at December&nbsp;31, 2006 and December&nbsp;31, 2007 were $23.4&nbsp;million and
$34.2&nbsp;million, respectively. Approximately, $0.5&nbsp;million and $0.6&nbsp;million of the unbilled receivables as of December&nbsp;31, 2006 and December&nbsp;31, 2007, respectively,
are expected to be collected after one year as they are related to future milestone payments and retainages. Retainages receivable which are included in net unbilled accounts receivable are
$1.2&nbsp;million and $1.5&nbsp;million as of December&nbsp;31, 2006 and December&nbsp;31, 2007, respectively. The Company periodically performs work under authorizations to proceed or work
orders from its customers for which a formal purchase order may not be received until after the work has commenced. As of December&nbsp;31, 2006 and 2007, approximately $0.6&nbsp;million and
$0.4&nbsp;million, respectively, of the Company's unbilled accounts receivable balance were under an authorization to proceed or work order from its customers where a formal purchase order had not
yet been received. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
from certain time and materials and fixed-price contracts are recognized when realized or realizable and earned, in accordance with Staff Accounting Bulletin (SAB) 101, as
revised by SAB&nbsp;104 (recognized when services are rendered at contracted labor rates, when materials are delivered and when other direct costs are incurred). Additionally, based on management's
periodic assessment of the collectibility of its accounts receivable, credit worthiness and financial condition of customers, the Company determines if collection is reasonably assured prior to the
recognition of revenue. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost
reimbursable contracts for the government provide for reimbursement of costs plus the payment of a fee. The Company records the fee as costs are incurred. Under time and materials
contracts, the Company is reimbursed for labor hours at negotiated hourly billing rates and is reimbursed for travel and other direct expenses at actual costs plus applied general and administrative
expenses. Under certain of the Company's contractual arrangements, the Company may also recognize revenue for out-of-pocket expenses in accordance with
EITF&nbsp;01-14 "Income Statement Characterization </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-10</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>of
Reimbursements Received for Out-of-Pocket Expenses Incurred." Depending on the contractual arrangement, these expenses may be reimbursed with or without a fee. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
certain of its contracts, the Company provides supplier procurement services and materials for its customers. The Company records revenue on these arrangements on a gross or net
basis in accordance with EITF&nbsp;99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent," depending on the specific circumstances of the arrangement. The Company
considers the following criteria, among others, for recording revenue on a gross or net basis: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;Whether
the Company acts as a principal in the transaction; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;Whether
the Company takes title to the products; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)&nbsp;&nbsp;&nbsp;Whether
the Company assumes risks and rewards of ownership, such as risk of loss for collection, delivery or returns; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)&nbsp;&nbsp;&nbsp;Whether
the Company serves as an agent or broker, with compensation on a commission or fee basis; and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5)&nbsp;&nbsp;&nbsp;Whether
the Company assumes the credit risk for the amount billed to the customer subsequent to delivery. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B>(g)&nbsp;&nbsp;&nbsp;Derivative Instruments  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In managing interest rate risk exposure, the Company enters into interest rate swap agreements. An interest rate swap is a contractual exchange of interest
payments between two parties. A standard
interest rate swap involves the payment of a fixed rate time a notational amount by one party in exchange for a floating rate times the same notational amount from another party. As interest rates
change, the difference to be paid or received is accrued and recognized as interest expense or income over the life of the agreement. These instruments are not entered into for trading purposes.
Counterparties to the Company's interest rate swap agreements are major financial institutions. In accordance with SFAS&nbsp;133, Accounting for Derivative Instruments and Certain Hedging
Activities, as amended by SFAS&nbsp;137 and 138, the Company recognizes interest rate swap agreements on the consolidated balance sheet at fair value. The interest rate swap agreements are marked to
market with changes in fair value recognized in either other comprehensive income (loss) or in the carrying value of the hedged portions of fixed rate debt, as applicable (Hedge accounting). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Hedge
accounting is discontinued when it is determined that a derivative instrument is not highly effective as a hedge. Hedge accounting is also discontinued when: (1)&nbsp;the
derivative instrument expires; is sold, terminated or exercised; or is no longer designated as a hedge instrument because it is unlikely that a forecasted transaction will occur; (2)&nbsp;a hedged
firm commitment no longer meets the definition of a firm commitment; or (3)&nbsp;management determines that designation of the derivative as a hedging instrument is no longer appropriate. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
hedge accounting is discontinued, the derivative instrument will be either terminated, continue to be carried on the balance sheet at fair value, or redesignated as the hedging
instrument in either a cash flow or fair value hedge, if the relationship meets all applicable hedging criteria. Any asset or liability that was previously recorded as a result of recognizing the
value of a firm commitment will be removed from the balance sheet and recognized as a gain or loss in current period earnings. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-11</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>Any
gains or losses that were accumulated in other comprehensive income from hedging a forecasted transaction will be recognized immediately in current period earnings, if it is probable that the
forecasted transaction will not occur. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(h)&nbsp;&nbsp;&nbsp;Allowance for Doubtful Accounts  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, which
results in bad debt expense. Management periodically determines the adequacy of this allowance by evaluating the comprehensive risk profiles of all individual customer receivable balances including,
but not limited to, the customer's financial condition, credit agency reports, financial statements and overall current economic conditions. Additionally, on certain contracts whereby the Company
performs services for a prime/general contractor, a specified percentage of the invoiced trade accounts receivable may be retained by the customer until the project is completed. The Company
periodically reviews all retainages for collectibility and records allowances for doubtful accounts when deemed appropriate, based on its assessment of the associated credit risks. Total retainages
included in billed accounts receivable were $0.2&nbsp;million and $0.2&nbsp;million at December&nbsp;31, 2006 and 2007, respectively. Changes to estimates of contract value are recorded as
adjustments to revenue and not as a component of the allowance of
doubtful accounts. Allowances for doubtful accounts on receivable as of December&nbsp;31, 2006 and December&nbsp;31, 2007 were $0.3&nbsp;million and $0.5&nbsp;million, respectively. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table outlines the balance of the Company's Allowance for Doubtful Account for 2005, 2006 and 2007. It identifies the additional provisions each year as well as the
write-offs that utilized the allowance (in millions). </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="40%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Allowance for Doubtful Accounts<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Balance at Beginning of Year</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Provisions</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Write-offs/ Recoveries</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Balance at End of Year</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="40%" style="font-family:times;"><FONT SIZE=2>Year ended December&nbsp;31, 2005</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="40%" style="font-family:times;"><FONT SIZE=2>Year ended December&nbsp;31, 2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="40%" style="font-family:times;"><FONT SIZE=2>Year ended December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>(j)&nbsp;&nbsp;&nbsp;&nbsp;Cash Equivalents and Short-Term Investments  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's cash equivalents consist of its highly liquid investments with an original maturity of three months or less when purchased by the Company. The
Company has evaluated its investments in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No.&nbsp;115, "Accounting for Certain Investments in Debt and Equity
Securities." Based on such evaluation, the Company's management has determined that all of its investment securities are properly classified as available-for-sale. Based on the
Company's intent and board-approved investment policy and its ability to liquidate debt securities maturing after one year, the Company classifies such short-term investment securities
within current assets. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a separate component of Stockholders' Equity within
the caption "Accumulated Other Comprehensive Income (Loss)." The amortized cost basis of debt securities is periodically adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included as a component of interest income (expense), net. The amortized cost basis of securities sold is based on the specific identification method and all such realized gains
and losses are </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-12</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fm42501_1_13"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>recorded
as a component within other income (expense). Interest and dividends on securities classified as available-for-sale are included in interest income. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of the Company's acquisition of Madison Research Corporation on December&nbsp;31, 2006, the Company had approximately $1.0&nbsp;million in restricted cash related to
collateral required for two foreign letters of credit issued outside of the Company's credit facility. On June&nbsp;5, 2007 the cash collateral became unrestricted upon cancellation of the two
letters of credit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(i)&nbsp;&nbsp;&nbsp;&nbsp;Inventory  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories which are comprised primarily of supplies including parts and materials are stated at the lower of cost or market. The Company regularly reviews
inventory quantities on hand, future purchase commitments with its suppliers, and the estimated utility of its inventory. If the Company review indicates a reduction in utility below carrying value,
it reduces its inventory to a new cost basis. As of December&nbsp;31, 2006 and December&nbsp;31, 2007, the Company had $2.7&nbsp;million and $2.1&nbsp;million, respectively, of inventories
which were reflected in other current assets of continuing operations on the consolidated balance sheets. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>(k)&nbsp;&nbsp;&nbsp;Property and Equipment, Net  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment consists primarily of computer equipment, software, leasehold improvements and office-related equipment and is recorded at cost. Equipment
acquired under capital leases is recorded at the present value of the future minimum lease payments. Depreciation is calculated using
the straight-line method over the estimated useful life of each asset, which is one to three years for computer equipment, five years for furniture and office equipment, and five to ten
years for software for the Company's enterprise systems. Equipment and facilities acquired under capital leases is amortized over the shorter of the lease term or the estimated useful life of the
asset. Improvements, which significantly improve and extend the useful life of an asset, are capitalized over the shorter of the lease period or the estimated useful life. Expenditures for maintenance
and repairs are charged to operations as incurred. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP&nbsp;98-1"), the
Company expenses all internal-use software costs incurred in the preliminary project stage and capitalizes certain direct costs associated with the development and purchase of
internal-use software within property and equipment. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the software. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>(l)&nbsp;&nbsp;&nbsp;&nbsp;Goodwill and Other Intangible Assets, Net  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with SFAS No.&nbsp;142, "Goodwill and Other Intangible Assets," we classify intangible assets into three categories: (1)&nbsp;intangible assets
with definite lives subject to amortization, (2)&nbsp;intangible assets with indefinite lives not subject to amortization, and (3)&nbsp;goodwill. We test intangible assets with definite lives for
impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions may include an economic downturn in a geographic market or a change in the assessment of future
operations. We record an impairment charge when the carrying value of the definite lived intangible asset is not recoverable by the cash flows generated from the use of the asset. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-13</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fm42501_1_14"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible
assets with indefinite lives and goodwill are not amortized. We test these intangible assets and goodwill for impairment at least annually, typically in the fourth quarter, or
more frequently if events or circumstances indicate that such intangible assets or goodwill might be impaired. All goodwill is assigned to our operating segments. We perform our impairment tests of
goodwill at our reporting unit level. Such impairment tests for goodwill include comparing the fair value of the respective reporting unit with its carrying value, including goodwill. We use a variety
of methodologies in conducting these impairment tests, including discounted cash flow analyses. When appropriate, we consider the assumptions that we believe hypothetical marketplace participants
would use in estimating future cash flows. In addition, where applicable, an appropriate discount rate is used, based on the Company's cost of capital rate. When the fair value is less than the
carrying value of the intangible assets or the operating segment, we record an impairment charge to reduce the carrying value of the assets to fair value. These impairment charges are generally
recorded in other operating charges. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors considered when
determining useful lives include the contractual term of any agreement, the history of the asset, the Company's long-term strategy for the use of the asset, any laws or other local
regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives
are amortized, generally on a straight-line basis, over their useful lives, ranging from 1 to 10&nbsp;years. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(m)&nbsp;&nbsp;Income Taxes  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company records deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company maintains a valuation allowance on the deferred tax assets for which it is more likely than not that the Company will not realize the benefits of these tax assets in future
tax periods. The valuation allowance is based on estimates of future taxable income by tax jurisdiction in which the Company operates, the number of years over which the deferred tax assets will be
recoverable, and scheduled reversals of deferred tax liabilities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January&nbsp;1, 2007, the Company adopted FASB Interpretation No.&nbsp;48, "Accounting for Uncertainty in Income Taxes" ("Interpretation No.&nbsp;48") to account for uncertainty
in income taxes recognized in the Company's financial statements in accordance with SFAS No.&nbsp;109, "Accounting for Income Taxes." Refer to Note&nbsp;10. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>(n)&nbsp;&nbsp;&nbsp;Stock-Based Compensation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective January&nbsp;1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No.&nbsp;123R ("SFAS&nbsp;123R"),
"Share-Based Payments," which requires the measurement and recognition of compensation expense for all share-based payment awards to </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-14</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fm42501_1_15"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>employees
and directors based on estimated fair values. SFAS&nbsp;123R supersedes the Company's previous accounting methodology using the intrinsic value method under Accounting Principles Board
Opinion APB No.&nbsp;25, "Accounting for Stock Issued to Employees." Under the intrinsic value method, no share-based compensation expense related to stock option awards granted to employees at
market price on date of grant had been recognized in the Company's Consolidated Statements of Operations prior to January&nbsp;1, 2006. The Company has no awards with market or performance
conditions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November&nbsp;10, 2005, the FASB issued FASB Staff Position No. FAS&nbsp;123(R)-3, "Transition Election Related to Accounting for Tax Effects of Share-Based Payment
Awards." The Company has elected to adopt the alternative transition method provided in this FASB Staff Position for calculating the tax effects of share-based compensation pursuant to
FAS&nbsp;123R. The alternative transition method includes a simplified method to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax
effects of employee share-based compensation, which is available to absorb tax deficiencies which could be recognized subsequent to the adoption of FAS&nbsp;123R. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company adopted SFAS&nbsp;123R using the modified prospective transition method. Under this transition method, compensation expense recognized during the years ended
December&nbsp;31, 2006 and 2007 included: (a)&nbsp;compensation expense for all share-based awards granted prior to, but not yet vested, as of December&nbsp;31, 2005, based on the grant date
fair value estimated in accordance with the original provisions of SFAS&nbsp;123, and (b)&nbsp;compensation expense for all share-based awards granted subsequent to December&nbsp;31, 2005, based
on the grant date fair value estimated in accordance with the provisions of SFAS&nbsp;123R. In accordance with the modified prospective transition method, the Company's consolidated financial
statements for prior periods have not been restated to reflect the impact of SFAS&nbsp;123R. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the twelve months ended December&nbsp;31, 2006 and December&nbsp;31, 2007, there was no incremental tax benefit from stock options exercised in the period due to expected tax
losses for the year. The Company recorded cash received from the exercise of stock options of $567&nbsp;thousand in 2006 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-15</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=8,SEQ=240,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=285315,FOLIO='FI-15',FILE='DISK112:[08ZAT1.08ZAT42501]FM42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fm42501_1_16"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>and
$27&nbsp;thousand in 2007. The following table shows the amounts recognized in the consolidated financial statements for 2006 and 2007 for share-based compensation related to employees (in
millions). </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="75%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year ended December&nbsp;31, 2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year ended December&nbsp;31, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cost of revenues</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Total cost of employee share-based compensation included in operating loss from continuing operations, before income tax</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Amount of related income tax benefit recognized in earnings</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Amount charged to loss from continuing operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Amount charged to loss from discontinued operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Total charged against operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Impact on net loss per common share:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.16</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.16</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
proforma effect of recognizing estimated compensation expense under the fair value method on net income and earnings per common share for the year ended December&nbsp;31, 2005 were
as follows (in millions, except per share data): </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fm42501_reconciliation_of_stock-based___rec03418"> </A>
<A NAME="toc_fm42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>RECONCILIATION OF STOCK-BASED COMPENSATION EXPENSE FOR 2005<BR>  (In millions, except per share data)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="80%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Year Ended December&nbsp;31, 2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Net income</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Add: Stock-based compensation expense included in net income</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Deduct: Stock-based compensation expense determined under the fair value method</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(47.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Net loss&#151;pro forma</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(43.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Net income per share (basic)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Net loss per share (basic)&#151;pro forma</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.59</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Net income per share (diluted)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Net loss per share (diluted)&#151;pro forma</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.59</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Weighted average shares:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Basic&#151;as reported</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Basic&#151;pro forma</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Diluted&#151;as reported</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Diluted&#151;pro forma</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-16</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_fo42501_1_17"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(o)&nbsp;&nbsp;&nbsp;Net Income (Loss) per Common Share  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company calculates net income (loss) per share in accordance with SFAS No.&nbsp;128, "Earnings Per Share". Under SFAS No.&nbsp;128, basic net income
(loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted net income (loss) per common share
reflects the effects of potentially dilutive securities (in millions). </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="75%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="74%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Anti-dilutive weighted shares from stock options excluded from<BR>
calculation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.8</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Anti-dilutive weighted shares from preferred stock excluded from calculation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>(p)&nbsp;&nbsp;&nbsp;Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived assets and certain identifiable intangibles are reviewed for impairment in accordance with SFAS No.&nbsp;144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of the assets to future net cash flows (undiscounted and without interest) expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell. The Company concluded that $1.8&nbsp;million of equipment related to a wireless LAN system that the Company had
installed and operated in the Public Safety&nbsp;&amp; Security ("PSS") segment was impaired in the fourth quarter of 2006 based upon recent trends regarding free WiFi and WiMAX services and the
resulting impact to the realizability of this network. In addition, the Company concluded that its' investments in Tactical Survey Group and Commverge Solutions,&nbsp;Inc. were impaired as of
December&nbsp;31, 2007 (see Note&nbsp;5). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company completed its annual impairment test as required under the provisions of SFAS No.142 during the fourth quarter of 2006 and 2007. In 2006, the Company determined that there
was an impairment of goodwill for the Public Safety&nbsp;&amp; Security segment. The Company's annual impairment test resulted in a non-cash impairment charge of $18.3&nbsp;million related
to the write-down of goodwill for the acquisitions made in the PSS segment (See Note&nbsp;3). The fair value of goodwill was estimated by taking into consideration recent performance,
expected future performance and industry trends, using a combination of a discounted cash flow model and a market approach model which takes into consideration comparable businesses and market
transactions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2007, the Company's annual test did not indicate any impairment was necessary. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(q)&nbsp;&nbsp;&nbsp;Fair Value of Financial Instruments  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS No.&nbsp;107, "Disclosures about Fair Value of Financial Instruments," requires that fair values be disclosed for the Company's financial instruments. The
carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, billings in excess of costs and </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-17</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fo42501_1_18"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>earnings
on uncompleted contracts, and our credit facility approximate fair value due to the short-term nature of these instruments. The fair value of the Company's long-term
debt and capital lease obligations is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining
maturities. The fair value of the Company's long-term debt and capital lease obligations as of December&nbsp;31, 2007 is $75.5&nbsp;million and $1.2&nbsp;million, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(r)&nbsp;&nbsp;&nbsp;Comprehensive Income (Loss)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS No.&nbsp;130, "Reporting Comprehensive Income," establishes rules for the reporting of comprehensive income (loss) and its components. Comprehensive income
(loss) consists of net income and other gains and losses affecting shareholders' investment that, under accounting principles generally accepted in the United States of America are excluded from net
income (loss). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(s)&nbsp;&nbsp;&nbsp;Foreign Currency Translation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with SFAS No.&nbsp;52 "Foreign Currency Translation," the financial statements of the Company's foreign subsidiaries where the functional currency
has been determined to be the local currency are translated into United States dollars using year-end rates of exchange for assets and liabilities and rates of exchange that approximate
the rates in effect at the transaction date for revenues, expenses, gains and losses. In 2007, all foreign subsidiaries are accounted for as discontinued operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(t)&nbsp;&nbsp;&nbsp;&nbsp;Concentration of Credit Risk  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company maintains cash balances at various financial institutions and such balances commonly exceed the $100,000 insured amount by the Federal Deposit
Insurance Corporation. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to any significant credit risk with respect to such cash and
cash equivalents. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial
instruments, which subject the Company to potential concentrations of credit risk, consist principally of the Company's billed and unbilled accounts receivable. The Company's
accounts receivable result from sales to customers within the federal government, state and local agencies and with commercial customers in various industries. The Company performs ongoing credit
evaluations of its commercial customers. See Note&nbsp;13 for a discussion of our significant customers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(u)&nbsp;&nbsp;&nbsp;Liquidity  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2007 the Company had substantially completed its reorganization of the primary business segments from one focused on wireless related
activities to one focused on federal, state, and local government businesses. The change in focus was very costly due to the necessity to sell and discontinue operations of previous significant
subsidiaries. In addition, the Company completed its internal stock option investigation in 2007 which resulted in approximately $14.0&nbsp;million of one time expenses. See Note&nbsp;2. As a
result, the Company reported a net loss of $57.9&nbsp;million and $40.8&nbsp;million for the years ended December&nbsp;31, 2006 and December&nbsp;31, 2007, respectively. There has been a net
use of cash from operating activities for each of the last three years ended December&nbsp;31, 2007 due to working capital requirements and infrastructure costs associated with the Company's legacy
wireless business in 2005 and 2006 and costs of the stock option investigation and related fees in 2007. In </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-18</FONT></P>

<HR NOSHADE>
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<A NAME="page_fo42501_1_19"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>addition,
corporate overhead has not been allocated to discontinued operations and as such the continuing operating segments have had to absorb general and administrative expenses intended for a much
larger company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December of 2007, the Company successfully negotiated an $85.0&nbsp;million credit facility in order to increase the critical mass of its new government focused operations and
provide for any working capital requirements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;31, 2007 the Company completed the acquisition of Haverstick Consulting,&nbsp;Inc. which required the use of $75.5&nbsp;million of the aforementioned
$85.0&nbsp;million credit facility. In addition, the Company had $2.4&nbsp;million in letters of credit outstanding resulting in $7.1&nbsp;million in borrowing capacity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
the Company currently carries a significant amount of debt, the Company's ability to execute on additional business opportunities may be limited due to its existing borrowing
capacity. In addition, given the relatively highly leveraged liquidity position, any down-turn in its operating earnings could impair its ability to comply with the financial covenants of
its existing credit facility. If the Company anticipated a potential covenant violation, it would seek relief from its lenders. This relief would have some cost to the Company and such relief might
not be on terms as favorable as those in its existing Credit Agreement. If the Company were to actually default due to its failure to meet the financial covenants of its Credit Agreement and inability
to obtain a waiver from the lenders, the Company's Credit Agreement could require the Company to immediately repay all amounts then
outstanding under the Credit Agreement and/or require the Company to pay interest at default rates per the Credit Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event the Company was required to repay the amount outstanding under the existing credit facility, it would need to obtain alternative sources of financing to continue its
operating activities at existing levels. There can be no assurance that alternative financing would be available on acceptable terms or at all. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(v)&nbsp;&nbsp;&nbsp;Debt Issuance Costs  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fees paid to obtain debt financing are treated as debt issuance costs and are capitalized and amortized over the expected term of the related debt. These payments
are shown as a financing activity in the consolidated statement of cash flows. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(w)&nbsp;&nbsp;Recent Accounting Pronouncements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September 2006, the FASB issued SFAS No.&nbsp;157, "Fair Value Measurements" ("SFAS&nbsp;157"). This new standard provides guidance for using fair value to
measure assets and liabilities and information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair
value measurements on earnings. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in
some cases require, estimates of fair market value. SFAS&nbsp;157 also expands financial statement disclosure requirements about a company's use of fair value measurements, including the effect of
such measures on earnings. The provisions of SFAS&nbsp;157 are effective for financial statements issued for fiscal years beginning after November&nbsp;15, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-19</FONT></P>

<HR NOSHADE>
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<A NAME="page_fo42501_1_20"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;1. Organization and Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>2007.
The Company is in the process of determining the impact of this statement on its consolidated financial statements. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February 2007, the FASB issued FASB Statement No.&nbsp;159, </FONT><FONT SIZE=2><I>The Fair Value Option for Financial Assets and Financial Liabilities&#151;Including an
Amendment of FASB Statement No.&nbsp;115.</I></FONT><FONT SIZE=2> This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option
is available to all entities, including not-for-profit organizations. Most of the provisions in Statement 159 are elective; however, the amendment to FASB Statement
No.&nbsp;115, </FONT><FONT SIZE=2><I>Accounting for Certain Investments in Debt and Equity Securities,</I></FONT><FONT SIZE=2> applies to all entities with
available-for-sale and trading securities. Some requirements apply differently to entities that do not report net income. The FASB's stated objective in issuing this
standard is as follows: "to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting provisions." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
fair value option established by Statement 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report
unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent
reporting date. A not-for-profit organization will report unrealized gains and losses in its statement of activities or similar statement. The fair value option: (a)&nbsp;may
be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b)&nbsp;is irrevocable (unless a new election date occurs); and
(c)&nbsp;is applied only to entire instruments and not to portions of instruments. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement
159 is effective as of the beginning of an entity's first fiscal year that begins after November&nbsp;15, 2007. Early adoption is permitted as of the beginning of the
previous fiscal year provided that the entity makes that choice in the first 120&nbsp;days of that fiscal year and also elects to apply the provisions of FASB Statement No.&nbsp;157, </FONT> <FONT SIZE=2><I>Fair Value Measurements.</I></FONT><FONT
SIZE=2> The Company is in the process of determining the impact of this statement on its consolidated financials statements. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December 2007, the FASB issued SFAS No.&nbsp;141 (revised 2007) ("SFAS&nbsp;141R"), "Business Combinations" and SFAS No.&nbsp;160 ("SFAS&nbsp;160") "Noncontrolling Interests
in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No.&nbsp;51". SFAS&nbsp;141R will change how business acquisitions are accounted for and will impact financial
statements both on the acquisition date and in subsequent periods. SFAS&nbsp;160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling
interests and classified as a component of equity. The provisions of SFAS&nbsp;141R and SFAS&nbsp;160 are effective for financial statements issued for fiscal years beginning after
December&nbsp;15, 2008. Early adoption is not permitted. The Company is in the process of determining the impact of these statements on its consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;2. Stock Option Investigation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company completed an internal Equity Award Review of its past practices for granting and pricing stock options in August 2007. The voluntary review was
initiated by its current executive management team, with oversight from the Board of Directors and assistance from outside legal counsel. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-20</FONT></P>

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 </FONT> <FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;2. Stock Option Investigation (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;3, 2007, the Company announced that it had a filed a lawsuit against a former employee who previously served as its stock option administrator and
left the Company in mid-2004, and his spouse. The lawsuit sought to recover damages resulting from the theft of stock options and common stock valued in excess of $6.3&nbsp;million. The
U.S. Attorney's Office indicted the former employee for the theft and he pled guilty to federal criminal charges and has been sentenced to 46&nbsp;months in prison and is currently incarcerated. The
former employee and his wife entered into a settlement agreement with the Company on October&nbsp;5, 2007 turning over substantially all of their assets to the Company in settlement of the damages
incurred in the theft. The settlement has been approved by the SEC and by the federal judge overseeing this case. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the investigation, criminal prosecution, and settlement negotiations the Company incurred $14.0&nbsp;million in legal expenses and other fees. As of December&nbsp;31, 2007 the
Company has recorded $3.4&nbsp;million of recoveries which consists of $2.1&nbsp;million of Money Market Accounts and two properties which are in escrow for $1.3&nbsp;million. Subsequent to
December&nbsp;31, 2007, the Company intends to liquidate these assets. As more fully discussed in Note&nbsp;8 to these consolidated financial statements, $1.7&nbsp;million to $3.4&nbsp;million
of the proceeds from liquidation of these assets is subject to restrictions imposed by the Company's amended credit agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
past stock option granting practices have exposed us to greater risks associated with litigation, regulatory proceedings and government inquiries and enforcement actions. The SEC has
initiated an informal inquiry into our historical stock option granting practices and we received a subpoena from the United States Attorney's Office for the Southern District of California for the
production of documents relating to our historical stock option granting practices. We are cooperating with the SEC and the United States Attorney's Office for the Southern District of California. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
period of time necessary to resolve these inquiries is uncertain, and we cannot predict the outcome of these inquiries or whether we will face additional government inquiries,
investigations or other actions related to our historical stock option grant practices. These inquiries could require us to expend significant management time and incur significant legal and other
expenses. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;3. Goodwill and Other Intangible Assets  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables set forth information for finite-lived intangible assets subject to amortization (in millions): </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="92%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>As of December&nbsp;31, 2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>As of December&nbsp;31, 2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Accumulated Amortization</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Net Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Accumulated Amortization</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Net Value</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Acquired finite-lived intangible assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.4</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Contracts and Backlog</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Non-compete agreements</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Trade names</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="26%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19.8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-21</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=246,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=651202,FOLIO='FI-21',FILE='DISK112:[08ZAT1.08ZAT42501]FQ42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fq42501_1_22"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;3. Goodwill and Other Intangible Assets (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
aggregate amortization expense for finite-lived intangible assets was $1.7&nbsp;million, $2.1&nbsp;million and $2.8&nbsp;million for the years ended December&nbsp;31, 2005,
2006, and 2007, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
increase in finite-lived intangibles in 2006 is related to the acquisition of Madison Research Corporation. Refer to the schedule below and to Note&nbsp;6 of the Consolidated
Financial Statements (in millions, except amortization period). </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="84%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=10 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>As of December&nbsp;31, 2006</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Accumulated Amortization</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Net Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Amortization<BR>
Period (years)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Acquired Intangible Assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.0</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Contracts and Backlog</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="42%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
increase in finite-lived intangibles in 2007 is related to the acquisition of Haverstick Consulting, Inc (Haverstick). Refer to the schedule below and to Note&nbsp;6 of the
Consolidated Financial Statements (in millions, except amortization period). </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="84%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=10 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>As of December&nbsp;31, 2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Accumulated Amortization</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Net Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Amortization<BR>
Period (years)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Acquired Intangible Assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.0</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Contracts and Backlog</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="42%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is no amortization in 2007 since Haverstick was acquired on December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information
about estimated amortization expense for intangible assets subject to amortization for the five years succeeding December&nbsp;31, 2007, is as follows (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="74%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="81%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amortization Expense</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.1</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>2010</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.6</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>2011</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.4</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="81%" style="font-family:times;"><FONT SIZE=2>2012</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.7</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-22</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=247,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=484270,FOLIO='FI-22',FILE='DISK112:[08ZAT1.08ZAT42501]FQ42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fq42501_1_23"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;3. Goodwill and Other Intangible Assets (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
changes in the carrying amounts of goodwill by operating segment for the years ended December&nbsp;31, 2006 and 2007, are as follows (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="83%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Public Safety&nbsp;&amp; Security</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Government Solutions</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance as of December&nbsp;31, 2004</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Acquisitions and purchase accounting adjustments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Earn-out consideration</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance as of December&nbsp;31, 2005</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>94.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Acquisitions</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Impairments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(18.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(18.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance as of December&nbsp;31, 2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>129.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>129.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Acquisitions and purchase accounting adjustments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>64.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>64.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance as of December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company tests goodwill for impairment annually during the fourth quarter of each fiscal year at the reporting unit level using a fair value approach, in accordance with the
provisions of SFAS No.&nbsp;142, </FONT><FONT SIZE=2><I>Goodwill and Other Intangible Assets</I></FONT><FONT SIZE=2>. In 2007, the annual test did not result in any impairment charge. In 2006, the
annual test resulted in a non-cash impairment charge of $18.3&nbsp;million in the PSS segment. This was due in part to changes in the industry and the strategic focus of the Company as
well as operational challenges from significant employee turnover that we encountered after the completion of the earn-out periods. The fair value of goodwill was estimated by taking into
consideration recent performance and expected future performance and using a combination of a discounted cash flow model and a market approach model which takes into consideration comparable
businesses and market transactions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value, goodwill will be evaluated for impairment
between annual tests. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;4. Discontinued Operations  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;17, 2006, the Company entered into a definitive agreement to divest all of its operations in Mexico for total approximate cash consideration of
$18.0&nbsp;million, which approximated the net book value of the operations, including $13.2&nbsp;million of liabilities associated with a loss contingency. The transaction closed on
March&nbsp;10, 2006. The transaction was structured as a sale of our subsidiaries in Mexico, and the purchase price consisted of $1.5&nbsp;million in cash paid on February&nbsp;17, 2006, plus a
secured promissory note payable in installments through December&nbsp;31, 2006. The note was secured by pledges of assets and a personal guaranty. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-23</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_fs42501_1_24"> </A>


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<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;4. Discontinued Operations (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The final closing balance sheet as of February&nbsp;17, 2006 resulted in net asset adjustments aggregating to a total approximate $18.9&nbsp;million
consideration, $1.5&nbsp;million which was paid on February&nbsp;17, 2006, with the remaining $17.4&nbsp;million payable by means of the promissory note in installments through
December&nbsp;31, 2006 with an interest rate of 7.5% per annum. The remaining note receivable balance was paid in December 2006. No amounts remain outstanding on the note receivable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;28, 2006, the Board of Directors of the Company approved a plan to divest portions of the Company's business where critical mass had not been achieved. This plan
involved the divestiture of the Company's EMEA (Europe, Middle East and Asia) operations and its remaining South American operations. The Company determined that these operations met the criteria to
be classified as held for sale. Accordingly, these operations were reflected as discontinued in accordance with SFAS No.&nbsp;144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" in the accompanying consolidated financial statements commencing as of and for the year ended December&nbsp;31, 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
EMEA operations were sold to LCC International,&nbsp;Inc. (LCC) on March&nbsp;9, 2007 for $4.0&nbsp;million in cash, $3.3&nbsp;million of which was received on that date. We
also received approximately $1.8&nbsp;million from our EMEA operations, prior and subsequent to the closing date as payment on outstanding intercompany debt. The balance of the $0.7&nbsp;million
sales price is being withheld as security for the satisfaction of certain indemnification obligations and is payable on a date that is the earlier of March&nbsp;31, 2008 or the date that the buyer
files its 10-K for the fiscal year ended December&nbsp;31, 2007. The sale of EMEA generated a gain on disposition of $3.3&nbsp;million. In the fourth quarter of 2007, the Company
recorded a reserve of $0.7&nbsp;million on the remaining sales price holdback based on the Company's assessment of LCC's available liquidity and ability to pay following the Company's review of
LCC's most recently file financial statements, thereby reducing the net estimated gain on this transaction to $2.6&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
April&nbsp;20, 2007, the Company entered into an Equity Purchase Agreement to sell all of the issued and outstanding equity of its interests of its wholly owned subsidiary WFI
Brazil Techlogia en Telecomunicaciones&nbsp;LTDA, to Strategic Project Services,&nbsp;LLC (SPS). The consideration included the assumption of substantially all outstanding liabilities of WFI
Brazil, nominal cash consideration, and additional earn-out consideration based on 25&nbsp;percent of net receivables collected subsequent to the closing date. The Company recorded an
impairment charge of approximately $5.2&nbsp;million as of December&nbsp;31, 2006 to reduce the current carrying value of the Brazil operations to their estimated fair value based upon current
indications of interest. In the second quarter of 2007,
when this business was sold, a gain on disposition of $0.2&nbsp;million was recorded primarily due to lower than expected selling costs. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
May&nbsp;29, 2007, the Company entered into an Asset Purchase Agreement with LCC pursuant to which the Company agreed to sell to LCC all of the assets used in the conduct of the
operation of the Company's Wireless Network Services business segment that provides engineering services to the non-government wireless communications industry in the United States. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
transaction was completed on June&nbsp;4, 2007. The aggregate consideration paid by LCC in connection with the Acquisition was $46&nbsp;million. LCC delivered a subordinated
promissory note for the principal amount of $21.6&nbsp;million (the "</FONT><FONT SIZE=2><I>Subordinated Promissory Note</I></FONT><FONT SIZE=2>"), paid $17&nbsp;million at closing and paid final
working capital adjustments of $2.4&nbsp;million through an amendment to the Subordinated </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-24</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fs42501_1_25"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;4. Discontinued Operations (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>Promissory
Note, and the Company has retained an estimated $5.0&nbsp;million in net working capital of the business. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July&nbsp;5, 2007, the Company announced that it had sold the $21.6&nbsp;million Subordinated Promissory Note in a transaction arranged by KeyBanc Capital Markets ("KeyBanc"). The
Company received approximately $19.6&nbsp;million in net cash proceeds, reflecting a discount from par value of less than five percent and aggregate transaction fees of approximately
$1&nbsp;million, which includes a $0.75&nbsp;million fee to KeyBanc, an affiliate of the Company's lender. The note was acquired by a fund affiliated with Silver Point Capital,&nbsp;L.P.
("Silver Point"). The Company did not provide any guaranty for LCC's payment obligations. Certain post closing adjustments that, under the terms of the sale of the U.S. wireless engineering business
were expected to be made to the principal amount of the Note, may instead be made by payments between Kratos and LCC, or between Silver Point and the Company, as applicable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
August&nbsp;10, 2007, in accordance with the terms of the acquisition agreement, the Company provided the closing balance sheet working capital calculation, which indicated a
$2.6&nbsp;million working capital adjustment was due to the Company as an increase to the balance of the Subordinated Promissory Note. LCC had thirty days to review the calculation and notify the
Company of any dispute. The Company and LCC agreed to a final working capital calculation of $2.4&nbsp;million. The Company collected $2.3&nbsp;million in January 2008, net of a
$0.1&nbsp;million discount from Silver Point in accordance with the terms of the note agreement. The net amount is presented as part of notes receivable in the consolidated balance sheet as of
December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July&nbsp;7, 2007, the Company entered into a definitive agreement with an affiliate of Platinum Equity to sell the Company's wireless deployment business. Platinum Equity is a Los
Angeles based private equity firm whose portfolio includes service and distribution businesses in a number of equity sectors. The total consideration for the acquisition was $24&nbsp;million
including $18&nbsp;million in cash at closing, subject to post closing working capital adjustments, and an aggregate $6&nbsp;million in a three-year earn-out arrangement
through 2010. The transaction included
a Transition Services Agreement for the transition of certain services for a period of nine months. The assets sold to an affiliate of Platinum Equity include all of the Company's wireless deployment
business, and the Wireless Facilities name. The transaction closed on July&nbsp;24, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
September&nbsp;25, 2007, in accordance with the terms of the acquisition agreement, the Company provided the working capital calculation to Platinum Equity (Platinum), which
indicated a working capital adjustment was due to Platinum primarily due to cash collected on accounts receivables by the Company prior to the close of the transaction that exceeded the Company's
previous estimate of working capital to be delivered to Platinum. Platinum has reviewed the Company's working capital calculation, and the Company and Platinum have not been able to come to an
agreement on the working capital adjustment. In accordance with the agreement, the Company and Platinum are in the process of choosing a firm to resolve this item. As of December&nbsp;31, 2007, the
balance of the Company's calculation has been reflected in other current liabilities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company determined that the U.S. engineering and U.S. deployment operations met the criteria to be classified as held for sale in the first quarter of 2007. Accordingly, the Company
has reflected these operations as discontinued and assessed these assets for impairment in accordance with </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-25</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=250,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=157288,FOLIO='FI-25',FILE='DISK112:[08ZAT1.08ZAT42501]FS42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fs42501_1_26"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;4. Discontinued Operations (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>SFAS
No.&nbsp;144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The Company determined that the assets of the U.S. deployment operations were impaired and recorded
an impairment charge of approximately $13.4&nbsp;million. The fair value of the assets was determined by utilizing the sale price less estimated costs to sell the business. The Company subsequently
recorded a gain in discontinued operations from the sale of the U.S. engineering operations of $14.8&nbsp;million. Upon the divestiture of the deployment business, the Company recorded a loss from
disposal of $1.9&nbsp;million, reflecting the closing working capital adjustment and final closing balance sheet. In addition, the Company recorded a charge for an excess facility accrual of
approximately $1.1&nbsp;million related to certain facility leases of Deployment field offices that were not assumed by Platinum. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
determination that the U.S. engineering business and U.S. deployment operations met the criteria to be classified as held for sale in the first quarter of 2007 was also a triggering
event under SFAS&nbsp;142 Goodwill and Other Intangible Assets ("SFAS&nbsp;142") that resulted in an accelerated review of the Company's goodwill and intangibles assets with indefinite lives. In
accordance with SFAS&nbsp;142, the Company allocated the goodwill for the WNS reporting unit based upon the fair value of the engineering business and the deployment business. The fair values used
were based upon market information obtained as a result of the sale of the businesses. This resulted in an impairment charge of approximately $7.2&nbsp;million related to goodwill for this reporting
unit which was recorded in the first quarter of 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, in accordance with EITF&nbsp;87-24, </FONT><FONT SIZE=2><I>Allocation of Interest to Discontinued Operations</I></FONT><FONT SIZE=2>
("EITF&nbsp;87-24"), interest expense incurred on the debt that was required to be repaid as a result of the sales of our wireless network services business was allocated to discontinued
operations for the periods presented. During the years ended December&nbsp;31, 2005, 2006 and 2007, interest expense allocated to discontinued operations was approximately $0.0&nbsp;million,
$0.0&nbsp;million and
$2.2&nbsp;million, respectively. The following table presents the results of discontinued operations (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="63%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>265.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>201.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>85.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Net income (loss) before taxes</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Provision (benefit) for income taxes</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Net loss after taxes</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-26</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=251,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=202893,FOLIO='FI-26',FILE='DISK112:[08ZAT1.08ZAT42501]FS42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fs42501_1_27"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;4. Discontinued Operations (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following
is a summary of the assets and liabilities of discontinued operations as of December&nbsp;31, 2006 and December&nbsp;31, 2007 (in millions) for each of the operations: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="74%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31, 2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31, 2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Cash</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Accounts receivable, net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>63.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Other current assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Impairment allowance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Current assets of discontinued operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Property, plant and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Deferred tax assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Impairment allowance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Other assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Non-current assets of discontinued operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Accrued expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.7</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Billings in excess of cost on uncompleted contracts</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Income tax contingencies</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Deferred tax liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Other current liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Current liabilities of discontinued operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Non-current income tax contingencies</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Other non-current liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Non-current liabilities of discontinued operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;5. Investments in Unconsolidated Affiliates  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Tactical Survey Group,&nbsp;Inc. ("TSG")  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February 2004, the Company paid $1.0&nbsp;million in cash to bring its total stock ownership position in Tactical Survey Group,&nbsp;Inc. (TSG), a
privately-held company that provides expertise in developing, deploying and integrating tactical survey systems for use in government and commercial applications, to 11%. Pursuant to the
provisions of APB Opinion No.&nbsp;18, "The Equity Method of Accounting for Investments in Common Stock", this investment was accounted for under the equity method of accounting due to the presence
of significant influence deemed to exist based on the significant number of subcontracts that the Company has entered into with TSG and the presence of a Kratos employee on TSG's board of directors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the third quarter of 2006, TSG was no longer considered a significant subcontractor to the Company. This factor, combined with the lack of current representation on TSG's board of
directors </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-27</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fs42501_1_28"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;5. Investments in Unconsolidated Affiliates (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>resulted
in the Company concluding effective September&nbsp;29, 2006 that significant influence no longer existed. Accordingly, the investment in TSG no longer met the conditions for the use of the
equity method of accounting and has been accounted for under the cost method effective September&nbsp;29, 2006. There were no equity earnings related to this investment during the period this
investment was accounted for under the equity method of accounting. The balance of the Company's investment in TSG at December&nbsp;31, 2006 totaled $1.2&nbsp;million. The Company evaluates the
realizability of its investment in TSG according to the provisions of APB Opinion No.&nbsp;18 and FAS&nbsp;115-1 and FAS&nbsp;124-1. The Company periodically obtains and
reviews the financial statements of TSG. Based on this review, and recent indicators of fair value, an impairment charge of $0.9&nbsp;million was recorded in 2007 to reduce the carrying value of
this investment as of December&nbsp;31, 2007 to $0.3&nbsp;million. This investment has been classified on the consolidated balance sheet under the caption "Investments in unconsolidated
affiliates." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>CommVerge Solutions,&nbsp;Inc.  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has an investment in CommVerge Solutions,&nbsp;Inc., a privately-held wireless network planning and deployment company. The balance of
the Company's investment in CommVerge Solutions,&nbsp;Inc. at December&nbsp;31, 2006 totaled $0.9&nbsp;million. Management periodically obtains and reviews the most recent financial performance
and financial forecasts available from CommVerge which may include information regarding project status and current progress of the business. Based on this review, an impairment charge of
$0.9&nbsp;million was recorded to reduce the carrying value of this investment as of December&nbsp;31, 2007 to $0.0&nbsp;million. This investment is accounted for under the cost method and has
been classified on the consolidated balance sheet under the caption "Investments in unconsolidated affiliates." One of the Company's directors is also a director of CommVerge Solutions,&nbsp;Inc. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;6. Acquisitions  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Government Solutions Segment  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Haverstick Consulting,&nbsp;Inc.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2007 the Company acquired Indianapolis, Indiana headquartered Haverstick Consulting,&nbsp;Inc. (Haverstick) as part of the Kratos
Government Solutions Segment. Haverstick provides rocket and missile test and evaluation, weapons systems support, and professional services to the U.S. Army, U.S. Air Force, U.S. Navy, NASA, and
other federal, state and local agencies. Through the Haverstick acquisition, the Company expanded its customer footprint within the DoD, and enhanced its presence with the U.S. Air Force, a key growth
area for Kratos. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
total purchase price was $90.2&nbsp;million including transaction costs incurred by Kratos of $0.5&nbsp;million. The purchase price paid to Haverstick was $89.7&nbsp;million
comprised of $70.3&nbsp;million in cash and the issuance of 7.48&nbsp;million shares of the Company's common stock valued at $2.60 per share or an aggregate stock consideration of
$19.4&nbsp;million. The value of the share issued was determined by averaging the market price of the stock two days before and two days after the announcement of the acquisition, November&nbsp;5,
2007. The Company paid $81.1&nbsp;million, $66.7&nbsp;million of which was cash paid at closing, $2.4&nbsp;million was paid shortly thereafter, and $12.0&nbsp;million in common stock. The
Company held back $8.6&nbsp;million (the Holdback Consideration) to secure any negative working capital adjustments </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-28</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fs42501_1_29"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;6. Acquisitions (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>required
by the Merger Agreement and the Company's indemnity rights. The Holdback Consideration is comprised of both cash and Kratos stock in the amounts of $1.2&nbsp;million and
$7.4&nbsp;million, respectively. The holdback consideration will be released in 50% increments on the 12<SUP>th</SUP>&nbsp;month and 21<SUP>st</SUP>&nbsp;month of the anniversary date of
the acquisition. In addition to the indemnity holdback, the Agreement also calls for a post closing working capital adjustment. To fund the acquisition, the Company secured a new credit facility of
$85.0&nbsp;million arranged by KeyBanc Capital Markets. The credit facility, which includes a $25.0&nbsp;million line of credit and $60.0&nbsp;million in term notes, replaced the Company's
previous credit facility which had an outstanding principal balance of $6.0&nbsp;million on the date of closing. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;29, 2008 the Company provided the working capital calculation to Haverstick, which indicated a working capital adjustment was due to the Company primarily because the
working capital, as calculated per the Agreement, was below the target amount. Haverstick has reviewed the Company's working capital calculation and is not in agreement. Haverstick's response proposes
that there is actually excess working capital of approximately $1.5&nbsp;million. In accordance with the Agreement, the Company and Haverstick have fifteen days from the date of the objection to
resolve the disagreement. If resolution has not been achieved within the fifteen day period, the Company and Haverstick have five days to agree on a nationally recognized independent accounting firm
to resolve the disagreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the terms of the Merger Agreement, the Company has agreed to use its reasonable best efforts to file a resale registration statement covering the shares issued in connection
with the Merger promptly following the closing date. In the event that the common stock issued are not salable under rules promulgated under the Securities Acts, holders of the stock may elect to
exchange such shares for a cash amount equal to $2.74 per share in accordance with the terms of the Merger Agreement. Until the date on which the shares of stock are salable interest shall accrue on
the value of the Closing Stock at a floating rate of one-month LIBOR plus four percent (4%) per annum. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
purchase price paid to Haverstick of $89.7&nbsp;million plus $0.5 in transaction costs was accounted for as follows (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="74%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Current assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Property, plant, and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Intangible assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>64.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>111.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Current liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(17.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net assets acquired</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>90.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="83%" style="font-family:times;"><FONT SIZE=2>The goodwill recorded in this transaction is not tax deductible.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pro
Forma Financial Information </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
results of Haverstick's operations are not included in the accompanying Consolidated Statements of Operations for the years ended December&nbsp;31, 2005, 2006 and 2007. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-29</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=254,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=200473,FOLIO='FI-29',FILE='DISK112:[08ZAT1.08ZAT42501]FS42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fs42501_1_30"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;6. Acquisitions (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following summary presents pro forma consolidated results of operations for the years ended December&nbsp;31, 2006 and December&nbsp;31, 2007 as if the Haverstick acquisition
described above had occurred on January&nbsp;1, 2006 and includes adjustments that were directly attributable to the transaction, such as amortization of intangibles, interest related to debt, and
one time expenses associated with the merger, or were not expected to have a continuing impact on the Company. The pro forma results are unaudited and for illustrative purposes only for the applicable
period and do not purport to be indicative of the actual results which would have occurred had the transactions been completed as of the beginning of the period indicated, nor are they indicative of
results of operations which may occur in the future (all unaudited amounts, except per share amounts, are in million): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="82%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="55%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006 As Reported</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Pro forma Adjustments</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006 Pro forma</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>153.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>93.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>246.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(57.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(62.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Basic and diluted loss per share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.79</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.85</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="55%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007 As Reported</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Pro forma Adjustments</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007 Pro forma</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>94.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>287.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(40.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(45.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Basic and diluted loss per share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.55</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.62</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><I>Madison Research Corporation  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;2, 2006 the Company acquired Huntsville, Alabama based Madison Research Corporation ("MRC") as part of the Company's Government Solutions
segment. MRC offers a broad range of technical, engineering and IT solutions, and has developed core competencies in weapons system lifecycle support, integrated logistics, test and evaluation,
commercial-off-the-shelf software and hardware selection and implementation, software development and systems lifecycle maintenance. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
purchase price was approximately $73.8&nbsp;million, including a working capital adjustment of $4.6&nbsp;million and transaction costs of $0.2&nbsp;million, and is subject to
certain additional post-closing adjustments. The Company paid $62.1&nbsp;million at closing, the working capital adjustment of $4.6&nbsp;million was paid in April 2007 and the
remaining $6.9&nbsp;million, which has been subsequently adjusted for legal costs and a reduction in contingent cash consideration, was held back to secure the Company's indemnity rights and will be
released, subject to indemnity rights, in installments following 6, 12, and 18&nbsp;months from the date of close. In April 2007, $1.5&nbsp;million of the hold-back was released and
paid to the former shareholders of MRC. In October 2007, a second scheduled holdback payment of $2.8&nbsp;million was made. The remaining hold back balance of approximately $2.3&nbsp;million as of
December&nbsp;31, 2007, subject to the resolution of certain indemnification matters, is expected to be paid in April 2008. The Company entered into a new $85&nbsp;million credit facility with
KeyBank National Association to fund the acquisition, which replaced the Company's previous credit facility of $15&nbsp;million. Refer to Note&nbsp;8 for further discussion. The results of
operations of MRC have been included in the Company's consolidated statement of operations for the period from the acquisition date of October&nbsp;2, 2006 in the Company's fourth quarter of 2006. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-30</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=7,SEQ=255,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=214266,FOLIO='FI-30',FILE='DISK112:[08ZAT1.08ZAT42501]FS42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fs42501_1_31"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;6. Acquisitions (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
purchase price, including transaction costs of $0.2&nbsp;million, was accounted for as follows (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="74%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Current assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Property, plant, and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Intangible assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>80.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Current liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net assets acquired</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>73.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="84%" style="font-family:times;"><FONT SIZE=2>The goodwill recorded in this transaction is not tax deductible.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><I>Pro Forma Financial Information  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of MRC's operations since the acquisition date are included in the Company's consolidated financial statements for 2006 and are a component within the
Kratos Government Solutions segment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following summary presents pro forma consolidated results of operations for the years ended December&nbsp;31, 2005 and December&nbsp;31, 2006 as if the MRC acquisition described
above had occurred January&nbsp;1, 2005 and includes adjustments that were directly attributable to the transaction or were not expected to have a continuing impact on the Company. The pro forma
results are unaudited and for illustrative purposes only for the applicable period and do not purport to be indicative of the actual results which would have occurred had the transactions been
completed as of the beginning of the period indicated, nor are they indicative of results of operations which may occur in the future (all unaudited amounts, except per share amounts, are in million): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="54%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005 As Reported</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Pro forma Adjustments</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005 Pro forma</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>152.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>62.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>214.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Basic and diluted earnings (loss) per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.04</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="54%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006 As Reported</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Pro forma Adjustments</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006 Pro forma</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>153.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>199.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(57.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(61.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Basic and diluted loss per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.79</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.84</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>Contingent Acquisition Consideration  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with certain business acquisitions, the Company may agree to make additional future payments to sellers contingent upon achievement of specific
performance-based milestones by the acquired entities. Pursuant to the provisions of SFAS No.&nbsp;141, such amounts are accrued, and therefore, recorded by the Company when the contingency is
resolved beyond a reasonable doubt and, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-31</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=8,SEQ=256,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=838813,FOLIO='FI-31',FILE='DISK112:[08ZAT1.08ZAT42501]FS42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fs42501_1_32"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;6. Acquisitions (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>hence,
the additional consideration becomes payable. A summary of the contingent acquisition consideration as of December&nbsp;31, 2006 and December&nbsp;31, 2007 is summarized in the following
table (in millions). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Summary of Contingent Acquisition Consideration  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="84%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>PSS</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Other KGS</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Haverstick</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>MRC</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance as of December&nbsp;31, 2004</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Post acquisition adjustments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Payments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(13.0</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance as of December&nbsp;31, 2005</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Acquisitions</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Post acquisition adjustments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Payments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(7.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance as of December&nbsp;31, 2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Acquisitions</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Post acquisition adjustments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="39%" style="font-family:times;"><FONT SIZE=2>Payments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance as of December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
current liabilities accrual for contingent consideration on the accompanying Consolidated Balance Sheet as of December&nbsp;31, 2007 includes $2.3&nbsp;million for MRC and
$0.6&nbsp;million for Haverstick. Included in long term other liabilities is $0.6&nbsp;million for Haverstick with the contingent stock consideration of $7.4&nbsp;million reflected as paid in
capital for contingent consideration in the accompanying Consolidated Statement of Stockholder's Equity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Government Solutions Segment  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Haverstick Consulting,&nbsp;Inc.  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Company's acquisition of Haverstick Consulting,&nbsp;Inc. (Haverstick) on December&nbsp;31, 2007, the purchase price included
$8.6&nbsp;million in holdback consideration to secure, if any, negative adjustments to working capital and the Company's indemnity rights. The hold-back consideration includes both a
cash and Kratos common stock component. As of December&nbsp;31, 2007, the $8.6&nbsp;million contingent acquisition consideration balance was reflected as $1.2&nbsp;million in Accrual for
contingent acquisition consideration for the cash portion and as $7.4&nbsp;million in Paid-in-Capital for Contingent Consideration in the accompanying consolidated balance
sheets. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with the terms of the Merger Agreement $0.6&nbsp;million and $3.7&nbsp;million of the cash and stock component of the hold back, respectively, will be released at
December&nbsp;31, 2008 with the remaining hold back amounts to be released in August 2009. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-32</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_fu42501_1_33"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;6. Acquisitions (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Madison Research Corporation (MRC)  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Company's acquisition of Madison Research Corporation ("MRC") in October 2006, the purchase price included a working capital adjustment of
$4.6&nbsp;million, which was paid in April 2007 and $6.9&nbsp;million, which has been subsequently adjusted for legal costs and a reduction in contingent cash consideration, was held back to
secure the Company's indemnity rights and will be released, subject to indemnity rights, in installments following 6, 12, and 18&nbsp;months from the date of close. Holdback payments of
$1.5&nbsp;million and $2.8&nbsp;million were released and paid to the former shareholders of MRC in April and October of 2007, respectively. As of December&nbsp;31, 2007, the $2.3&nbsp;million
contingent acquisition consideration balance which includes accrued interest of $0.1&nbsp;million was reflected as $2.3&nbsp;million in the Accrual for contingent acquisition consideration on the
accompanying consolidated balance sheet. The Company expects to pay the remaining holdback, subject to the remaining indemnification obligations, in April 2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Public Safety&nbsp;&amp; Security Segment  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended December&nbsp;31, 2006, $7.8&nbsp;million of earn-out consideration was paid to certain shareholders of the companies
acquired in the Public Safety&nbsp;&amp; Security Segment. As of March&nbsp;31, 2006, all earn-out performance periods had ended and there was no additional contingent consideration earned
related to those shareholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;7. Balance Sheet Details  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's cash equivalents consist of overnight cash sweep accounts that are invested on a daily basis. As of December&nbsp;31, 2007, the company had no
other short term investments. The cash and cash equivalents at December&nbsp;31, 2006 and December&nbsp;31, 2007 were as follows (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31, 2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;31, 2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amortized Cost Basis</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Fair Value Basis</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amortized Cost Basis</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Fair Value Basis</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><I>Cash and cash equivalents:</I></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Cash</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.6</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Money market</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.0</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
unrealized gains and realized gains recorded during the year ended December&nbsp;31, 2006 and December&nbsp;31, 2007 were immaterial. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-33</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=258,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=187914,FOLIO='FI-33',FILE='DISK112:[08ZAT1.08ZAT42501]FU42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fu42501_1_34"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;7. Balance Sheet Details (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
breakdown of certain assets in the consolidated balance sheets consists of the following at December&nbsp;31, 2006 and 2007 (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="77%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accounts receivable, net:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Billed</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>36.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Unbilled</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>34.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Total accounts receivable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>77.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Allowance for doubtful accounts</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Total accounts receivable, net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>77.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Property and equipment, net:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Computer equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Software</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Furniture and office equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Facility under capital lease</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Property and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accumulated depreciation and amortization</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Total property and equipment, net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Investments in unconsolidated affiliates:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>CommVerge,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Tactical Survey Group,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Total investments in unconsolidated affiliates</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;8. Notes Payable and Other Financing Arrangements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(a) Credit Agreement  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;16, 2005, the Company entered into a credit agreement with KeyBank National Association ("KeyBank") to provide a $15.0&nbsp;million senior
credit facility. KeyBank was designated as the sole arranger and sole book manager. The facility had a three-year term and could have been expanded to a $60.0&nbsp;million facility. The
Company used the facility for general corporate purposes and to fund acquisitions. On October&nbsp;2, 2006, the Company entered into a credit agreement with Key Bank to provide an $85&nbsp;million
senior credit facility, which replaced the Company's existing $15&nbsp;million senior credit facility. The facility had a 5&nbsp;year term with principal due in 2011 and interest payable on a
monthly basis. At the Company's option, interest was payable at the London Interbank Offer Rate plus
1.75-3.50%, or at the prime rate plus 0.30-0.75%, with either option adjusted quarterly based on the Company's total net debt-to-EBITDA ratio. The
Company used the facility to fund its acquisition of Madison Research Corporation (MRC) and for general corporate purposes. The terms of the credit agreement required the Company to provide certain
customary covenants for a credit agreement, including certain financial covenants, computed as defined by the terms of the agreement. The facility was collateralized by the assets of the Company. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-34</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fu42501_1_35"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;8. Notes Payable and Other Financing Arrangements (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
facility contained customary events of default, including payment defaults, breaches of representations and warranties, and covenant defaults. As of March&nbsp;30, 2007, the
Company was in technical default of this agreement as it had not yet filed its Form&nbsp;10-K and 2006 audited financials. On April&nbsp;6, 2007, the Company entered into an amendment
to the credit agreement whereby Key Bank waived this technical default and provided an extension through April&nbsp;30, 2007 for filing our 10-K and 2006 audited financial statements. On
June&nbsp;1, 2007, the Company entered into a second amendment to the credit agreement whereby Key Bank extended the original waiver for filing our 10-K and 2006 audited financial
statements and the quarterly unaudited financial statements for the fiscal quarters ended March&nbsp;31, 2007 and June&nbsp;30, 2007 through September&nbsp;30, 2007 and reduced the total
facility to $50&nbsp;million to reflect the net pay downs of the revolving line of credit related to the divestiture of our EMEA business in March 2007 and the divesture of our domestic engineering
business. In addition, the second amendment provided for the further reduction of the Company's credit facility to $35&nbsp;million effective upon receipt of principal payments under the note
received from the buyer of the domestic engineering business, which occurred on July&nbsp;3, 2007. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;31, 2007, the Company entered into a new credit facility of $85.0&nbsp;million with KeyBanc Capital Markets which replaced the October&nbsp;2, 2006 credit
agreement with Key Bank. This credit facility provides for two term loans consisting of a first lien term note of $50.0&nbsp;million and a second lien term note of $10.0, as well as, a first lien
$25&nbsp;million revolving line of credit. The $10.0&nbsp;million term loan has a five and one half year term with principal payments required quarterly beginning on March&nbsp;31, 2008 of
$25,000 through March&nbsp;31, 2013 with the final balance of $9.5&nbsp;million due on June&nbsp;30, 2013. The $50.0&nbsp;million term loan has a five year term with principal payments
required quarterly beginning on March&nbsp;31, 2008 of $0.6&nbsp;million in 2008, $1.3&nbsp;million in 2009, $2.5&nbsp;million in 2110, and $4.1&nbsp;million in 2011 and 2012. The term loans
have a provision which states that once the full amount of the note has been borrowed, the notes cannot be paid down and reborrowed again. The revolving line of credit has a four year term which
expires on December&nbsp;31, 2011 and contains provisions typical in such arrangements. All loans under the new credit facility have an interest rate equal to a base rate defined as a fluctuating
rate per annum equal to the higher of (a)&nbsp;the Federal Funds Rate plus 0.5% and (b)&nbsp;the rate of interest in effect for such day as publicly announced from time to time by KeyBank as its
"prime rate" plus a margin for the term loans of 6.5% to 7.5% and a margin of 1.0% to 3.25% on the revolving line of credit. The applicable margin at date of borrowing is determined by the ratio of
the Company's aggregate debt to it's EBITDA for the previous four fiscal quarters. The Company used the credit facility to fund the acquisition of Haverstick Consulting&nbsp;Inc. (Haverstick) and to
retire the outstanding debt from the October 2006 agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Credit Facilities contain covenants which impose certain restrictions on the Company's ability to, among other things, incur additional debt, pay dividends, make investments or sell
assets. Additionally, certain non-recurring cash inflows such as proceeds from asset sales, insurance recoveries, and equity offerings may have to be used to pay down indebtedness and may
not be reborrowed. In addition, the Credit Facilities contain certain financial covenants which include certain financial covenants as defined by the terms of the agreements. These financial covenants
include a maximum first lien leverage ratio, a maximum total leverage ratio, a minimum liquidity ratio, a minimum fixed </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-35</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fu42501_1_36"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;8. Notes Payable and Other Financing Arrangements (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>charge
coverage ratio, and a minimum consolidated EBITDA at various dates for the $50.0&nbsp;million term loan and the $25.0&nbsp;million revolver as outlined in the following table. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="21%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Date<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Maximum First Lien Leverage Ratio</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Maximum Total Leverage Ratio</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Minimum Liquidity Ratio</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Minimum Fixed Charge Coverage Ratio</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Minimum Consolidated EBITDA<BR>
(in millions)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=1>December&nbsp;31, 2007&#151;2008</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.22 to 4.76:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3.76 to 5.68:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.56 to 1.33:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.05 to 0.50:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>$16.1 to $19.4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=1>2009</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.97 to 2.33:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.78 to 3.50:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.60 to 1.58:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.11 to 1.02:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>$19,8 to $21.5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=1>2010</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.75 to 2.00:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.25 to 2.50:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.54 to 1.49:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.10 to 1.06:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>$21.5 to 23.4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=1>2011</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.75:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.25:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.55 to 1.53:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.10:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>$24.4 to $26.5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="21%" style="font-family:times;"><FONT SIZE=1>2012</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.75:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2.25:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.42 to 1.54:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.10:1.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>$26.7 to $27.6</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The $10.0&nbsp;million term loan also provides for similar financial covenants. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future
maturities of long-term debt are as follows (in millions): </FONT></P>

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<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.6</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.1</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>2010</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.1</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>2011</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31.9</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>2012</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16.4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.4</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75.5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007, the Company's outstanding balance on the facility was $75.5&nbsp;million and the weighted average interest rate on the debt borrowed during 2007 was
8.3%. This includes $3.5&nbsp;million of interest expense and financing costs related to the October 2006 agreement and the new facility dated December&nbsp;31, 2007. The replacement of the
October 2006 facility resulted in a write-off of $1.0&nbsp;million in deferred financing costs. The Company had $3.3&nbsp;million in deferred financing costs outstanding as of
December&nbsp;31, 2007 which are related to the new facility and are being amortized over the four, five and five and one half year life of the respective underlying notes. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007 the unused line of credit under the revolving line of credit was $9.5&nbsp;million. The only restriction on the use of these funds is that the Company
must be in compliance with covenants of the credit facility. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;11, 2008 the Company entered into a three derivative financial instruments with Key Bank to reduce the Company's exposure to its variable interest rates on its
outstanding debt. These instruments initially hedged $70&nbsp;million of its LIBOR-based floating rate debt with the amounts hedged decreasing over time. The derivatives mature on March&nbsp;31,
2010 and March&nbsp;31, 2011 and result in an average fixed rate of 3.16% for the term of the agreements. The Company designated these instruments as cash flow hedges. In March&nbsp;2008 as a
result of the amendment to the Company's Credit Facility, the Company determined that these instruments were no longer highly effective as a hedge. Future gains and losses on these derivative
instruments as well as the offsetting gain or loss on the hedged item attributable to the hedged risk will be recognized in earnings. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-36</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fu42501_1_37"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;8. Notes Payable and Other Financing Arrangements (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March 2008 The Company entered into a tentative agreement to settle the 2004 and 2007 securities class action litigation actions, and as a result, the Company recorded a
$4.9&nbsp;million charge in the quarter ended December&nbsp;31, 2007 to accrue its share of the settlement amounts and an estimate for a contingent liability associated with legal proceedings
related to the derivative actions, net of the amounts to be covered by the Company's insurance carriers. As a consequence of recording this legal settlement, the Company did not meet certain of the
financial covenants in accordance with the Credit Agreement. Accordingly, on March&nbsp;27, 2008, the Company obtained an amendment and waiver from its lenders to waive the impact of the legal
settlement amounts on its financial covenants as of December&nbsp;31, 2007 and the affected future periods. The amendment also amended the Credit Agreement to provide for an increase in the LIBOR
floor rate to 4.25% and to require that the Company set aside in a restricted account, approximately 50% of the proceeds of the recovery from the theft of stock options by its former stock option
administrator, or approximately $1.7&nbsp;million, to fund these settlement amounts. The lenders have also reserved the right to require the Company to utilize the entire amount of the
$3.4&nbsp;million in proceeds received from the theft of stock options to permanently pay down indebtedness. This right can be exercised no earlier than 60&nbsp;days from March&nbsp;27, 2008 and
expires upon the Company's compliance with financial covenants under the Credit Agreement for the four consecutive quarters commencing after January&nbsp;1, 2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
net benefit of the swap agreements entered into by us on February&nbsp;11, 2008 has been reduced by the LIBOR floor included in the amendment and waiver discussed above. The cost
related to this amendment will be recorded as deferred financing costs for the credit facility in the first quarter of 2008. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;9. Lease Commitments  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company leases certain facilities and equipment under operating leases having terms expiring at various dates through 2016. Future minimum lease payments
under capital and operating leases as of December&nbsp;31, 2007 are as follows (in millions): </FONT></P>

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<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Capital Leases</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Net Operating Leases</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Year ending December&nbsp;31,</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.6</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.2</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2010</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.8</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2011</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.0</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2012</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.9</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Total future minimum lease payments</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16.3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less amount representing interest</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Present value of capital lease obligations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less current portion</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Long-term capital lease obligations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-37</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=262,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=661449,FOLIO='FI-37',FILE='DISK112:[08ZAT1.08ZAT42501]FU42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fu42501_1_38"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;9. Lease Commitments (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the terms of sublease agreements as of December&nbsp;31, 2007, approximately $0.8&nbsp;million of sublease income will offset future minimum lease
payments. Gross rent expense under operating leases for the years ended December&nbsp;31, 2005, 2006 and 2007 were $4.6&nbsp;million, $4.0&nbsp;million and $4.3&nbsp;million, respectively.
Total sublease income for the years ended December&nbsp;31, 2005, 2006 and 2007 totaling $0.3&nbsp;million, $0.2&nbsp;million and $0.2&nbsp;million, respectively, has been netted against rent
expense. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on management's assessment of assumptions based upon existing market conditions, sublease rental rates and recoverability of operating lease expenses for the Company's vacant
properties and due to the Company's actions to consolidate facilities, during the fourth quarter of 2006, the Company reevaluated its accrual for unused office space and determined that a portion of
its corporate facility would no longer be utilized to the extent previously expected. As a result, the Company calculated the estimated loss on unused office space to increase by approximately
$1.4&nbsp;million in 2006. In 2007, the Company recorded an additional $0.8&nbsp;million for an excess facility accrual for obligations under facility leases that were unfavorably impacted by its
recent divestitures of our wireless network services businesses which resulted in unused office space. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accrual for loss on unused office space was $2.6&nbsp;million and $2.4&nbsp;million as of December&nbsp;31, 2006 and December&nbsp;31, 2007, respectively. The Company
estimates that the remaining accrual will be paid through 2010. These amounts are included in asset impairment and other charges on the Company's statement of operations. The lease on certain office
facilities includes scheduled base rent increases over the term of the lease. The total amount of the base rent payments is being charged to expense on the straight-line method over the
term of the lease. In addition to the base rent payment, the Company pays a monthly allocation of the building's operating expenses. The Company has recorded deferred rent, included in accrued
expenses and other liabilities in the consolidated balance sheets, of $1.0&nbsp;million and $0.8&nbsp;million at December&nbsp;31, 2006 and 2007, respectively, to reflect the excess of rent
expense over cash payments since inception of the respective lease. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;10. Income Taxes  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 2006, the FASB issued Interpretation No.&nbsp;48, Accounting for Uncertainty in Income Taxes&#151;An Interpretation of FASB Statement
No.&nbsp;109 ("FIN&nbsp;48"). FIN&nbsp;48 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with FASB Statement
No.&nbsp;109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a
tax return. Under FIN&nbsp;48, the impact of an uncertain income tax position must be recognized at the largest amount that is more-likely-than-not to be
sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN&nbsp;48
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company adopted the provisions of FIN&nbsp;48 on January&nbsp;1, 2007. The total liability for unrecognized tax benefits as of the date of adoption was $4.7&nbsp;million.
Additionally, the Company has a tax refund claim of $2.4&nbsp;million for which it has not recorded any benefit under FIN&nbsp;48 or prior standards. As a result of the implementation of
FIN&nbsp;48, the Company recognized a $0.7&nbsp;million increase in the liability for unrecognized tax benefits, with $0.2&nbsp;million net decrease in valuation allowance, $0.1&nbsp;million
charged to retained earnings, and $0.4&nbsp;million recorded to goodwill. In addition, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-38</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=263,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=160266,FOLIO='FI-38',FILE='DISK112:[08ZAT1.08ZAT42501]FU42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fu42501_1_39"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;10. Income Taxes (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>the
Company reduced its gross deferred tax assets by $10.8&nbsp;million for unrecognized tax benefits, which was offset by a reduction in its valuation allowance by the same amount. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes the activity related to the Company's unrecognized tax benefits (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="85%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Balance at January&nbsp;1, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Increases related to prior periods</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Decreases related to current year tax positions</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(7.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Expiration of applicable statutes of limitations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Foreign currency translation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>Balance at December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="85%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Included
in the balance of unrecognized tax benefits at December&nbsp;31, 2007, are $12.8&nbsp;million of tax benefits that, if recognized, would affect the effective tax rate.
Included in this amount is $8.8&nbsp;million that would become a deferred tax asset it the tax benefit were recognized. As such, this benefit may be impacted by a corresponding valuation allowance
depending upon the Company's financial condition at the time the benefits are recognized. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. For the year ended December&nbsp;31, 2007, the Company recorded
$0.2&nbsp;million in interest and penalties. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company believes that it is reasonably possible that as much as $3.8&nbsp;million of the FIN&nbsp;48 tax liabilities will expire within 12&nbsp;months of December&nbsp;31,
2007 due to the expiration of various applicable statutes of limitations and possible settlement of a pending income tax refund claim. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company is subject to taxation in the U.S. and various state tax jurisdictions. The Company's tax years for 2000 and forward are subject to examination by the U.S. and state tax
authorities due to the existence of net operating loss carryforwards. Generally, the Company's tax years for 2002 and forwards are subject to examination by various foreign tax authorities. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
assessing the realizability of deferred tax assets, management considers on a periodic basis, whether it is more likely than not that some portion or all of the deferred tax assets
will not be realized. As such, management has determined that it is appropriate to maintain a full valuation allowance against
its deferred tax assets, with the exception of an amount equal to its deferred tax liabilities which can be expected to reverse. Management will continue to evaluate the necessity to maintain a
valuation allowance against its deferred tax asset. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007, the Company had a net deferred tax liability of $2.0&nbsp;million. The deferred tax assets and liabilities are allocated based upon the underlying asset
or liability that produced the deferred taxes. As of December&nbsp;31, 2007, there were no deferred tax assets or liabilities allocated to discontinued operations. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-39</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fu42501_1_40"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;10. Income Taxes (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
(loss) from continuing operations before provision (benefit) for income taxes for the years ended December&nbsp;31, 2005, 2006 and 2007 is comprised of the following (in
millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="62%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="62%" style="font-family:times;"><FONT SIZE=2>Domestic</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(32.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(26.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
provision (benefit) for income taxes from continuing operations for the years ended December&nbsp;31, 2005, 2006 and 2007 is comprised of the following (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Current:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Federal</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>State</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="59%" style="font-family:times;"><FONT SIZE=2>Total current</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Federal</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>State</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="59%" style="font-family:times;"><FONT SIZE=2>Total deferred</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
reconciliation of total income tax provision (benefit) to the amount computed by applying the statutory federal income tax rate of 35% to income (loss) from continuing operations
before income tax provision (benefit) for the years ended December&nbsp;31, 2005, 2006 and 2007 is as follows (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income tax expense (benefit) at federal statutory rate</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>State taxes, net of federal tax benefit and valuation allowance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Increase (decrease) in federal valuation allowance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Increase (decrease) in reserves for uncertain tax positions</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Contingent acquisition consideration</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Tax basis difference on subsidiaries</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Nondeductible expense</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Revision of prior year estimates</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Goodwill write-off</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-40</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=8,SEQ=265,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=846982,FOLIO='FI-40',FILE='DISK112:[08ZAT1.08ZAT42501]FU42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fu42501_1_41"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;10. Income Taxes (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities as of December&nbsp;31, 2006 and 2007 are as follows (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred tax assets:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Allowance for doubtful accounts</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Sundry accruals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Vacation accrual</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Stock-based compensation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Property and equipment, principally due to differences in depreciation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Investments</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Goodwill and other intangibles</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net operating loss carryforwards</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>62.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Capital loss carryforward</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Tax credit carryforwards</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Reserves and other</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>84.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Valuation allowance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(54.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(75.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Total deferred tax assets, net of allowance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred tax liabilities:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Unearned revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other intangibles</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Property and equipment, principally due to differences in depreciation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Total deferred tax liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(22.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Net deferred tax liability</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2007, the Company had federal tax loss carryforwards of $174.2&nbsp;million (including stock option net operating loss carryforwards) which expire beginning in
2020 and various state tax loss carryforwards of $152.7&nbsp;million which expire beginning in 2012. Federal and state tax laws impose restrictions on the utilization of net operating loss and tax
credit carryforwards in the event of an "ownership change" for tax purposes as defined by Section&nbsp;382 of the Internal Revenue Code. The Company may have incurred one or more "ownership changes"
under Section&nbsp;382. If an "ownership change" did occur, utilization of the net operating loss or credit carryforward amounts may be limited. As discussed elsewhere, deferred tax assets relating
to the net operating loss and credit carryforwards
are offset by a full valuation allowance. In addition, utilization of state tax loss carryforwards is dependent upon sufficient taxable income apportioned to the states. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-41</FONT></P>

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 </FONT> <FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;10. Income Taxes (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In assessing the realizability of deferred tax assets, management considers, on a periodic basis, whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. During fiscal 2007, the Company recorded an increase in its valuation allowance of $20.7&nbsp;million. Of this amount, $9.9&nbsp;million is a result
of current year operations, causing the current year tax expense to increase over the expected expense or benefit. The remaining increase in the valuation allowance is attributed to deferred tax
assets acquired in the acquisition of Haverstick Consulting,&nbsp;Inc. and the true-up of beginning deferred tax assets based on actual tax return filings. The increase was required
based on the Company's overall assessment of the risks and uncertainties related to its future ability to realize and utilize the Company's deferred tax assets. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;11. Stockholders' Equity  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(a)&nbsp;&nbsp;&nbsp;Preferred Stock  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;30, 2002, the Company issued an aggregate of 90,000 shares of Series&nbsp;B Convertible Preferred Stock, at an aggregate purchase price of
$45.0&nbsp;million, in a private placement to entities affiliated with one of the directors of the Company (40,000 shares), to a brother of the Chairman and Chief Executive Officer of the Company
(10,000 shares) and to an unrelated third-party investor (40,000 shares). The Company received $44.9&nbsp;million of net proceeds. Each share of Series&nbsp;B Convertible Preferred Stock is
initially convertible into 100 shares of Common Stock for a conversion price of $5.00 per share, which was the fair market value of the common stock at the closing, at the option of the holder at any
time, subject to certain provisions in the Series&nbsp;B Preferred Stock Purchase Agreement. Prior to December&nbsp;31,
2004, 64,517 shares of Series&nbsp;B Convertible Preferred Stock were converted into 6,451,700 shares of the Company's Common Stock. On April&nbsp;5, 2006, 15,483 shares of Series&nbsp;B
Convertible Preferred Stock were converted into 1,548,300 shares of the Company's Common Stock. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
December&nbsp;31, 2007, the Company has received notices from the holders to convert an aggregate number of 80,000 shares of Series&nbsp;B Convertible Preferred Stock into an
aggregate 8,000,000 shares of the Company's Common Stock. On December&nbsp;31, 2007, the total liquidation preference equaled $5.0&nbsp;million. In accordance with EITF
No.&nbsp;03-06 "Participating Securities and the Two-Class Method under FASB Statement No.&nbsp;128", the Company's Series&nbsp;A and B Preferred Stock was considered a
participating security for purposes of computing basic earnings per share as further discussed in Note&nbsp;1(o). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>(b)&nbsp;&nbsp;&nbsp;Stock Option Plans and Restricted Stock Unit Plans  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended 1997, 1999 and 2000, the Board of Directors approved the 1997 Stock Option Plan (the "1997 Plan"), the 1999 Equity Incentive Plan (the
"1999 Plan") and the 2000 Non-statutory Stock Option Plan (the "2000 Plan"), respectively. Further, in February 2005, the Board of Directors approved the 2005 Equity Incentive Plan (the
"2005 Plan"). The 2005 Plan was subsequently approved by a majority of the Company's stockholders on May&nbsp;18, 2005. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock
options granted under the 1997 Plan and 1999 Plan may be incentive stock options or non-statutory stock options and are exercisable for up to ten years following the
date of grant. The Company ceased making grants under, and subsequently terminated the 1997 Plan upon completion of its initial public offering. The 2000 Plan permits the grant of
non-statutory stock options, which are </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-42</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;11. Stockholders' Equity (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>exercisable
for a period following the date of grant as determined by the Board of Directors (generally ten years). Additionally, in July 2004, the Board of Directors resolved that all future stock
option grants under all of the Company's stock option plans would be non-statutory stock options, until such further determination by the Board of Directors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock
option exercise prices for the 1997 Plan, 1999 Plan, 2000 Plan and 2005 Plan must be equal to or greater than the fair market value of the common stock on the date of grant. A
cumulative total of 7.5&nbsp;million, 15.9&nbsp;million, 6.5&nbsp;million and 3.5&nbsp;million shares of common stock have been authorized for issuance under the 1997 Plan, 1999 Plan, 2000
Plan and 2005 Plan, respectively. There remain approximately 2.3&nbsp;million shares of common stock authorized for the 1997 Plan which are no longer issuable due to the termination of the plan. In
accordance with the provisions of SFAS No.&nbsp;123, "Accounting for Stock-Based Compensation," the Company applies APB Opinion No.&nbsp;25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its 1997 Plan, 1999 Plan and 2000 Plan. On May&nbsp;18, 2005, the Compensation Committee of the Company's Board of Directors
approved the acceleration of vesting of all unvested options to purchase shares of the Company's common stock that were held by current employees, including executive officers, and which have an
exercise price per share equal to or greater than $10.00. Options to purchase 2,044,487 shares of common stock were subject to this acceleration. The options subject to acceleration had a weighted
average exercise price of $12.02. The exercise prices and number of shares subject to the accelerated options were unchanged. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
September&nbsp;19, 2005, the Compensation Committee of the Company's Board of Directors approved the acceleration of vesting of all unvested options to purchase shares of the
Company's common stock that were held by current employees, including executive officers, and excluding Directors and which have an exercise price per share equal to or greater than $8.00. Options to
purchase 1,026,197 shares of common stock were subject to this acceleration. The options subject to acceleration had a weighted average exercise price $9.06. The exercise prices and number of shares
subject to the accelerated options were unchanged. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;21, 2005, the Company's Board of Directors approved, subject to certain limited conditions, the acceleration of vesting of all unvested options to purchase shares of
common stock of the Company that were held by employees, and which have an exercise price per share equal to or greater than $6.50. The acceleration was effective as of December&nbsp;30, 2005,
provided that holders of incentive stock options within the meaning of Section&nbsp;422 of the Internal Revenue Code of 1986, as amended, were given the election to decline the acceleration of an
option if such acceleration would have the effect of changing the status of such option for federal income tax purposes from an incentive stock option to a non-qualified stock option.
Options to purchase approximately 316,239 shares of common stock were subject to this acceleration. The options subject to acceleration had a weighted average exercise price of $6.82. The number of
shares subject to the accelerated options remained unchanged. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
acceleration of these options was undertaken to avoid recognition of future compensation expense that the Company would otherwise recognize in its consolidated statement of
operations with respect to these options once the Financial Accounting Standards ("FASB") No.&nbsp;123 (revised 2004) "Share-Based Payment", issued by the Financial Accounting Standards Board,
became effective. As originally issued by the FASB, SFAS No.&nbsp;123 was to be implemented as of the beginning of the first </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-43</FONT></P>

<HR NOSHADE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;11. Stockholders' Equity (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>interim
or annual period beginning after June&nbsp;15, 2005. In April, 2005, the SEC announced it would permit companies to implement SFAS No.&nbsp;123R at the beginning of the next fiscal year.
The future expense that was eliminated as a result of the acceleration of the accelerated vesting of these options was approximately $18.4&nbsp;million, net of tax (of which approximately
$7.8&nbsp;million was attributable to options held by executive officers and $0.4&nbsp;million is attributable to options held by directors). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, on December&nbsp;21, 2005, the Board of Directors of the Company approved, subject to certain limited conditions, the amendment of all outstanding stock option grants
under the Company's 1999 Equity Incentive Plan and 2000 Nonstatutory Stock Option Plan (collectively, the "</FONT><FONT SIZE=2><I>Option Plans</I></FONT><FONT SIZE=2>"), with an exercise price per
share greater than 120% of the closing market price of the Company's common
stock on December&nbsp;29, 2005 to provide that, as of December&nbsp;30, 2005, the exercise price of each outstanding stock option under the Option Plans shall be reduced to 120% of the closing
price of the Company's common stock as reported on the NASDAQ National Market on December&nbsp;29, 2005; </FONT><FONT SIZE=2><I>provided, however</I></FONT><FONT SIZE=2>, that the holder of such
outstanding stock option is an employee of the Company on December&nbsp;30, 2005, but excluding (i)&nbsp;employees of the Company that are categorized as project staff associates and
(ii)&nbsp;employees who have, prior to December&nbsp;30, 2005, given notice to, or received notice from, the Company terminating their employment on a date or time period after December&nbsp;30,
2005. There was no financial impact related to this amendment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
acceleration of these options was undertaken to eliminate the future compensation expense that the Company would otherwise have recognized in its consolidated statement of operations
with respect to these options once the Statement of Financial Accounting Standards No.&nbsp;123 (revised 2004) "Share-Based Payment", issued by the Financial Accounting Standards Board
("</FONT><FONT SIZE=2><I>FAS&nbsp;123</I></FONT><FONT SIZE=2>"), became effective for reporting periods beginning in January 2006. The future expense that was eliminated as a result of the
acceleration of the vesting of these options was approximately $0.8&nbsp;million (none of which is attributable to options held by executive officers). In addition, because the repricing occurred in
lieu of additional option grants in 2006 of approximately 2.5&nbsp;million shares for certain of the Company's employees (the "2006 </FONT><FONT SIZE=2><I>Option Grants</I></FONT><FONT SIZE=2>"),
the repricing enabled the Company to significantly offset the dilutive impact of the 2006 Option Grants by reducing both the FAS&nbsp;123 compensation expense for future option grants as well as the
dilution to the Company's outstanding share amount. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
January&nbsp;1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No.&nbsp;123R ("SFAS&nbsp;123R"), "Share-Based Payments," which
requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. SFAS&nbsp;123R supersedes the Company's
previous accounting methodology using the intrinsic value method under Accounting Principles Board Opinion APB No.&nbsp;25, "Accounting for Stock Issued to Employees." Under the intrinsic value
method, no share-based compensation expense related to stock option awards granted to employees had been recognized in the Company's Consolidated Statements of Operations, as all stock option awards
granted under the plans had an exercise price equal to or greater than the market value of the common stock on the date of grant. The Company has no awards with market or performance conditions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company adopted SFAS&nbsp;123R using the modified prospective transition method. Under this transition method, compensation expense recognized during the years ended
December&nbsp;31, 2006 and 2007 included: (a)&nbsp;compensation expense for all share-based awards granted prior to, but not yet vested, as of December&nbsp;31, 2005, based on the grant date
fair value estimated in accordance with the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-44</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;11. Stockholders' Equity (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>original
provisions of SFAS&nbsp;123, and (b)&nbsp;compensation expense for all share-based awards granted subsequent to December&nbsp;31, 2005, based on the grant date fair value estimated in
accordance with the provisions of SFAS&nbsp;123R. In accordance with the modified prospective transition method, the Company's consolidated financial statements for prior periods have not been
restated to reflect the impact of SFAS&nbsp;123R. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;28, 2006, the Board of Directors of the Company approved the acceleration of vesting of all unvested options issued prior to June&nbsp;30, 2006 to purchase shares of
common stock of the Company that were held by employees and directors. The acceleration was effective as of December&nbsp;29, 2006, provided that holders of incentive stock options within the
meaning of Section&nbsp;422 of the Internal Revenue Code of 1986, as amended, were given the election to decline the acceleration of an option if such acceleration would have the effect of changing
the status of such option for federal income tax purposes from an incentive stock option to a non-qualified stock option. Options to purchase approximately 2.1&nbsp;million shares of
common stock were subject to this acceleration. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
acceleration of these options was undertaken to eliminate the future compensation expense that the Company would have otherwise recognized in its consolidated statement of operations
with respect to these options under the Statement of Financial Accounting Standards No.&nbsp;123R "Share-Based Payment", issued by the Financial Accounting Standards Board
("</FONT><FONT SIZE=2><I>FAS&nbsp;123R</I></FONT><FONT SIZE=2>"). The expense that was incurred in 2006 related to the vesting of these options was $5.4&nbsp;million in continuing operations and
$4.1&nbsp;million in discontinued operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January&nbsp;10, 2007, the Compensation Committee of the Board approved a form of Restricted Stock Unit Agreement (the "RSU Agreement") to govern the issuance of restricted stock
units ("RSU") to executive officers under the Company's 2005 Plan. Each RSU represents the right to receive a share of common stock (a "Share") on the vesting date. Unless and until the RSUs vest, the
Employee will have no right to receive Shares under such RSUs. Prior to actual distribution of Shares pursuant to any vested RSUs, such RSUs will represent an unsecured obligation of the Company,
payable (if at all) only from the general assets of the Company. The RSUs that may be awarded to executive officers under the RSU Agreement will vest according to vesting schedules specified in the
notice of grant accompanying each grant. We recognize compensation expense on a straight-line basis over the vesting periods based on the market price of our stock on the grant date. Of
the awards granted in 2007, the vesting periods ranged from 11&nbsp;months to 10&nbsp;years with accelerated vesting occurring upon a change in control or termination. Upon exercise of the RSU,
the Company issues new shares of common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Information under FAS123R for Fiscal 2006 and 2007  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes
option-pricing model and the weighted average assumptions (annualized percentages) included in the following table. Awards with </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-45</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;11. Stockholders' Equity (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>graded
vesting are recognized using the straight-line method. Fair value under SFAS No.&nbsp;123R is determined using the Black-Scholes option-pricing model with the following
assumptions: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Expected life:(1)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Stock options</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.8&nbsp;years</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.0&nbsp;years</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Purchase plan</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Risk-free interest rate(2)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Volatility(3)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>56.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Forfeiture rate(4)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Dividend yield(5)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
expected life of stock options granted under the Plans is based upon historical exercise patterns which the Company believes are representative of future behavior or the life of
the option when the options are 100% vested at grant. All options granted in 2007 were 100% vested at grant date and had a life of 10&nbsp;years. The expected life of shares under the Purchase Plan
represents the amount of time remaining in the offering period.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant with a term equal to the expected term of the options.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
Company estimated the implied volatility of its common stock at the date of grant based on an equally weighted average of trailing volatility and market based implied volatility
for the computation in 2006 and in 2007 we estimated implied volatility based upon trailing volatility.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Forfeitures
are estimated at the time of grant based upon historical information. Forfeitures will be revised, if necessary, in subsequent periods if actual forfeitures differ from
estimates. Previously, under APB25, the Company recognized forfeitures as they were incurred.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
Company has no history or expectation of paying dividends on its common stock. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-46</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=271,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=971331,FOLIO='FI-46',FILE='DISK112:[08ZAT1.08ZAT42501]FW42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fw42501_1_47"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;11. Stockholders' Equity (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
option exercise, the Company issues new shares of common stock. A summary of the status of the Company's stock option plan as of December&nbsp;31, 2007 and of changes in options
outstanding under the plan for the year ended December&nbsp;31, 2007 is as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="88%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted-Average Exercise Price per Share</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="17%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted-Average Remaining Contractual Term (in years)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Aggregate Intrinsic Value</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(000's)<BR> </B></FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="17%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(000's)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Options outstanding at December&nbsp;31, 2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,144</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Options granted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.18</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Options exercised</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.68</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Options forfeited or expired</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4,963</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.93</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Options outstanding at December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,181</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.28</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Options exercisable at December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,145</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.31</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007, there was $26&nbsp;thousand of total unrecognized stock compensation expense related to nonvested shares which is expected to be recognized over a
remaining weighted-average vesting period of 1.4&nbsp;years. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the years ended December&nbsp;31, 2006 and 2007, the following activity occurred under our option plans: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="75%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>(In thousands except weighted average grant date fair value)<BR> </B></FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Weighted average grant date fair value of options granted</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.33</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.54</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Total intrinsic value of options exercised</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>179</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional
information about stock options outstanding at December&nbsp;31, 2007 with exercise prices less than $2.35 per share, the exercise price at December&nbsp;31, 2007 the last
trading day of the period, follows (number of shares in thousands): </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="29%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Exercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Unexercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="29%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Stock Options<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="29%" style="font-family:times;"><FONT SIZE=2>Less than $2.35</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>109</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>144</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.04</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="29%" style="font-family:times;"><FONT SIZE=2>Above $2.35</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,036</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.39</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.39</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,037</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.39</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="29%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="29%" style="font-family:times;"><FONT SIZE=2>Total outstanding</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,145</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.31</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>36</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,181</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.28</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="29%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-47</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=272,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=521825,FOLIO='FI-47',FILE='DISK112:[08ZAT1.08ZAT42501]FW42501A.;6',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fw42501_1_48"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;11. Stockholders' Equity (Continued) </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> The following table summarizes the Company's Restricted Stock Unit activity:  </B></FONT></P>
</UL>
<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="87%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="67%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>(Shares in Thousands)<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Restricted Stock Units (000's)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted-Average Grant-Date Fair Value</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2><B>Nonvested balance at December&nbsp;31, 2006</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Grants</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,751</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.29</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Vested</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(550</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.36</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Forfeitures</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(40</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.33</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2><B>Nonvested balance at December&nbsp;31, 2007</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,156</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.28</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007, there was $4.6&nbsp;million of total unrecognized stock compensation expense related to nonvested restricted stock units which is expected to be
recognized over a remaining weighted-average vesting period of 8.8&nbsp;years. The fair value of RSU awards that vested in 2007 was $1.2&nbsp;million (none in 2005 and 2006). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Information under FAS&nbsp;123 for Periods Prior to Fiscal 2006  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock option transactions are summarized below (shares in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="80%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=6 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Options Outstanding</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Exercise Price per Share</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares Available for Grant</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of Shares Outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Range</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Outstanding at December&nbsp;31, 2004</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,192</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,831</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$1.33&#151;$132.06</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9.11</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>Plan Shares Expired</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(28</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>Granted</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(10,196</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,196</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$4.95&#151;$9.54</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.22</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>Exercised</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(593</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$1.33&#151;$6.43</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.31</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="35%" style="font-family:times;"><FONT SIZE=2>Cancelled</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,269</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8,269</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$3.58&#151;$132.00</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.42</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Outstanding at December&nbsp;31, 2005</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,237</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,165</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>$1.33&#151;$52.88</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.27</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>(c)&nbsp;&nbsp;&nbsp;Employee Stock Purchase Plan  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 1999, the Board of Directors approved the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 2.9&nbsp;million shares of Common Stock
have been authorized for issuance under the Purchase Plan. The Purchase Plan qualifies as an employee stock purchase plan within the meaning of Section&nbsp;423 of the Internal Revenue Service Code.
The Purchase Plan commenced in November 1999 upon completion of the Company's initial public offering. On November&nbsp;16, 2005, the Compensation Committee of the Board of Directors elected to
suspend all future offerings under the Purchase Plan effective January&nbsp;1, 2006. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless
otherwise determined by the Compensation Committee of the Board of Directors, all employees were eligible to participate in the Purchase Plan so long as they are employed by the
Company (or a subsidiary designated by the board) for at least 20&nbsp;hours per week and were customarily employed by the Company (or a subsidiary designated by the board) for at least
5&nbsp;months per calendar year. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-48</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_fy42501_1_49"> </A>


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<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;11. Stockholders' Equity (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employees who actively participated in the Purchase Plan were eligible to have up to 15% of their earnings for each purchase period withheld pursuant to the
Purchase Plan. The amount that was withheld was used at various purchase dates within the offering period to purchase shares of Common Stock. The price paid for Common Stock at each such purchase date
was then equal the lower of 85% of the fair market value of the Common Stock at the commencement date of that offering period or 85% of the fair market value of the Common Stock on the relevant
purchase date. Employees were also able to end their participation in the offering at any time during the offering period, and participation ended automatically upon termination of employment. From
the Purchase Plan's inception through December&nbsp;31, 2007, the cumulative number of shares of Common Stock that have been issued under the Purchase Plan was 2,005,899. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(d)&nbsp;&nbsp;&nbsp;Shelf Registration  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;19, 2004 the Company filed a universal shelf Registration statement on Form&nbsp;S-3 and an acquisition shelf Registration on
Form&nbsp;S-4 with the Securities and Exchange Commission (SEC). The Company has no immediate plans to raise capital under the shelf Form&nbsp;S-3 or to utilize the shelf
Form&nbsp;S-4 for acquisition transactions and the registration statements are not currently usable due to the late filings made in 2007. The universal shelf registration statement on
Form&nbsp;S-3 will permit the Company to sell, in one or more public offerings, shares of newly issued common stock, shares of newly issued preferred stock, warrants or debt securities,
or any combination of such securities, for proceeds in an aggregate amount of up to $200&nbsp;million. In addition, the universal shelf will permit certain stockholders who purchased the Company's
Series&nbsp;A and Series&nbsp;B Convertible Preferred Stock, to sell up to 5.4&nbsp;million shares of common stock, all of which are currently included in the Company's December&nbsp;31, 2005
weighted average diluted common shares outstanding. The acquisition shelf registration statement on Form&nbsp;S-4 will enable the Company to issue up $200&nbsp;million of its common
stock in one or more acquisition transactions that the Company may make from time to time. These transactions may include the acquisition of assets, businesses or securities, whether by purchase,
merger or any other form of business. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>(e)&nbsp;&nbsp;&nbsp;Stockholder Rights Agreement  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;16, 2004, the Company entered into a Stockholder Right Agreement (the "Rights Agreement"). Under the terms of the Rights Agreement, initially,
the Rights will attach to all certificates representing shares of outstanding Company common stock and no separate Rights Certificates will be distributed. Subject to the provisions of the Rights
Agreement the Rights will separate from the Company common stock and the "Distribution Date" will occur upon the earlier of (i)&nbsp;ten business days following a public announcement (the date of
such announcement being the "Stock Acquisition Date") that person or group of affiliated or associated persons has acquired or obtained the right to acquire beneficial ownership of 15% or more of the
then-outstanding Common Stock (an "Acquiring Person"), or (ii)&nbsp;ten business days (or such later date as may be determined by action of the Board of Directors prior to such time as
any person becomes an Acquiring Person) following the commencement of a tender offer or exchange offer that would result in a person or group becoming an Acquiring Person. An Acquiring Person does not
include certain persons specified in the Rights Agreement. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-49</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fy42501_1_50"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;11. Stockholders' Equity (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;16, 2004, the Company's Board of Directors authorized and declared a dividend of one right (a "Right") to purchase on one-hundredth of a share of the
Company's Series&nbsp;C Preferred Stock ("Series&nbsp;C Preferred") for each outstanding share of Common Stock, par value $0.001 ("Common Stock"), to stockholders of record as of the close of
business December&nbsp;27, 2004 (the "Record Date"). Each Right entitles the registered holder, subject to the terms of the Rights Agreement, to purchase from the Company one
one-hundredth of a share of Series&nbsp;C Preferred at a purchase price of $54.00, subject to adjustment (the "Purchase Price"). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Rights are not exercisable until the Distribution Date and will expire at the close of business on the tenth anniversary of the Rights Agreement unless earlier redeemed or exchanged
by the Company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;12. Employee Benefit Plan  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1996, the Company implemented a 401(k) savings plan pursuant to Section&nbsp;401(k) of the Internal Revenue Code (the "Code"), covering substantially all
employees. Participants in the plan may contribute a percentage of compensation, but not in excess of the maximum allowed under the Code.
The Company may make contributions at the discretion of its Board of Directors. The Company made contributions of $2.1&nbsp;million in 2005, $2.5&nbsp;million in 2006 and $2.1&nbsp;million in
2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November&nbsp;18, 2004, the Board of Directors adopted the Wireless Facilities,&nbsp;Inc. Nonqualified Deferred Compensation Plan, effective as of January&nbsp;1, 2005 (the
"Plan"). The Plan provides executive officers and other eligible highly compensated employees with the opportunity to enter into agreements to defer up to eighty percent (80%) of their cash
compensation derived from base salary, bonus awards and/or commissions. In addition, the Company may, in its sole and absolute discretion, award any participant under the Plan an additional employer
contribution. Deferrals are adjusted for gain or loss based on the performance of one or more investment options selected by the participant from among investment funds chosen by the committee
appointed to administer the Plan. Participants may elect that distribution of deferred amounts be paid in the form of either a lump sum or in annual installments if the participant terminates
employment as a result of his or her retirement. However, all other distributions under the Plan will be made in a single lump sum. Distributions occur upon termination of service or upon such other
dates that may be elected by the participant in accordance with the terms of the Plan. The Company, in its sole discretion, may suspend or terminate the Plan or revise of amend it in any respect
whatsoever; provided, however, that no such action may reduce amounts credited to deferral accounts and such accounts will continue to be owed to the participants or beneficiaries and will continue to
be a liability of the Company. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-50</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fy42501_1_51"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;13. Significant Customers  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents our key customers for the years presented and the percentage of net sales made to such customers (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="77%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Key Customer<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Revenue</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>% of Total Revenue</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2005</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>U.S. Navy</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2006</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>U.S. Navy</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>34.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>U.S. Army</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>U.S. Navy</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>38.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
top five customers accounted for approximately 38%, 47% and 62% of our total revenue in 2005, 2006 and 2007, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the fiscal year ended December&nbsp;31, 2007, two customers comprised approximately 60% of our federal business revenues and our five largest customers accounted for approximately
84% of federal business revenues. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table presents net accounts receivable for customers with significant concentrations (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Key Customer<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Accounts receivable, net</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="16%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>% of Total accounts receivable, net</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2006</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>FMS</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>U.S. Army</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>U.S. Navy</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;14. Segment Information  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has historically organized its business along service lines to include three reportable segments: Wireless Network Services (WNS), Enterprise Network
Services (ENS) and Government Network Services (GNS). The Wireless Network Services segment was discontinued in the first quarter of 2007 (see Note&nbsp;4) and we have renamed the ENS segment to the
Public Safety&nbsp;&amp; Security (PSS) segment and the GNS segment to the Government Solutions (KGS) segment to more accurately describe the underlying business operations. Certain income and charges
that are not allocated to segments in the Company's management reports because they are not considered in evaluating the segments' operating performance are categorized as reconciling items in the
table below. Unallocated charges are related to corporate expenses previously allocated to the discontinued wireless network services segment prior to the disposal of those businesses, share based
compensation charges and related tax adjustments, impairment and restructuring charges and expenses related to the stock option investigation conducted in 2007. As a result of the divestiture of the
WNS businesses, the corporate expenses allocated to the PSS and KGS segments has increased in 2007, negatively impacting the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-51</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_fy42501_1_52"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;14. Segment Information (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>operating
income (loss) for these continuing operations. Due to the aforementioned discontinued operations, prior period amounts have been reclassified in order to conform to the current period
presentation and allocation methodology. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues,
operating income (loss) and assets provided by the Company's segments for the years ended December&nbsp;31, 2005, 2006 and 2007 are as follows (in millions): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Revenues:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Government Solutions</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>85.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>97.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>142.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Public Safety&nbsp;&amp; Security</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55.6</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>51.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%" style="font-family:times;"><FONT SIZE=2>Total revenues</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>152.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>153.1</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>193.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Operating income (loss) from continuing operations:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Government Solutions</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Public Safety&nbsp;&amp; Security</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(23.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Corporate activities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(10.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(15.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(21.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%" style="font-family:times;"><FONT SIZE=2>Total operating income (loss) from continuing operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(31.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(24.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="100%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Assets:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Government Solutions</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>188.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>292.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Public Safety&nbsp;&amp; Security</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22.5</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Discontinued Operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>104.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Corporate activities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>337.7</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>335.3</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
operating income (loss) of the Public Safety&nbsp;&amp; Security segment for 2005, 2006 and 2007 were impacted by the following items: </FONT></P>

<UL>
<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a
benefit to operating income in 2005 as a result of a $2.1&nbsp;million credit to reduce an excess contingent acquisition accrual.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>charges
in 2006 of $18.3&nbsp;million related to the impairment of goodwill and a $1.8&nbsp;million impairment of an asset. </FONT></DD></DL>
</UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>The
reconciling amounts in 2006 were impacted by increased stock-based compensation expense due to the Company's adoption of SFAS No.&nbsp;123R in January 2006. Amounts related to corporate
activities in 2007 were impacted by the costs of the stock option investigation and related costs as well as the recovery from the former stock option administrator. See Note&nbsp;2 to Notes to
Consolidated Financial Statements. </FONT></P>

</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;15. Related Party Transactions  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;30, 2002, the Company issued an aggregate of 90,000 shares of Series&nbsp;B Convertible Preferred Stock, at an aggregate purchase price of
$45.0&nbsp;million, in a private placement to entities </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-52</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;15. Related Party Transactions (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>affiliated
with one of the directors of the Company (40,000 shares), to a brother of the previous Chairman and Chief Executive Officer of the Company (10,000 shares) and to an unrelated third-party
investor (40,000 shares). The Company received $44.9&nbsp;million of net proceeds. Each share of Series&nbsp;B Convertible Preferred Stock is initially convertible into 100 shares of Common Stock
for a conversion price of $5.00 per share, which was the fair market value of the common stock at the closing, at the option of the holder at any time, subject to certain provisions in the
Series&nbsp;B Preferred Stock Purchase Agreement. Prior to December&nbsp;31, 2004, 64,517 shares of Series&nbsp;B Convertible Preferred Stock were converted into 6,451,700 shares of the
Company's Common Stock. On April&nbsp;5, 2006, 15,483 shares of Series&nbsp;B Convertible Preferred Stock were converted into 1,548,300 shares of the Company's Common Stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through
December&nbsp;31, 2007, the Company has received notices from the holders to convert an aggregate number of 80,000 shares of Series&nbsp;B Convertible Preferred Stock into an
aggregate 8,000,000 shares of the Company's Common Stock. On December&nbsp;31, 2007, the total liquidation preference equaled $5.0&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;17, 2006, the Company entered into a definitive agreement to divest all of its operations in Mexico for total approximate cash consideration of $18.0&nbsp;million
subject to adjustments for the closing net asset calculations, with $1.5&nbsp;million payable in cash on signing of the Equity Purchase Agreement and $16.5&nbsp;million by means of a secured
promissory note payable in installments through December 2006, which approximates the net book value of the operations. The purchaser, Sakoki&nbsp;LLC, is a newly-formed entity controlled by Massih
Tayebi. Although Massih Tayebi has no current role with the Company, he was a co-founder of the Company, having served as Chief Executive Officer from inception in 1994 through September
2000 and as a director from inception through April 2002. In addition, as of July&nbsp;31, 2007, Massih Tayebi owns or controls approximately 8.2% of the total voting power of the Company's capital
stock. He is also the brother of Masood Tayebi, who was the Company's Chairman of the Board of Directors until March&nbsp;6, 2007. Masood Tayebi had no personal financial interest in the transaction
and has no role with the entity that has purchased the Mexico Operations. The transaction was approved by the disinterested members of the Company's Board of Directors after consideration of other
expressions of interest and an independent valuation analysis. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
final closing balance sheet as of February&nbsp;17, 2006 resulted in net asset adjustments aggregating to a total approximate $18.9&nbsp;million consideration,
$1.5&nbsp;million which was paid on February&nbsp;17, 2006, with the remaining $17.4&nbsp;million payable by means of the promissory note in installments through December&nbsp;31, 2006 with an
interest rate of 7.5% per annum. On June&nbsp;26, 2006, the Company entered into an Addendum with the buyer to finalize the closing net asset calculations, pursuant to which the parties agreed that
the resulting total purchase price was $18.9&nbsp;million. The Addendum also provided for a conditional waiver that permits the purchaser to make the payment due on August&nbsp;17, 2006 by
September&nbsp;30, 2006, and for the installments due on November&nbsp;17, 2006 and December&nbsp;31, 2006 to be made on or before December&nbsp;29, 2006. Failure to make the payments on such
later dates would have resulted in a restoration of the original terms of the note. The first scheduled note payment of $3.3&nbsp;million was received from the buyer on May&nbsp;19, 2006, and the
second scheduled note payment of $5.5&nbsp;million was received in installments of $5.2&nbsp;million on September&nbsp;29, 2006 and $0.3&nbsp;million on October&nbsp;10, 2006. The remaining
note receivable balance of $9.5&nbsp;million which included accrued interest through December&nbsp;29, 2006, was paid in full on December&nbsp;29, 2006. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-53</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;16. Commitments and Contingencies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company periodically evaluates all pending or threatened contingencies and any commitments, if any, that are reasonably likely to have a material adverse
effect on its operations or financial position. The Company assesses the probability of an adverse outcome and determines if it is remote, reasonably possible or probable as defined in accordance with
the provisions of SFAS No.&nbsp;5, "Accounting for Contingencies." If information available prior to the issuance of the Company's financial statements indicates that it is probable that an asset
had been impaired or a liability had been incurred at the date of the Company's financial statements, and the amount of the loss, or the range of probable loss can be reasonably estimated, then such
loss is accrued and charged to operations. If no accrual is made for a loss contingency because one or both of the conditions pursuant to SFAS No.&nbsp;5 are not met, but the probability of an
adverse outcome is at least reasonably possible, the Company will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss, or state that such an estimate
cannot be made. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company maintains an accrual for the Company's health and workers compensation partial self-insurance, which is a component of total accrued expenses and current
liabilities of
discontinued operations in the consolidated balance sheets. Management determines the adequacy of these accruals based on a monthly evaluation of the Company's historical experience and trends related
to both medical and workers compensation claims and payments, information provided to the Company by the Company's insurance broker, industry experience and the average lag period in which claims are
paid. If such information indicates that the Company's accruals require adjustment, the Company will, correspondingly, revise the assumptions utilized in the Company's methodologies and reduce or
provide for additional accruals as deemed appropriate. As of December&nbsp;31, 2005, 2006 and 2007, the accrual for the Company's partial self-insurance programs approximated
$2.6&nbsp;million, $1.8&nbsp;million and $1.1&nbsp;million, respectively. In 2005, 2006 and 2007 the accrual for these programs which was related to continuing operations was
$1.1&nbsp;million, $0.2&nbsp;million, and $0.6&nbsp;million, respectively. The Company also carries stop-loss insurance that provides coverage limiting the Company's total exposure
related to each medical and workers compensation claim incurred, as defined in the applicable insurance policies. The medical and workers compensation annual claim limits are $100,000 and $250,000,
respectively. For each year ending 2005 and 2006, the Company had one claim that exceeded the limits for workers compensation and in 2007 no claims exceeded the limits for workers compensation. For
each year ending 2005 and 2006, the Company had no claim that exceeded the limits for medical insurance and in 2007 three claims exceeded the limits for medical insurance. As of December&nbsp;31,
2007, the Company had a $700,000 letter of credit outstanding issued from the Company's insurance carrier to cover a performance bond and liabilities in connection with the Company's workers'
compensation partial self-insurance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007 the Company has $2.4&nbsp;million of standby letters of credit. The letters of credit related to our worker compensation program of $0.7&nbsp;million
and $1.7 as support for our performance bond on work overseas. </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;17. Legal Matters  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Contingencies  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>IPO Securities Litigation  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning in June 2001, the Company and certain of its officers and directors were named as defendants in several parallel class action shareholder complaints
filed in the United States District Court for the Southern District of New York, now consolidated under the caption, </FONT><FONT SIZE=2><I>In re Wireless Facilities,&nbsp;Inc. Initial Public
Offering Securities Litigation</I></FONT><FONT SIZE=2>, Case No.&nbsp;01-CV-4779. In the amended complaint, the plaintiffs allege that the Company, certain of its officers
and directors, and the underwriters of the Company's initial public offering ("IPO") violated section&nbsp;11 of the Securities Act of 1933 and section&nbsp;10(b) of the Securities Exchange Act of
1934 based on allegations that the Company's registration statement and prospectus failed to disclose material facts regarding the compensation to be received by, and the stock allocation practices
of, the IPO underwriters. The plaintiffs seek unspecified monetary damages and other relief. Similar complaints were filed in the same court against hundreds of other public companies ("Issuers") that
conducted IPOs of their common stock in the late 1990s and 2000 (the "IPO Cases"). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2004, the Issuers (including the Company) executed a settlement agreement with the plaintiffs that would, among other things, result in the dismissal with prejudice of all claims
against the Issuers and their officers and directors and the assignment of certain potential Issuer claims to the plaintiffs. On February&nbsp;15, 2005, the court issued a decision certifying a
class action for settlement purposes and granting preliminary approval of the settlement subject to modification of certain bar orders contemplated by the settlement. On August&nbsp;31, 2005, the
court reaffirmed class certification and preliminary approval of the modified settlement in a comprehensive Order. On February&nbsp;24, 2006, the court dismissed litigation filed against certain
underwriters in connection with certain claims to be assigned under the settlement. On April&nbsp;24, 2006, the court held a Final Fairness Hearing to determine whether to grant final approval of
the settlement. On December&nbsp;5, 2006, the Second Circuit Court of Appeals vacated the lower court's earlier decision certifying as class actions the six IPO Cases designated as "focus cases."
Thereafter, the District Court ordered a stay of all proceedings in all of the IPO Cases pending the outcome of plaintiffs' petition to the Second Circuit for rehearing en banc and resolution of the
class certification issue. On April&nbsp;6, 2007, the Second Circuit denied plaintiffs' rehearing petition, but clarified that the plaintiffs may seek to certify a more limited class in the District
Court. Accordingly, the stay remains in place and the plaintiffs and Issuers have stated that they are prepared to discuss how the settlement might be amended or renegotiated to comply with the Second
Circuit's decision. Plaintiffs filed amended complaints in the six focus cases on or about August&nbsp;14, 2007. On September&nbsp;27, 2007, Plaintiffs filed a motion for class certification in
the six focus cases. On November&nbsp;13, 2007, the Issuer Defendants filed a motion to dismiss the amended complaints in the six focus cases. On November&nbsp;14, 2007, the Underwriter Defendants
filed a motion to dismiss the amended complaints in the six focus cases. The court has not yet set a deadline for the plaintiffs to file amended complaints in the other IPO lawsuits. Due to the
inherent uncertainties of litigation, and because the settlement may not receive final approval from the Court, the ultimate outcome of this matter cannot be predicted. In accordance with FASB
No.&nbsp;5, </FONT><FONT SIZE=2><I>"Accounting for Contingencies"</I></FONT><FONT SIZE=2> The
Company believes any contingent liability related to this claim is not probable or estimable and therefore no amounts have been accrued in regards to this matter. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-55</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;17. Legal Matters (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>2004 Securities Litigation  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2004, following the Company's announcement on August&nbsp;4, 2004 that it intended to restate its financial statements for the fiscal years ended
December&nbsp;31, 2000, 2001, 2002 and 2003, the Company and certain of its current and former officers and directors were named as defendants ("Defendants") in several securities class action
lawsuits filed in the United States District Court for the Southern District of California. These actions were filed on behalf of those who purchased, or otherwise acquired, the Company's common stock
between April&nbsp;26, 2000 and August&nbsp;4, 2004. The lawsuits generally allege that, during that time period, Defendants made false and misleading statements to the investing public about the
Company's business and financial results, causing its stock to trade at artificially inflated levels. Based on these allegations, the lawsuits allege that Defendants violated the Securities Exchange
Act of 1934, and the plaintiffs seek unspecified damages. These actions have been consolidated into a single action&#151;</FONT><FONT SIZE=2><I>In re Wireless Facilities,&nbsp;Inc.
Securities Litigation,</I></FONT><FONT SIZE=2> Master File No.&nbsp;04CV1589-JAH. Plaintiffs filed a First Amended Consolidated Class Action Complaint on April&nbsp;1, 2005. Defendants
filed their motion to dismiss this first amended complaint on April&nbsp;14, 2005. The plaintiffs then requested leave to amend their first amended complaint. The plaintiffs filed their Second
Amended Complaint on June&nbsp;9, 2005, this time on behalf of those who purchased, or otherwise acquired, the Company's common stock between May&nbsp;5, 2003 and August&nbsp;4, 2004. Defendants
filed their motion to dismiss this Second Amended Complaint on July&nbsp;14, 2005. The motion to dismiss was taken under submission on October&nbsp;20, 2005 and on March&nbsp;8, 2006, the Court
granted the Defendants' motion. However, plaintiffs were granted the right to amend their complaint within 45&nbsp;days and subsequently filed their Third Amended Consolidated Class Action Complaint
on April&nbsp;24, 2006. Defendants filed a motion to dismiss this complaint on June&nbsp;8, 2006. On May&nbsp;7, 2007, the Court denied the Defendants' motion to dismiss. Defendants' filed their
answer to the plaintiffs' complaint on July&nbsp;13, 2007. In February 2008, following a voluntary mediation of the matter, the parties reached a tentative agreement to settle the class action.
Under the tentative settlement, plaintiffs and the class will dismiss all claims, with prejudice, in exchange for a cash payment in the total amount of $12&nbsp;million. The Company's directors' and
officers' liability insurers will pay the settlement amount in accordance with the Company's insurance policies, less any applicable retention or co-insurance obligations that are expected
to be paid directly by the Company. The Company estimates that the amount of its payment toward the settlement will be approximately $2.4&nbsp;million. The Company has accrued approximately
$2.4&nbsp;million as of December&nbsp;31, 2007 related to this matter. The parties currently are in the process of documenting their agreement and then will seek a determination by the Court that
the proposed settlement is fair, reasonable and adequate. The Company makes no assurances at this time that the Court will approve the proposed settlement terms or that the matter ultimately will be
settled. Despite the tentative settlement reached in this action, the Company believes that the allegations lack merit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2004, two derivative lawsuits were filed in the United States District Court for the Southern District of California against certain of the Company's current and former officers and
directors: </FONT><FONT SIZE=2><I>Pedicini v. Wireless Facilities,&nbsp;Inc.,</I></FONT><FONT SIZE=2> Case No.&nbsp;04CV1663; and </FONT><FONT SIZE=2><I>Roth v. Wireless
Facilities,&nbsp;Inc.,</I></FONT><FONT SIZE=2> Case No.&nbsp;04CV1810. These actions were consolidated into a single action in </FONT><FONT SIZE=2><I>In re Wireless Facilities,&nbsp;Inc.
Derivative Litigation</I></FONT><FONT SIZE=2>, Lead Case No 04CV1663-JAH. These lawsuits contain factual allegations that are substantially similar those made in the class action lawsuits,
but the plaintiffs in these lawsuits assert claims for breach of fiduciary duty, gross mismanagement, abuse of control, waste of corporate assets, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-56</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;17. Legal Matters (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>violation
of Sarbanes Oxley Act section&nbsp;304, unjust enrichment and insider trading. The plaintiffs in these lawsuits seek unspecified damages and equitable and/or injunctive relief. The lead
plaintiff filed a consolidated complaint on March&nbsp;21, 2005. On May&nbsp;3, 2005, the defendants filed motions to dismiss this action, to stay this action pending the resolution of the
consolidated non-derivative securities case pending in the Southern District of California, and to dismiss the complaint against certain non-California resident defendants.
Pursuant to a request by the Court, Defendants' motions were withdrawn without prejudice pending a decision on defendants' motion to dismiss the complaint against the non-California
resident defendants. On March&nbsp;20, 2007, the Court ruled that it lacked personal jurisdiction over five of the six non-California defendants and dismissed them from the federal
derivative complaint. On March&nbsp;27, 2007, plaintiffs filed an amended derivative complaint setting forth all of the same allegations from the original complaint and adding allegations regarding
the Company's stock option granting practices. Basically, plaintiffs allege that the Company "backdated" or "springloaded" employee stock option grants so that the options were granted at less than
fair market value. The amended complaint names all of the original defendants (including those dismissed for lack of jurisdiction) as well as nine new defendants. On July&nbsp;2, 2007, the
non-California resident defendants moved to dismiss the complaint for lack of personal jurisdiction. On October&nbsp;17, 2007, the Court took the motion under submission without oral
argument. On February&nbsp;26, 2008, the Court again ruled that it lacked personal jurisdiction over five of the six non-California defendants and dismissed them from the amended federal
derivative complaint. The parties have conferred and discussed the Court's order and have stipulated to a briefing schedule for any remaining motions to dismiss that the Company, along with the
individual defendants subject to the court's jurisdiction, may bring in an effort to dismiss the complaint as to them. Pursuant to the parties' stipulation, such motions must be brought on or before
June&nbsp;5, 2008. The Company believes that the allegations lack merit and intends to vigorously defend all claims asserted. It is impossible at this time to assess whether or not the outcome of
these proceedings will or will not have a material adverse effect on the Company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April 2007, another derivative complaint was filed in the United States District Court for the Southern District of California, </FONT><FONT SIZE=2><I>Hameed v.
Tayebi</I></FONT><FONT SIZE=2>, Case No.&nbsp;07-CV-0680 BTM(RBB) (the "</FONT><FONT SIZE=2><I>Hameed</I></FONT><FONT SIZE=2> Action"), against several of the Company's
current and former officers and directors. The allegations in this new derivative complaint mirror the amended allegations in the 2004 federal derivative action. Pursuant to the Court's order and
agreement of the parties, the defendants' responses to the complaint in the </FONT><FONT SIZE=2><I>Hameed</I></FONT><FONT SIZE=2> Action were stayed until the Court ruled on the motion to dismiss for
lack of personal jurisdiction in the 2004 derivative litigation. As noted above, on February&nbsp;26, 2008, the Court ruled that it lacked personal jurisdiction over five of the
non-California defendants named in the 2004 derivative action, including three that were also named in the </FONT><FONT SIZE=2><I>Hameed</I></FONT><FONT SIZE=2> Action. The parties have
conferred and discussed the Court's order and are in the process of stipulating to a briefing schedule for any remaining motions to dismiss that the Company, along with the individual defendants
subject to the court's jurisdiction, may bring in an effort to dismiss the </FONT><FONT SIZE=2><I>Hameed</I></FONT><FONT SIZE=2> Action as to them. At this time, the parties have not set a date by
which such
motions must be brought. The Company believes that the allegations lack merit and intends to vigorously defend all claims asserted. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
August and September 2004, two virtually identical derivative lawsuits were filed in California Superior Court for San Diego County against certain of the Company's current and former
officers and directors. These actions contain factual allegations similar to those of the federal lawsuits, but the plaintiffs in these cases assert claims for violations of California's insider
trading laws, breaches of </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;17. Legal Matters (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>fiduciary
duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment. The plaintiffs in these actions seek unspecified damages, equitable and/or injunctive relief and
disgorgement of all profits, benefits and other compensation obtained by defendants. These lawsuits have been consolidated into one action&#151;</FONT><FONT SIZE=2><I>In re Wireless
Facilities,&nbsp;Inc. Derivative Litigation,</I></FONT><FONT SIZE=2> California Superior Court, San Diego County, Lead Case No. GIC 834253. The plaintiffs filed a Consolidated Shareholder Derivative
Complaint on October&nbsp;14, 2004. This action has been stayed pending a decision in federal court on a motion to dismiss the federal derivative lawsuits. In October 2007, the parties notified the
Court of the status of the federal action and requested the court continue its stay of this action. The Company anticipates that the court will continue to stay this matter and that the court will
request the parties file an updated status report in April 2008. The Company believes that the allegations lack merit and intends to vigorously defend all claims asserted. It is impossible at this
time to assess whether or not the outcome of these proceedings will or will not have a material adverse effect on the Company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has recorded an accrual for a contingent liability associated with the legal proceedings related to the derivative actions of $0.8&nbsp;million based on the Company's
estimate of the potential amount it would have to pay in relation to these lawsuits. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>2007 Securities Litigation  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March and April 2007, there were three federal class actions filed in the United States District Court for the Southern District of California against the
Company and several of its current and former officers and directors. These class action lawsuits followed the Company's March&nbsp;12, 2007 public announcement that it was conducting a voluntary
internal review of its stock option granting processes. These actions have been consolidated into a single action, </FONT><FONT SIZE=2><I>In re Wireless Facilities,&nbsp;Inc. Securities Litigation
II</I></FONT><FONT SIZE=2>, Master File No.&nbsp;07-CV-0482-BTM-NLS. The consolidated class action complaint was filed on November&nbsp;19, 2007. In
March 2008, following a voluntary mediation of the matter, the parties reached a tentative agreement to settle the class action. Under the settlement proposal, plaintiffs and the class will dismiss
all claims, with prejudice, in exchange for a cash payment in the amount of $4.5&nbsp;million. The Company's directors' and officers' liability insurers will pay the settlement amount, less any
applicable retention or co-insurance obligations and contributions that are expected to be paid directly by the Company. The Company estimates that the total amount of its payment toward
the settlement will be
approximately $1.7&nbsp;million. The Company has accrued approximately $1.7&nbsp;million as of December&nbsp;31, 2007 related to this matter. The parties currently are in the process of
documenting their agreement, and then will seek a determination by the Court that the proposed settlement is fair, reasonable and adequate. The Company makes no assurances at this time that the Court
will approve the proposed settlement terms or that the matter ultimately will be settled. Despite the tentative settlement reached in this action, the Company believes that the allegations lack merit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I>Other Litigation and Government Investigations  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2005, a former independent contractor of the Company filed a lawsuit in Brazil against the Company's subsidiary, WFI de Brazil, to which he had been
assigned for a period of time. He sought to be designated an employee of WFI de Brazil and entitled to severance and related compensation pursuant to Brazilian labor law. The individual sought back
wages, vacation pay, stock </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-58</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=10,SEQ=283,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=91048,FOLIO='FI-58',FILE='DISK112:[08ZAT1.08ZAT42501]FY42501A.;7',USER='RCHENEY',CD=';8-APR-2008;08:07' -->
<A NAME="page_fy42501_1_59"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;17. Legal Matters (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>option
compensation and related benefits in excess of $0.5&nbsp;million. This matter was argued before the appropriate labor court in July 2005 and in July, 2006, the labor court awarded the
individual the Brazilian currency equivalent of approximately $0.6&nbsp;million for his back wages, vacation pay and certain other benefits. The Company filed an appeal in the matter on
July&nbsp;20, 2006 and is challenging the basis for the award on several theories. The Company has accrued approximately $0.6&nbsp;million as of December&nbsp;31, 2007 related to this matter. On
August&nbsp;22, 2007, the appeals court partially upheld the Company's appeal, although it upheld the individual's designation as an employee. The court is reviewing possible damage calculations
before publishing a final decision. The Company's counsel is preparing a motion for clarification of the judgment due to omissions in the decision. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
March&nbsp;28, 2007, three plaintiffs, on behalf of a purported class of similarly situated employees and contractors, filed a lawsuit against the Company in the Superior Court of
the State of California, Alameda County. The suit alleges various violations of the California Labor Code and seeks payments for allegedly unpaid straight time and overtime, meal period pay and
associated penalties. The Company and the plaintiffs have agreed to venue for the suit in San Diego County. Although the Company believes that the allegations lack merit, it has agreed in principle
with the plaintiffs to settle their claims for an aggregate amount in the range of $0.3&nbsp;million to $0.5&nbsp;million, to include individual and incentive awards, attorneys' fees and
administrative costs, subject to court approval. The actual amount paid by the Company will depend upon the number of responses received from members of the purported class of plaintiffs. The Company
has recorded an accrual for a contingent liability associated with this legal proceeding in the amount of $0.3&nbsp;million. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to the foregoing matters, from time to time, the Company may become involved in various claims, lawsuits and legal proceedings that arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company's business. The Company is currently not
aware of any such legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-59</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_fz42501_1_60"> </A>


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<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;18. Quarterly Financial Data (Unaudited)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following financial information reflects all normal and recurring adjustments that are, in the opinion of management, necessary for a fair statement of the
results of the interim periods. Summarized quarterly data for the years ended December&nbsp;31, 2006 and 2007, is as follows (in millions, except per share data): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="85%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>First Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Second Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Third Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Fourth Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><I>Fiscal year 2006</I></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>34.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>36.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49.1</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Operating loss from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(27.9</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Provision (benefit) for income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14.8</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(55.7</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Net loss per common share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.76</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.76</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE></DIV>
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<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="100%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="85%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>First Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Second Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Third Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Fourth Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><I>Fiscal year 2007</I></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>47.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>47.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49.3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Gross profit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Operating loss from continuing operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.6</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Provision for income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(20.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(13.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11.5</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Net income (loss) per common share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.28</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.18</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.16</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.28</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.18</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.16</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B>Quarterly Results in 2006  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's revenues in the fourth quarter were higher than the first three quarters because of the MRC acquisition, which occurred early in the fourth quarter.
The Company's fourth quarter losses were significantly greater than the first three quarters due to the impairment of goodwill of $18.3&nbsp;million in our PSS business, an accelerated vesting of
stock options which resulted in a total charge of $9.5&nbsp;million, a write-off of assets related to discontinued operations of $5.2&nbsp;million and restructuring and other asset
impairment charges of $3.5&nbsp;million. In addition, the Company increased its valuation allowance by approximately $12.4&nbsp;million on its deferred tax assets in the fourth quarter of 2006 to
address the risks and uncertainties related to the Company's future ability to realize and utilize its deferred tax assets. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-60</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Years ended December&nbsp;31, 2005, 2006 and 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;18. Quarterly Financial Data (Unaudited) (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Quarterly Results in 2007  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's results by quarter were impacted by the divestitures of our wireless network services segment. In the first quarter of 2007 the loss was primarily
due to impairment of assets related to the Wireless Deployment business of $13.4&nbsp;million and an impairment of goodwill related to this business of $7.2&nbsp;million partially offset by a gain
of $3.3&nbsp;million on the sale of the EMEA business. The second quarter income was impacted by a gain of $14.8&nbsp;million on the sale of the Wireless Engineering Services business operations.
The third quarter was impacted by a $1.9&nbsp;million loss from the disposal of our deployment business and a $2.1&nbsp;million excess facility accrual. The fourth quarter was impacted by a gain
of $3.4&nbsp;million related to the recovery of assets under the settlement with the Company's former stock option administrator as well as an expense of $4.9&nbsp;million related to our estimated
cost of the settlement of our 2004 and 2007 Securities Litigation. See Note&nbsp;16 to Notes to Consolidated Financial Statements. Stock option investigation and related costs of
$1.5&nbsp;million, $5.2&nbsp;million, $6.2&nbsp;million, and $1.1&nbsp;million impacted the results for the first, second, third and fourth quarters of 2007, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;19. Subsequent Events  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February 2008, the Company entered into a definitive merger agreement with San Diego-based C5ISR and net-centric warfare solutions provider SYS
Technologies (AMEX:SYS) in a stock-for-stock transaction. Under the terms of the agreement, SYS will merge with a wholly-owned subsidiary of Kratos, and all of SYS's
outstanding common shares will be converted into Kratos common shares. Upon closing, Kratos will issue approximately 25&nbsp;million shares of its common stock. Approximately 79&nbsp;million
shares of Kratos common stock are currently outstanding. The transaction is subject to customary closing conditions, including approval of the transaction by SYS's shareholders and the approval of
Kratos stockholders for Kratos' issuance of shares. The transaction is expected to close in the second quarter of 2008. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FI-61</FONT></P>

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NAME="ga42501_sys_financial_statemen__ga402431"> </A>
<A NAME="toc_ga42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SYS FINANCIAL STATEMENTS<BR>  <BR>    INDEX OF SYS FINANCIAL STATEMENTS    <BR>    </B></FONT></P>

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<TH WIDTH="90%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Page</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
Reports of Independent Registered Public Accounting Firm&#151;Grant Thornton&nbsp;LLP</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
FII-2</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
Reports of Independent Registered Public Accounting Firm&#151;KPMG&nbsp;LLP</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
FII-3</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Balance Sheets as of June&nbsp;30, 2007 and 2006</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
FII-4</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Statements of Operations&#151;Fiscal Years Ended June&nbsp;30, 2007, 2006 and 2005</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
FII-5</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Statements of Cash Flows&#151;Fiscal Years Ended June&nbsp;30, 2007, 2006 and 2005</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
FII-6</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Statements of Stockholders' Equity&#151;Fiscal Years Ended June&nbsp;30, 2007, 2006 and 2005</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
FII-8</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
Notes to Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
FII-9</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
Condensed Consolidated Balance Sheets as of December&nbsp;28, 2007 and June&nbsp;30, 2007 (unaudited)</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
FII-45</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
Condensed Consolidated Statements of Operations for the Three and Six Months Ended December&nbsp;28, 2007 and December&nbsp;29, 2006 (unaudited)</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
FII-46</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December&nbsp;28, 2007 and December&nbsp;29, 2006 (unaudited)</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
FII-47</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="90%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
Notes to Condensed Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
FII-48</FONT></TD>
</TR>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-1</FONT></P>

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<A NAME="toc_gc42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>Report of Independent Registered Public Accounting Firm    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Board
of Directors and Stockholders<BR>
SYS </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have audited the accompanying consolidated balance sheet of SYS and subsidiaries (the Company) as of June&nbsp;30, 2007, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SYS and subsidiaries as of June&nbsp;30,
2007, and the results of their consolidated operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>/s/
GRANT THORNTON&nbsp;LLP<BR>
Los Angeles, California<BR>
September&nbsp;28, 2007 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-2</FONT></P>

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<BR></FONT><FONT SIZE=2><B>Report of Independent Registered Public Accounting Firm    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>The
Board of Directors and Stockholders<BR>
SYS: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have audited the accompanying consolidated balance sheet of SYS and subsidiaries (the Company) as of June&nbsp;30, 2006, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the two-year period ended June&nbsp;30, 2006. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SYS and subsidiaries as of June&nbsp;30,
2006, and the results of their operations and their cash flows for each of the years in the two-year period ended June&nbsp;30, 2006, in conformity with U.S. generally accepted
accounting principles. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
discussed in Note&nbsp;1 to the consolidated financial statements, the Company has adopted the provisions of Statement of Financial Accounting Standards No.&nbsp;123(R),
"Share-Based Payment," and accordingly, has changed its method of accounting for share-based compensation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>/s/
KPMG&nbsp;LLP </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>San
Diego, California<BR>
September&nbsp;29, 2006 except for<BR>
the 2006 and 2005 segment<BR>
related information in Notes&nbsp;5<BR>
and 14 which is as of<BR>
September&nbsp;28, 2007 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-3</FONT></P>

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<A NAME="toc_ge42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SYS AND SUBSIDIARIES    <BR>    <BR>    CONSOLIDATED BALANCE SHEETS    <BR>    <BR>    JUNE 30, 2007 AND 2006    <BR>    <BR>    (amounts in thousands, except par value amounts)    <BR>    </B></FONT></P>

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<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
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<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>ASSETS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Current Assets:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,770</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,106</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts receivable, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,321</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,966</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Inventories, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>599</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>558</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>603</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>526</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income tax refund receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>836</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>275</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Total current assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20,568</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,992</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Furniture, equipment and leasehold improvements, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1,951</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1,717</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Intangible assets, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,111</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,446</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,477</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,575</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>210</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>276</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>266</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52,383</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>42,206</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
LIABILITIES AND STOCKHOLDERS' EQUITY</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Current Liabilities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Line of credit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>899</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,270</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,106</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued payroll and related expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,887</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,074</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income taxes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other accrued liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,474</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,280</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>671</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Current portion of convertible notes payable, related party</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>992</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Current portion of convertible notes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,080</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Current portion of note payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>250</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,552</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>373</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Total current liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,377</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,725</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Convertible notes payable, net of current portion, related party</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
975</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
975</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Convertible notes payable, net of current portion</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,150</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,150</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Note payable, net of current portion</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>500</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>750</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other long-term liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>69</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>99</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred revenue, net of current portion</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>210</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,023</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Total liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,304</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,699</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Commitments and Contingencies</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Stockholders' Equity:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>4% convertible preferred stock, $.50 par value; 250 shares authorized; none issued or outstanding</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>9% preference stock, $1.00 par value; 2,000 shares authorized; none issued or outstanding</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Common stock, no par value; 48,000 shares authorized; 19,232 and 15,353 shares issued and outstanding as of June&nbsp;30, 2007 and 2006, respectively</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,903</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,638</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Retained earnings (deficit)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(824</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>869</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Total stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,079</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27,507</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Total liabilities and stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52,383</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>42,206</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-4</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=290,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=297227,FOLIO='4',FILE='DISK112:[08ZAT1.08ZAT42501]GE42501A.;13',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_ge42501_1_5"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> CONSOLIDATED BALANCE SHEETS </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> JUNE 30, 2007 AND 2006 </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (amounts in thousands, except par value amounts) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ge42501_sys_and_subsidiaries_consolida__sys05081"> </A>
<A NAME="toc_ge42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>SYS AND SUBSIDIARIES    <BR>    <BR>    CONSOLIDATED STATEMENTS OF OPERATIONS    <BR>    <BR>    FISCAL YEARS ENDED JUNE 30, 2007, 2006 AND 2005    <BR>    <BR>    (amounts in thousands except per share data)    <BR>
</B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="88%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,798</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55,861</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45,769</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Operating costs and expenses:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cost of revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57,999</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44,615</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37,418</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,428</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,463</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,866</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Research, engineering and development expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,037</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,578</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>691</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Impairment charges</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,267</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%" style="font-family:times;"><FONT SIZE=2>Total operating costs and expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>77,464</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57,923</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>42,975</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,666</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,062</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,794</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Other (income) expense:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other income</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(129</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(132</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(40</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>829</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>501</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>474</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%" style="font-family:times;"><FONT SIZE=2>Total other (income) expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>700</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>369</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>434</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Income (loss) before income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(2,366</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(2,431</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2,360</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Income tax (benefit) provision</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(673</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(688</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
953</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,693</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,743</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,407</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Net income (loss) per share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.16</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.15</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Weighted average shares outstanding:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,619</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,691</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,655</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="57%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,619</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,691</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,206</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-5</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="gg42501_sys_and_subsidiaries_consolida__sys04187"> </A>
<A NAME="toc_gg42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SYS AND SUBSIDIARIES    <BR>    <BR>    CONSOLIDATED STATEMENTS OF CASH FLOWS    <BR>    <BR>    FISCAL YEARS ENDED JUNE 30, 2007, 2006 AND 2005    <BR>    <BR>    (amounts in thousands)    <BR>    </B></FONT></P>

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<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash Flows from Operating Activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,693</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,743</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,407</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Adjustments to reconcile net income (loss) to cash provided by operating activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Depreciation and amortization</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,972</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,381</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>692</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Bad debt expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>307</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Inventory impairment</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>206</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Impairment charges</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,267</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Share-based compensation expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>422</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>527</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>118</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accretion of debt discount</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>40</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,080</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(548</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(24</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Gain on disposition of equipment</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(14</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Stock contributed to employee benefit plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,045</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>574</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>137</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Changes in operating assets and liabilities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(984</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(882</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,594</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Inventories</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(53</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>172</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(271</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>345</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Income tax refund receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>836</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(836</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,139</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>677</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(598</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Accrued payroll and related expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>435</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(570</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(299</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Income taxes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(138</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>377</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Other accrued liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(613</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>79</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Other long-term liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(871</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>83</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(15</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Net cash provided by operating activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,074</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>668</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash Flows from Investing Activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Purchases of furniture, equipment and leasehold improvements</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(837</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(852</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(637</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net cash (paid) received for acquisitions, net of cash acquired</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>106</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(10,414</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(955</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Proceeds from sale of furniture and equipment</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Liquidation of investment</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>90</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(28</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(65</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(114</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Net cash used for investing activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(747</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11,241</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,704</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash Flows from Financing Activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Line of credit borrowings</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,872</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,831</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,239</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Line of credit payments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(36,771</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(16,932</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(18,239</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Payments of notes payable and other borrowings</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,475</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(100</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(745</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Payments on capital lease obligations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(10</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Excess tax benefit from stock option exercises</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Debt issuance costs</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(26</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Proceeds from convertible notes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,069</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Issuance of stock to employee stock purchase plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>509</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>746</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Proceeds from exercise of stock options and warrants</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>202</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,184</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Proceeds from common stock issued in private placement, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,970</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,899</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Net cash provided by (used for) financing activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,663</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,829</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,362</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Net increase (decrease) in cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>664</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,379</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,326</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2><BR>
Cash and cash equivalents at beginning of year</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2,106</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
3,485</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2,159</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents at end of year</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,770</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,106</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,485</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-6</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=292,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=19114,FOLIO='6',FILE='DISK112:[08ZAT1.08ZAT42501]GG42501A.;14',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gg42501_1_7"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> FISCAL YEARS ENDED JUNE 30, 2007, 2006 AND 2005 </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (amounts in thousands) </B></FONT></P>

<!-- end of table folio -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Supplemental disclosure of cash flow information:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash paid for interest</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>620</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>489</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>413</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash paid (refunded) for income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(623</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>772</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>524</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Supplemental disclosure of non-cash investing and financing activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2><BR>
Acquisitions:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Fair value of assets acquired</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,571</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,280</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,625</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less cash acquired</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(800</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(669</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(124</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less other liabilities assumed</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4,915</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,280</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,319</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less notes payable issued and other liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(217</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(845</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less common stock and warrants issued</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5,962</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,700</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,382</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="54%" style="font-family:times;"><FONT SIZE=2>Cash paid (received)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(106</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,414</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>955</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Common stock issued on conversion of notes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,125</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,084</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>697</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Common stock issued upon cashless exercise of stock options</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>200</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>196</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-7</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=293,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=472296,FOLIO='7',FILE='DISK112:[08ZAT1.08ZAT42501]GG42501A.;14',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gg42501_1_8"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> FISCAL YEARS ENDED JUNE 30, 2007, 2006 AND 2005 </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (amounts in thousands) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="gg42501_sys_and_subsidiaries_consolida__sys04636"> </A>
<A NAME="toc_gg42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>SYS AND SUBSIDIARIES    <BR>    <BR>    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY    <BR>    <BR>    FISCAL YEARS ENDED JUNE 30, 2007, 2006 AND 2005    <BR>    <BR>    (amounts in thousands)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="91%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Common Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Retained Earnings (Deficit)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><B>Balance June&nbsp;30, 2004</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,122</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,143</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,205</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,348</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><BR><FONT SIZE=2> Shares issued to 401K plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
51</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
137</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
137</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Shares issued to ESSP</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>93</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Exercise of stock options</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>140</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Tax benefit from option exercises</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>239</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>239</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Conversion of notes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>308</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>697</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>697</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Shares issued for cash, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,428</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,899</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,899</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Shares issued for acquisition</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>481</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,382</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,382</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Share-based compensation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>51</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>51</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Net income</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,407</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,407</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><B>Balance June&nbsp;30, 2005</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,623</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,792</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,612</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,404</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><BR><FONT SIZE=2> Shares issued to 401K plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
154</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
574</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
574</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Shares issued to ESPP</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>321</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>746</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>746</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Exercise of stock options</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>728</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>897</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>897</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Exercise of warrants</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>115</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>287</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>287</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Excess tax benefit from option exercises</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Conversion of notes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>873</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,084</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,084</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Shares issued for cash, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>868</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,970</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,970</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Shares issued for acquisitions</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,646</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,589</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,589</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Warrants and options issued for acquisitions</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>111</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>111</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Shares issued for employee performance</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>104</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>104</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Share-based compensation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>423</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>423</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,743</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,743</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><B>Balance June&nbsp;30, 2006</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,353</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,638</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>869</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27,507</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><BR><FONT SIZE=2> Shares issued to 401K plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
460</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1,045</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1,045</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Shares issued to ESPP</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>278</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>509</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>509</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Exercise of stock options</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>124</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>202</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>202</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Conversion of notes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>512</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,125</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,125</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Shares issued for acquisitions</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,505</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,962</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,962</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Share-based compensation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>422</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>422</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,693</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,693</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><B>Balance June&nbsp;30, 2007</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,232</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,903</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(824</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,079</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-8</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="gi42501_sys_and_subsidiaries_notes_to___sys02597"> </A>
<A NAME="toc_gi42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SYS AND SUBSIDIARIES    <BR>    <BR>    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note 1&#151;The Company and Significant Accounting Policies  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> The Company  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SYS and its subsidiaries provide information connectivity solutions that capture, analyze and present real-time information to customers in the
Department of Defense (DoD), Department of Homeland Security (DHS), other government agencies and commercial companies. Using interoperable communications software, sensors, digital video broadcast
and surveillance technologies, wireless networks, network management, decision-support tools and Net-Centric technologies, our technical experts enhance complex decision-making. Founded in
1966, SYS is headquartered in San Diego and has principal offices in California and Virginia. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Basis of Presentation  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions and
balances have been eliminated. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Reclassifications  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain amounts in the prior year financial statements have been reclassified to conform to the current period financial statement presentation. In particular,
$0.9&nbsp;million of allocable overhead costs that were previously reported for 2006 as costs of revenues were reclassified to selling, general and administrative expenses. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Use of Estimates  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States (US&nbsp;GAAP) requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. In the future, the Company may realize actual results that differ from the current reported estimates. The Company's significant estimates
include those related to revenues and customer billings, recovery of indirect costs, estimated returns and discounts, allowance for doubtful accounts, inventory obsolescence, valuation of
long-lived assets including identifiable intangibles and
goodwill, accounting for income taxes including any related valuation allowance, contingencies, and share-based compensation. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Cash and Cash Equivalents  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's cash and cash equivalents are maintained in checking and money market accounts. The Company considers all highly liquid investments with maturities
remaining on the date of purchase of three months or less to be cash equivalents. The carrying amount reported in the balance sheets approximates fair value. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Concentration of Credit Risk  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and trade accounts receivable. The Company
grants credit to customers. Its primary customers are agencies of the U.S. Government. Management believes that the exposure to credit risk from agencies of the U.S. Government is insignificant. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-9</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_gi42501_1_10"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note 1&#151;The Company and Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company maintains its cash balances primarily in one financial institution. As of June&nbsp;30, 2007, cash balances did exceed the Federal Deposit Insurance Corporation limitation
for coverage of $100,000. Exposure to credit risk is reduced by placing such deposits with a major financial institution and monitoring its credit rating. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Revenue Recognition  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The majority of the Company's revenue is derived from contracts with agencies of the U.S. Government that are typically cost-plus-fee,
time-and-material and fixed-price contracts. Revenue on these contracts results from work performed by the Company's employees and subcontractors and from
pass-through of costs for materials. Revenue on cost-plus-fee contracts is recorded as contractually allowable costs are incurred and fees earned. Revenue for
time-and-material contracts is recorded on the basis of contractually allowable labor and subcontractor hours worked times the contract defined billing rates plus the cost of
material used in the performance on the contract. Revenue from service-type fixed-price contracts is recognized ratably over the contract period or by other appropriate output methods to
measure service provided, and contract costs are expensed as incurred. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
general, the Company does not recognize revenues in excess of the allowable funding limitations on any delivery order or contract until negotiations are finalized. On occasion, the
Company's customers request that it proceed on a tasking in advance of the formal contract modification. The Company evaluates these requests according to their characteristics and the circumstances
in which they occur after taking all factors into consideration such as probability of cost recovery, its experience with the customer, and satisfactory evidence that supports the customer's intent to
issue the modification. In these circumstances, if revenue recognition criteria are met, the Company only records revenue equal to costs incurred until such time as contract modifications are
finalized. If the Company's assessment for the probability of cost recovery changes in a subsequent period due to a change in circumstances then the revenues associated with those costs incurred may
be reversed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract
costs, including indirect costs, on certain U.S. Government contracts are subject to audit by the Defense Contract Audit Agency (DCAA) before final billing and collection of
receivables. Revenues have been recorded at amounts expected to be realized upon final settlement. Anticipated contract losses are recognized in the period in which they are identified. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company also recognizes revenue from the sale of hardware, hardware products which include software that is more than incidental, hardware and software maintenance agreements, and
Application Service Provider (ASP) services. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been provided, the sale price is
fixed or determinable, and collection is reasonably assured. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
from product sales is generally recognized upon shipment, or once all applicable criteria have been met in accordance with Staff Accounting Bulletin No.&nbsp;104
("SAB&nbsp;104"). Allowances are provided for estimated returns and discounts. Such allowances are adjusted periodically to reflect actual and anticipated experience. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
from maintenance and ASP services are recognized ratably over the service term, which is typically one or two years. The unrecognized revenue portion of maintenance agreements
billed is recorded as deferred revenue. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-10</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_gi42501_1_11"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note 1&#151;The Company and Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
agreements include multiple deliverables or elements for products, software and/or services. Accordingly, the Company separates its deliverables into units of accounting in
accordance with the provisions of Emerging Task Force ("EITF") Issue No.&nbsp;00-21, "Accounting for Revenue Arrangements with Multiple Deliverables". In the absence of fair value for an
undelivered element, the arrangement is accounted for as a single unit of accounting, resulting in a deferral of revenue recognition for the delivered elements until the undelivered elements are
fulfilled. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
on software products and software-related elements are recognized, in accordance with AICPA Statement of Position No.&nbsp;97-2, "Software Revenue Recognition"
("SOP&nbsp;97-2"). For arrangements that include both hardware products and software products, the Company evaluates the arrangement based on EITF&nbsp;03-5, "Applicability
of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software." In accordance with the
provisions of EITF&nbsp;03-5, the arrangement is divided between software-related elements and non-software deliverables. Software-related elements are accounted for in
accordance with SOP&nbsp;97-2. When software arrangements contain multiple elements and vendor specific objective evidence of fair value exists for all undelivered elements, the Company
accounts for the delivered elements in accordance with the residual method prescribed by SOP No.&nbsp;98-9. Otherwise, revenue is deferred and recognized in accordance with
SOP&nbsp;97-2. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Allowance for Doubtful Accounts  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, which
results in bad debt expense. Management periodically determines the adequacy of this allowance by evaluating the comprehensive risk profiles of all individual customer receivable balances including,
but not limited to, the customer's financial condition. Additionally, on certain contracts whereby the Company performs services for a prime/general contractor, a specified percentage of the invoiced
trade accounts receivable may be retained by the customer until the project is completed. The Company periodically reviews all retainages for collectibility and records allowances for doubtful
accounts when deemed appropriate, based on its assessment of the associated credit risks. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Research, Engineering and Development  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company expenses all applicable research, engineering and development costs as incurred. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Advertising Costs  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company expenses all applicable advertising costs as incurred. For fiscal years 2007, 2006 and 2005, the Company did not incur any material advertising costs. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Inventories  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories include the cost of material, labor and overhead and are stated at the lower of cost, determined on the first-in, first-out
method, or market value. The Company periodically evaluates on-hand stock and makes appropriate provisions for any stock deemed excess or obsolete in the period such determination is made. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-11</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_gi42501_1_12"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note 1&#151;The Company and Significant Accounting Policies (Continued) </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Warranties  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company provides for the estimated costs to fulfill customer warranty and other contractual obligations upon the recognition of the related revenue. Such
reserves are determined based upon actual warranty cost experience, estimates of component failure rates, and management's industry experience. Warranty costs have historically been insignificant. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Software Development Costs  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capitalization of material software development costs begins when a product's technological feasibility has been established in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No.&nbsp;86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" ("SFAS&nbsp;86"). To date, there is only a
short time period between achieving technological feasibility, which the Company has defined as the establishment of a working model, which typically occurs when beta testing commences, and the
general availability of such software. Consequently, the Company has not capitalized any software development costs related to internal software development under the provisions of SFAS&nbsp;86. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has capitalized software costs related to software purchased from third parties that the Company offers for sale to its customers. As of June&nbsp;30, 2007 and 2006
software costs of $150,000 and $50,000 and related amortization of $25,000 as of June&nbsp;30, 2007 were included in the consolidated balance sheets as furniture and equipment. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Furniture and Equipment  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furniture and equipment is stated at cost. Furniture and equipment are depreciated on a straight-line basis over three to ten years. Information
technology equipment and purchased software are depreciated on a straight-line basis over two to three years. Leasehold improvements are amortized over the shorter of the lease term or the
useful life of the improvements. Repairs and maintenance costs are expensed as incurred. When assets are sold or retired, the related asset and accumulated depreciation amounts are removed from their
respective accounts and any gain or loss is recognized in the Consolidated Statements of Operations. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Valuation and Impairment Review of Acquired Intangible Assets and Other Long-Lived Assets  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for its purchases of acquired companies in accordance with Statement of Financial Accounting Standards No.&nbsp;141 "Business Combinations"
("SFAS&nbsp;141") and accounts for the related acquired intangible assets in accordance with Statement of Financial Accounting Standards No.&nbsp;142 "Goodwill and Other Intangible Assets"
("SFAS&nbsp;142"). In accordance with SFAS&nbsp;141, the Company allocates the cost of the acquired companies to the identifiable tangible and intangible assets and liabilities acquired, with the
remaining amount being classified as goodwill. Certain intangible
assets, such as acquired technology, are amortized to expense over time, while in-process research and development, if any, is recorded as an expense at the acquisition date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company evaluates all of its long-lived assets (primarily property and equipment and intangible assets other than goodwill) for impairment in accordance with the
provisions of SFAS&nbsp;144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS&nbsp;144"). SFAS&nbsp;144 requires that long-lived assets and
intangible assets other than goodwill be evaluated for impairment whenever </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-12</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_gi42501_1_13"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note 1&#151;The Company and Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount
of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. In accordance with SFAS&nbsp;144, when a long-lived asset or intangible asset is
abandoned or is determined to be impaired, the carrying value or amount of impairment is charged to expense in the period of abandonment or the period the impairment is identified. See further
discussion of impairment charges at Note&nbsp;2. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Goodwill  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill, which is equal to the excess of cost over the fair value of acquired net assets and identifiable intangible assets, which has been recorded in
conjunction with several of the Company's business combinations, is assessed for impairment under SFAS&nbsp;142. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
SFAS&nbsp;142, the goodwill impairment test is a two-step process. The first step consists of estimating the fair values of each of the reporting units based on a
discounted cash flow model using revenue and profit forecasts and comparing those estimated fair values with their carrying values, which includes the allocated goodwill. If the fair value is less
than the carrying value, a second step is performed to compute the amount of the impairment by determining an implied fair value of goodwill. The implied fair value of goodwill is the residual fair
value derived by deducting the fair value of a reporting unit's assets and liabilities from its estimated fair value calculated in step one. The impairment charge represents the excess of the carrying
amount of the reporting units' goodwill over the implied fair value of their goodwill. SFAS&nbsp;142 requires goodwill to be tested annually at the same time every year and when an event occurs or
circumstances change such that it is reasonably possible that an impairment may exist. The Company tests goodwill for impairment in the fourth quarter and whenever indications of an impairment are
identified. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Investments  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has a 12% ownership interest in a company that is included in other assets and is accounted for under the cost method, whereby the investment is
recorded at its initial cost and periodically reviewed for impairment. At June&nbsp;30, 2007, the carrying value included in other assets was approximately $73,000, which is included in Other Assets
in the Consolidated Balance Sheet. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Share-based compensation  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has two stock plans that provide for the grant to employees of stock options, permit the grant of non-statutory share-based awards to paid
consultants, and provide for the automatic grant of non-statutory share-based awards to outside directors. The plans may have options with terms of no more than ten years. The maximum
terms of the options granted under these plans have been seven years with a maximum vesting of five years. The Company also has an employee stock purchase plan (ESPP) for employees to purchase its
common stock at a discount. The ESPP provides for enrollment on the first day of a six-month period in which the employees can elect payroll deductions for the purchase of the Company's
common stock. The exercise date of the ESPP shall be the last day of the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-13</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_gi42501_1_14"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note 1&#151;The Company and Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>six-month
period and the purchase price shall be 85% of the fair market value of a share of common stock on the enrollment or exercise date, whichever is lower. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior
to July&nbsp;1, 2005, the Company accounted for its stock plans under the provisions of APB No.&nbsp;25, "Accounting for Stock Issued to Employees" ("APB&nbsp;25") and FASB
Interpretation (FIN) No.&nbsp;44, "Accounting for Certain Transactions Involving Stock Compensation&#151;an Interpretation of APB Opinion No.&nbsp;25" ("FIN&nbsp;44") and made pro forma
footnote disclosures as required by Statement of Financial Accounting Standards No.&nbsp;148, "Accounting For Stock-Based Compensation&#151;Transition and Disclosure", which amends SFAS
No.&nbsp;123, "Accounting For Stock-Based Compensation" ("SFAS&nbsp;123"). The Company adopted Statement of Financial Accounting Standards No.&nbsp;123 (revised 2004), "Share-Based Payment"
("SFAS&nbsp;123R"), effective July&nbsp;1, 2005 using a modified prospective application, as permitted under SFAS&nbsp;123R. Accordingly, prior period amounts have not been restated. Under this
application, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding
at the date of adoption. SFAS&nbsp;123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. SFAS&nbsp;123R establishes fair value
as the measurement objective in accounting for share-based payment arrangements and requires us to apply a fair value based measurement method in accounting for generally all share based payment
transactions with employees. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the modified-prospective-transition method, share-based compensation expense recognized during the year ended June&nbsp;30, 2007 and 2006 includes stock options granted prior to,
but not yet vested as of July&nbsp;1, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS&nbsp;123 and the following items based on
the grant date values estimated in accordance with the provisions of SFAS&nbsp;123R: (a)&nbsp;stock options granted after June&nbsp;30, 2005, (b)&nbsp;ESPP with offering periods commencing
subsequent to June&nbsp;30, 2005, (c)&nbsp;a stock purchase agreement issued to an employee that provided for the purchase of the Company's stock at a discount and (d)&nbsp;stock issued to
employees of the Company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
modified prospective transition method of SFAS&nbsp;123R requires the presentation of pro forma information, for periods presented prior to the adoption of SFAS&nbsp;123R,
regarding net income and net income per share as if the Company had accounted for its stock plans under the fair value method of SFAS&nbsp;123. For pro forma purposes, fair value of stock options
and ESPP awards was estimated using the Black-Scholes option valuation model. The fair value of all of the Company's share-based awards was estimated assuming no expected dividends and estimates of
expected life, volatility and risk-free interest rate at the time of grant. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-14</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=300,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=570982,FOLIO='14',FILE='DISK112:[08ZAT1.08ZAT42501]GI42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gi42501_1_15"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note 1&#151;The Company and Significant Accounting Policies (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table illustrates the effect on net income and net income per share if the Company had accounted for its stock plans under the fair value method of accounting under
SFAS&nbsp;123 for the fiscal year ended June&nbsp;30, 2005 (in thousands, except per share amounts): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net income&#151;as reported</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,407</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Add total share-based employee compensation expense in reported net income, net of related tax effects</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>51</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Deduct total share-based employee compensation expense determined under fair value based method for all stock option awards, net of tax</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,406</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net income&#151;pro forma</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
Basic net income per common share:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Pro forma</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
Diluted net income per common share:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>As reported</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="80%" style="font-family:times;"><FONT SIZE=2>Pro forma</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
pro-forma share-based employee compensation expense determined under fair value based method for all stock option awards for the year ended June&nbsp;30, 2005 was
estimated using the following weighted-average assumptions: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="66%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="88%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="88%" style="font-family:times;"><FONT SIZE=2>Dividend yield</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="88%" style="font-family:times;"><FONT SIZE=2>Expected volatility</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="88%" style="font-family:times;"><FONT SIZE=2>Risk-free interest rate</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="88%" style="font-family:times;"><FONT SIZE=2>Expected lives</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Income (loss) per common share  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic income (loss) per common share is calculated by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares
outstanding during the period. The calculation of diluted income per common share is similar to that of basic income per common share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all potentially dilutive common shares, principally those issuable upon the conversion of notes payable, and the exercise of stock options
and warrants, were issued. In periods
in which the Company incurs a net loss, basic and dilutive income per common share are the same because including the effects of potentially dilutive shares would be anti-dilutive. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-15</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_gk42501_1_16"> </A>


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<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>SYS AND SUBSIDIARIES  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note 1&#151;The Company and Significant Accounting Policies (Continued)  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the calculation of basic and diluted net income (loss) per common share for the years ended June&nbsp;30 (in thousands, except
per share amounts): </FONT></P>

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<TABLE WIDTH="87%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Numerators:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,693</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,743</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,407</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Add back&#151;interest expense on convertible notes, net of tax effects</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>259</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net income (loss) applicable to common stockholders&#151;diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,693</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,743</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,666</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
Denominators:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Weighted average shares for basic net income (loss) per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,619</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,691</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,655</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Add dilutive effect of assumed exercise of stock options and warrants using the treasury stock method</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>574</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Add dilutive effect of shares contingently issuable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Add dilutive effect of assumed conversion of convertible promissory notes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,901</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Weighted average shares for diluted net income (loss) per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,619</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,691</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,206</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Basic net income (loss) per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.16</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Diluted net income (loss) per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.15</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
total of 1.6&nbsp;million and 2.8&nbsp;million shares for fiscal 2007 and 2006, respectively, related to stock options, convertible notes and our ESPP were excluded from the
calculation of diluted net income per share because they were anti-dilutive. For fiscal 2005 there were no anti-dilutive shares excluded from the calculation of diluted net
income per share. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Income taxes  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for
temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable
to the periods in which the differences are expected to affect taxable income. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company maintains a valuation allowance on the portion of the deferred tax assets for which it is more likely than not that the Company will not realize the benefits of these
deferred tax assets in future tax periods. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Fair value of financial instruments  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's financial instruments at June&nbsp;30, 2007 for which disclosure of estimated fair value is required consisted of cash, contract and other
receivables, accounts payable, accrued liabilities, income taxes receivable, outstanding balance for line of credit, convertible notes payable and notes payable. In the opinion of management,
(i)&nbsp;cash, contract and other receivables, accounts payable, accrued liabilities and income taxes receivable were carried at values that approximated their fair values because of their liquidity
and/or their short-term maturities and (ii)&nbsp;line of credit and notes payable </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-16</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=302,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=645538,FOLIO='16',FILE='DISK112:[08ZAT1.08ZAT42501]GK42501A.;11',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gk42501_1_17"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note 1&#151;The Company and Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>were
carried at values that approximated their fair values because they had interest rates equivalent to those currently prevailing for financial instruments with similar characteristics. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of June&nbsp;30, 2007, the convertible notes payable to related and unrelated parties with a carrying value of $3.1&nbsp;million had a fair value of $1.7&nbsp;million on an "as
converted" basis. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> New accounting standards  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No.&nbsp;48, "Accounting for Uncertainty in Income Taxes"
("FIN&nbsp;48"), which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return.
Additionally, FIN&nbsp;48 provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The accounting provisions of
FIN&nbsp;48 are effective for fiscal years beginning after December&nbsp;31, 2006 and will be adopted by the Company on July&nbsp;1, 2007. The Company has not completed its evaluation of the
impact of adopting FIN&nbsp;48 and as a result is not able to estimate the effect the adoption will have on its financial position and results of operations, including its ability to comply with
current debt covenants. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September 2006, the FASB issued Financial Accounting Standards Board Statement No.&nbsp;157, "Fair Value Measurements" ("SFAS&nbsp;157"). SFAS&nbsp;157 prescribes a single
definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The
accounting provisions of SFAS&nbsp;157 will be effective for the Company beginning July&nbsp;1, 2008. The Company is in the process of determining the impact of this statement on its consolidated
financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September 2006, the SEC issued Staff Accounting Bulletin No.&nbsp;108 ("SAB&nbsp;108"). SAB&nbsp;108 addresses how the effects of prior year uncorrected misstatements should be
considered when quantifying misstatements in current year financial statements. SAB&nbsp;108 requires companies to quantify misstatements using a balance sheet and income statement approach and to
evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies
will record the effect as a cumulative effect adjustment to beginning of year retained earnings. SAB&nbsp;108 was effective for the Company as of June&nbsp;30, 2007 and the adoption of this
standard did not have a material impact on its results of operations or its financial condition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February, 2007, the FASB issued Statement No.&nbsp;159, "The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement
No.&nbsp;115 ("SFAS&nbsp;159"). SFAS&nbsp;159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be
measured at fair value. SFAS&nbsp;159 will be effective for the Company beginning July&nbsp;1, 2008. The Company is in the process of determining the impact of this statement on its consolidated
financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;2&#151;Impairment charges  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fourth quarter of fiscal 2006 management made a decision to suspend efforts to sell or further develop technology associated with SensorWorX products,
which are included in the operations of the PSSIG segment. As a result, the Company assessed the impact of this decision on the Company's </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-17</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=303,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=514090,FOLIO='17',FILE='DISK112:[08ZAT1.08ZAT42501]GK42501A.;11',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gk42501_1_18"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;2&#151;Impairment charges (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>ability
to recover the carrying value of long-lived assets in this segment and also considered the impact during the annual impairment analysis of goodwill. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of this assessment, in fiscal 2006 the Company identified and recorded an impairment in the PSSIG segment approximating $1.2&nbsp;million, of which $0.5&nbsp;million was
a reduction of identified intangible assets, $0.6&nbsp;million was a reduction to goodwill and $0.1&nbsp;million was related to the write down of certain fixed assets. In addition, the Company
recorded an impairment charge of $0.1&nbsp;million in fiscal 2006 to write down the carrying value of the ForceViz software purchased in September 2005 based on an evaluation which indicated that
future cash flows would not be sufficient to recover the carrying value of the asset. The total amount recorded for impairment during the fourth quarter of fiscal 2006 was approximately
$1.3&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
conjunction with management's decision to suspend efforts to sell products related to SensorWorX, the Company considered the recoverability of other assets related to the PSSIG
segment and determined that an adjustment was necessary to reduce the carrying value of related inventory to the lower of cost or market, which resulted in a charge to cost of sales approximating
$0.2&nbsp;million in fiscal 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
were no impairment charges in 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;3&#151;Accounts receivable  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable, net of allowance of doubtful accounts, consist of the following (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Amounts billed</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,600</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,671</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Amounts unbilled:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>Costs and profits in excess of billings</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,299</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,641</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>Retentions due upon contract completion</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>304</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>211</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>Recoverable costs subject to contract close out</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>547</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>606</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>Allowance for doubtful accounts</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(429</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(163</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,321</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,966</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs
and profits in excess of billings consist of amounts billable subsequent to the respective fiscal year-ends. Retentions will be due upon completion of the contracts and
audits of
overhead rates by the customer; based on the Company's experience with similar contracts in recent years, the retention balance at June&nbsp;30, 2007 is expected to be collected in fiscal 2008 and
2009. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recoverable
costs subject to contract close-out consist primarily of revenues recognized on specific delivery orders as a result of actual indirect expense rates exceeding
the provisionally approved indirect billing rates. These receivables will be billable upon closure of audits of overhead rates of the specific delivery orders or the contracts. Contract costs,
including indirect costs, on certain U.S. Government contracts are subject to audit by the Defense Contract Audit Agency (DCAA) before final payment is received. Revenues and accounts receivable are
recorded at amounts expected to be realized upon final settlement. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-18</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=304,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=245443,FOLIO='18',FILE='DISK112:[08ZAT1.08ZAT42501]GK42501A.;11',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gk42501_1_19"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;3&#151;Accounts receivable (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Billings
in excess of costs and profits are included in the balance sheets as other accrued liabilities and totaled $0.5&nbsp;million at June&nbsp;30, 2007 and $0.3&nbsp;million at
June&nbsp;30, 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a summary of the changes to the balance of allowance for doubtful accounts (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="65%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>Beginning balance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>163</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>48</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>Increases related to acquisitions</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>70</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>Provision</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>307</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>Recoveries (write-offs)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(65</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>Ending balance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>429</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>163</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>48</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;4&#151;Other Financial Data  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Inventories </B></FONT><FONT SIZE=2>(in thousands)</FONT><FONT SIZE=2><B>:  </B></FONT></P>
</UL>
<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="66%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2006</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Raw materials</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>473</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>372</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Finished goods</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>126</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>186</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="71%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>599</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>558</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
inventory amounts presented are net of allowances for obsolescence of $83,000 and $33,000 as of June&nbsp;30, 2007 and 2006, respectively. The company recorded a provisions for
obsolescence of $39,000 in fiscal 2007. The allowance also increased by $12,000 and $33,000 in fiscal 2007 and fiscal 2006, respectively, as a result of purchase price allocations related to
acquisitions. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Furniture, equipment and leasehold improvements </B></FONT><FONT SIZE=2>(in thousands): </FONT></P>
</UL>
<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Furniture and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,266</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,273</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>412</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>327</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,678</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,600</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="66%" style="font-family:times;"><BR><FONT SIZE=2> Less accumulated depreciation and amortization</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(2,727</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(1,883</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,951</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,717</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the fiscal years ended June&nbsp;30, 2007, 2006, and 2005, the Company recorded $0.9&nbsp;million, $0.6&nbsp;million, and $0.4&nbsp;million, respectively, of depreciation
and amortization expense related to furniture, equipment and leasehold improvements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-19</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=305,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=81032,FOLIO='19',FILE='DISK112:[08ZAT1.08ZAT42501]GK42501A.;11',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gk42501_1_20"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;4&#151;Other Financial Data (Continued) </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Accrued payroll and related expenses</B></FONT><FONT SIZE=2> (in thousands): </FONT></P>
</UL>
<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2006</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued wages and bonuses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,468</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,374</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued vacation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,554</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,526</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other payroll related</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>865</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>174</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,887</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,074</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;5&#151;Intangible assets and Goodwill </B></FONT><FONT SIZE=2>(in thousands)</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Intangible assets:  </B></FONT></P>
</UL>
<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Original Weighted Average Amortization Period (Years)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross Carrying Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Accumulated Amortization</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Net</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><B><I>June&nbsp;30, 2007</I></B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Technology</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,550</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(464</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,086</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Trade name</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,727</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(407</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,320</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,254</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(569</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,685</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Patents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other intangibles</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>697</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(677</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,257</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,146</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,111</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=2><B><I>June&nbsp;30, 2006</I></B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Technology</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>700</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(215</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>485</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Trade name</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>627</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(147</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>480</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,454</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(194</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,260</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Patents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other intangibles</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>697</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(476</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>221</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,507</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,061</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,446</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
expense for intangible assets was $1.1&nbsp;million, $0.7&nbsp;million, and $0.3&nbsp;million for the years ended June&nbsp;30, 2007, 2006, and 2005, respectively. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-20</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=306,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=272008,FOLIO='20',FILE='DISK112:[08ZAT1.08ZAT42501]GK42501A.;11',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_gm42501_1_21"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>SYS AND SUBSIDIARIES  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;5&#151;Intangible assets and Goodwill </B></FONT><FONT SIZE=2>(in thousands)</FONT><FONT SIZE=2><B> (Continued)  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimated aggregate future amortization expense for acquisition-related intangible assets in future fiscal years is as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="66%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Fiscal Year<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,015</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>920</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2010</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>752</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2011</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>662</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2012</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>628</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,134</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="82%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,111</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Goodwill  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The changes in the carrying amount of goodwill during fiscal 2007 and 2006 are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="75%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>DSG</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>PSSIG</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance June&nbsp;30, 2005</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,563</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,746</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,309</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Contingent consideration-Xsilogy</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>594</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>594</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Contingent consideration-Antin</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>227</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>227</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>454</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Acquisition of Webtech</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>62</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>62</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Acquisition of Logic&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,510</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,510</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Acquisition of cVideo&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,752</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,752</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Acquisition of RBIS</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,487</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,487</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Impairment charge</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(608</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(608</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance June&nbsp;30, 2006</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,277</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,298</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,575</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Acquisition of Ai Metrix</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,835</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,835</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Miscellaneous purchase price allocation adjustments</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>67</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance June&nbsp;30, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,344</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,133</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,477</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;6&#151;Line of credit and working capital loan  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has a bank line of credit facility which provides for borrowings of up to $4.0&nbsp;million. This facility expires on December&nbsp;28, 2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
credit facility, as it relates to any balances outstanding on the line of credit, contains financial and other covenants, and is collateralized by substantially all of the assets of
the Company. Borrowings pursuant to the line of credit bear interest at the bank's prime rate plus 0.25% (8.50% as of June&nbsp;30, 2007). As of June&nbsp;30, 2006, the Company had approximately
$0.9&nbsp;million of borrowings outstanding under this line of credit and none as of June&nbsp;30, 2007. On September&nbsp;27, 2006, the Company and the lender amended the terms of the credit
facility to eliminate the minimum quarterly net income covenant and the ratio of Senior debt to EBITDA covenant, and modified the tangible effective net </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-21</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=307,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=323475,FOLIO='21',FILE='DISK112:[08ZAT1.08ZAT42501]GM42501A.;18',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gm42501_1_22"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;6&#151;Line of credit and working capital loan (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>worth
covenant and cash flow coverage ratio covenant. As of June&nbsp;30, 2007, the Company was in compliance with the covenants of the credit facility. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
credit facility allows the Company to use, under a Sub Facility, up to $2.0&nbsp;million of the credit facility for permitted acquisition purposes and $750,000 for minority
investment purposes. Borrowings under the Sub Facility bear interest at the bank's prime rate plus 0.50% (8.75% as of June&nbsp;30, 2007). The Company is subject to certain restrictions on the
permitted acquisitions and minority investments and in some cases must receive the lender's consent prior to using the facility for such purposes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the Sub Facility is used for permitted acquisitions or minority investments, such borrowings must be repaid over 48&nbsp;months. During fiscal 2006, in connection with the purchase
of RBIS, the Company utilized $1.0&nbsp;million of the line of credit for payment of a portion of the purchase consideration. In accordance with the terms of the credit facility, the
$1.0&nbsp;million was converted to a term note effective June&nbsp;10, 2006. The term note is payable in monthly installments of $21,000 plus interest for the fiscal years 2007 through 2010, with
payments beginning in October, 2006. As of June&nbsp;30, 2007, approximately $0.5&nbsp;million was outstanding under the term note, all of which was classified as a non-current
liability as a result of the Company's $250,000 prepayment of the next twelve months principal payments. Principal amounts of $250,000 on this note are due annually in fiscal years 2009 and 2010. The
outstanding balance related to the Sub Facility reduces the maximum borrowings available under the line of credit. As a result, as of June&nbsp;30, 2007, the maximum borrowing and the remaining
available borrowing capacity under the line of credit was $3.5&nbsp;million. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-22</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>

<!-- ZEQ.=2,SEQ=308,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=325730,FOLIO='22',FILE='DISK112:[08ZAT1.08ZAT42501]GM42501A.;18',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gm42501_1_23"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;7&#151;Notes payable </B></FONT><FONT SIZE=2>(in thousands):</FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="56%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Related Party</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="56%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2>Convertible note payable, unsecured and subordinate to the Company's bank debt, bear interest at 10% per annum payable quarterly, principal due February&nbsp;14, 2009 and are convertible at any time into shares of common
stock at a conversion rate of $3.60 per share. (see Note&nbsp;9)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,150</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,150</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>975</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>975</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2><BR>
Convertible notes payable, unsecured, bear interest at 10% per annum payable quarterly, principal due December&nbsp;31, 2006, convertible at any time by holder into common stock at a rate of $2.20 per share.&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
800</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
713</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2><BR>
Unamortized discount related to convertible notes payable due December&nbsp;31, 2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(13</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2><BR>
Convertible notes payable, issued in conjunction with Polexis acquisition, unsecured and subordinate to the Company's bank debt, bear interest at 10% per annum payable quarterly, principal due March&nbsp;31, 2007, convertible at any time by holder
into common stock at the rate of $2.32 per share.&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
295</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
96</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2><BR>
Convertible note payable, issued in conjunction with Antin acquisition, unsecured, bears interest at 10% per annum payable quarterly, principal due May&nbsp;11, 2007, convertible at any time by holder into common stock at the rate of $2.50 per
share.&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
196</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2,150</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
3,230</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
975</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1,967</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2><BR>
Less current portion</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(1,080</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(992</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2,150</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2,150</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
975</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
975</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="56%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
principal balance of all long-term debt at June&nbsp;30, 2007 matures in Fiscal 2009. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Related
parties consist of directors, officers and employees of the Company and their affiliates that are holders of the notes payable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company does not have the right to force conversion of the convertible notes payable into common stock. However, the $1.37&nbsp;million of convertible notes payable issued as part
of the consideration for the acquisition of Polexis in April 2004 gave the Company the right to convert one-half of the notes payable if certain conditions were met. In January 2005, the
Company exercised its right to convert $685,000 of the outstanding convertible notes payable related to
the Polexis acquisition (Polexis notes payable) into 295,159 shares of common stock. During 2006, holders of the Polexis notes payable elected to convert $294,000 of notes payable into 126,597 shares
of common stock. The $391,000 balance of the Polexis notes matured on March&nbsp;31, 2007 and was paid in cash. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-23</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=309,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=543886,FOLIO='23',FILE='DISK112:[08ZAT1.08ZAT42501]GM42501A.;18',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gm42501_1_24"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;7&#151;Notes payable </B></FONT><FONT SIZE=2>(in thousands):</FONT><FONT SIZE=2><B> (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders
of the convertible notes payable maturing in November 2005 elected to convert $12,000 of notes payable into 12,500 shares common stock in 2005 and $707,000 of notes payable into
706,250 shares of common stock in 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders
of the convertible notes maturing December&nbsp;31, 2006 elected to convert $87,000 of notes payable into 39,774 shares of common stock in 2006. The $1.5&nbsp;million balance
of these notes matured December&nbsp;31, 2006 of which $388,000 was paid in cash and $1,125,000 were converted into 511,380 shares of common stock in 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
convertible notes payable issued in 2004 and maturing in December 2006 were sold at an aggregate discount of $129,000. Accordingly, the discount was accreted through interest expense
over the term of the notes of which $40,000 and $43,000 was recorded in fiscal 2006 and 2005, respectively. As a result of the conversion of some of these notes into common shares in 2006, unamortized
discount of $3,000 was netted against the face amount of the notes payable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
$196,000 convertible note payable issued in conjunction with the acquisition of Antin in January 2005 matured in May 2007 and was paid in cash. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company had $35,000 and $59,000 of deferred financing costs as of June&nbsp;30, 2007 and 2006, respectively. The costs are amortized over the term of the notes. Amortization
expense of $30,000, $30,000, and $38,000 was included in interest expense in 2007, 2006, and 2005, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;8&#151;Commitments and contingencies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company leases offices, office equipment and an automobile under non-cancelable operating lease agreements that expire at various dates through
August 2012. Certain leases provide for increases in the minimum lease payments based on fluctuations in various price indices. Rent expense for operating leases totaled $1.8&nbsp;million,
$1.4&nbsp;million, and $0.9&nbsp;million in fiscal 2007, 2006, and 2005, respectively. Several leases offer an option to renew for a five-year term at the then fair market rental rate.
The Company has entered into subleases for portions of certain facilities in which it will collect rent through fiscal 2010. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future
minimum lease payments under non-cancelable operating leases with initial terms of one year or more, net of sublease income, as of June&nbsp;30, 2007 are as follows
(in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="75%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Fiscal Year<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Payments</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Sublease Income</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Net</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,995</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(115</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,880</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,351</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(109</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,242</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>2010</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>545</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(83</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>462</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>2011</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>460</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>460</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>2012</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>350</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>350</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%" style="font-family:times;"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total future minimum lease payments</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,726</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(307</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,419</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are involved in legal actions in the normal course of business, including audits and investigations by various governmental agencies that result from our work as a governmental
contractor. We are named as defendants in legal proceedings from time to time and we may assert claims from </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-24</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=310,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=243517,FOLIO='24',FILE='DISK112:[08ZAT1.08ZAT42501]GM42501A.;18',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gm42501_1_25"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;8&#151;Commitments and contingencies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>time
to time. Management is of the opinion that any liability or loss associated with such matters, either individually or in the aggregate, will not have a material adverse effect on the Company's
operations and liquidity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;9&#151;Stockholders' equity  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Preferred stock  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is authorized to issue up to 250,000 shares of nonvoting convertible preferred stock, with a par value of $.50 per share, of which none were
outstanding as of June&nbsp;30, 2007 or 2006. Cumulative dividends on outstanding shares are payable at the annual rate of 4%. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Preference stock  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is authorized to issue up to 2,000,000 shares of preference stock, with a par value of $1.00 per share, of which none were outstanding as of
June&nbsp;30, 2007 and 2006. Payments of dividends on the preference stock are subordinate to the payment of dividends on the 4% preferred stock. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Common stock  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is authorized to issue up to 48,000,000 shares of common stock, of which 19,231,949 shares were outstanding as of June&nbsp;30, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;14, 2006, SYS completed a private placement of $6,250,000 in a subscription offering of 125 units consisting of common stock and unsecured subordinated convertible
notes. Each unit consisted of 6,944 restricted shares of SYS Common Stock at $3.60 per share and a three-year $25,000 unsecured subordinated convertible note payable bearing interest at
10% per annum, payable quarterly. The note holder has the option to convert all but not part of the note at any time prior to maturity into shares of SYS common stock at $3.60 per share, or keep the
note until maturity. SYS has a conversion option commencing one year from the date of issuance whereby if the Company's stock trades at $5.40 per share for at least five consecutive trading days, SYS
can force the conversion of the notes then outstanding. SYS issued 868,000 shares of common stock pursuant to this offering. An additional 868,000 shares could be issued if all of the notes are
converted into common stock. The Company incurred a total of $211,000 of transaction costs for the private placement of which $56,000 was recorded as deferred financing costs and $155,000 was charged
to common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
June&nbsp;2, 2005, SYS completed the sale of 1,427,655 shares of common stock at an aggregate price of $3,355,000 ($2.35 per share) pursuant to a securities purchase agreement to
sell to certain institutional investors in a private placement transaction. The Company incurred $456,000 of costs related to this
transaction and registration costs. As part of the transaction, the Company issued warrants to the investors to purchase an aggregate of 428,289 shares of common stock at an exercise price of $2.50
per share. The warrants are exercisable from the date of issue through June&nbsp;2, 2010. After June&nbsp;2, 2006 the Company may call the warrants if the Company's closing stock price exceeds
$4.50 for ten consecutive trading days immediately prior to a call and trading volume exceeds 20,000 shares on each of those days. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Stock options and warrants  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company received $202,000, $1.18&nbsp;million, and $50,000 in cash for the exercise of stock options and warrants in fiscal 2007, 2006, and 2005,
respectively. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-25</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=311,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=843640,FOLIO='25',FILE='DISK112:[08ZAT1.08ZAT42501]GM42501A.;18',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gm42501_1_26"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;9&#151;Stockholders' equity (Continued) </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Stock option plans  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;20, 1996, the Company's Board of Directors adopted the SYS 1997 Incentive Stock Option and Restricted Stock Plan (the old Plan), which was
modified and ratified by the Company's stockholders during 1998. The old Plan provided for grants by the Board of Directors of Incentive Stock Options to purchase up to 1,750,000 shares of common
stock to employees and grants of restricted stock options to purchase up to 450,000 shares of common stock to directors and consultants. The old Plan may have options with terms of no more than ten
years. On April&nbsp;14, 2003, the 1997 stock option plan was superseded by a new plan, however, all outstanding options remain valid. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
February&nbsp;21, 2003, the Company's Board of Directors adopted the SYS 2003 Stock Option Plan (the Plan), which, was approved by the Company's stockholders during the 2002 annual
stockholders' meeting on April&nbsp;14, 2003. The Plan provides for grants by the Board of Directors of Incentive Stock Options to employees and grants of Non-Qualified Options to
directors and consultants. The total amount of common stock reserved for issuance under the Plan is 4,000,000 shares. The Plan may have options with terms of no more than ten years. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
maximum terms of the options granted under the Company's stock option plans have been seven years with a maximum vesting of five years. At June&nbsp;30, 2007, the Company had
approximately 1,751,000 shares of common stock available for future grants under its plans. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes certain information regarding stock options during the fiscal year ended June&nbsp;30, 2007 (dollars in thousands, except per share amounts): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Remaining Contractual Term (Yrs)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Aggregate Intrinsic Value</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Outstanding at June&nbsp;30, 2006</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,924,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.48</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.98</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,302</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>Granted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>530,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.38</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>Exercised</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(124,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.62</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>Forfeited</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(89,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.78</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>Expired</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(109,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.45</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Outstanding at June&nbsp;30, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,132,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.49</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.92</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>146</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Exercisable at June&nbsp;30, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,361,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.34</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.53</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>147</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
weighted average fair value per share of options granted was $0.76, $0.94, and $1.15 during the years ended June&nbsp;30, 2007, 2006, and 2005, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the year ending June&nbsp;30, 2006, stock options were exercised and paid for by the option holders by tendering 56,555 shares of the Company's outstanding stock owned by the
option holders. The 56,555 tendered shares had a fair market value of $200,000. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
total intrinsic value of options exercised during the years ended June&nbsp;30, 2007, 2006 and 2005 was $85,000 and $1.8&nbsp;million, and $0.4&nbsp;million, respectively. As
of June&nbsp;30, 2007, there was $0.5&nbsp;million of total unrecognized compensation cost scheduled to be recognized over a weighted average remaining </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-26</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=312,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=818215,FOLIO='26',FILE='DISK112:[08ZAT1.08ZAT42501]GM42501A.;18',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gm42501_1_27"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;9&#151;Stockholders' equity (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>period
of 3.7&nbsp;years. Cash received from stock option exercises was $0.2&nbsp;million during the year ended June&nbsp;30, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes information about stock options outstanding as of June&nbsp;30, 2007, all of which were at fixed prices: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="94%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Range of<BR>
Exercise Prices<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number Outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Remaining Contractual Life</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number Exercisable</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>$1.23 - $2.15</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>467,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>1.10 Years</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.69</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>404,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.63</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>$2.20 - $2.95</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,417,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>2.89 Years</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.51</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>891,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.54</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>$3.16 - $4.90</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>248,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>3.19 Years</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.92</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>66,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.96</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="35%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Total<BR></FONT>
</TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,132,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,361,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Share-based Compensation  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of the share-based compensation expense recognized by the Company for the years ended June&nbsp;30, 2007 and 2006 (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Stock options</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>201</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>141</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Employee stock purchase plan</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>221</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>209</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Employee stock purchase agreement</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Shares issued and issuable to employees in connection with acquisition of Antin</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>103</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>422</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>527</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
estimated fair value of the Company's share-based awards granted during fiscal 2007 and 2006 was determined using the following weighted average assumptions: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="78%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Dividend yield</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Expected volatility</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>38.9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Risk-free interest rate</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.8</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Expected lives</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.70</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.61</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
estimated fair value of the Company's share-based awards, less expected forfeitures, is amortized over the awards' vesting period on a straight-line basis for awards
granted after the adoption of SFAS&nbsp;123R and on a graded-vesting basis for awards granted prior to the adoption of SFAS&nbsp;123R. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
August&nbsp;16, 2005, the Company entered into a restricted stock purchase agreement with an employee as an inducement to employment. The agreement allowed the employee to purchase
between 200,000 and 250,000 shares of the Company's common stock by November&nbsp;15, 2005. The purchase price was to be 90&nbsp;percent of the average closing price between the date of the
agreement and the purchase date but in no event less than $2.50 per share. The rights to purchase the shares vested one-half on </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-27</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_gm42501_1_28"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;9&#151;Stockholders' equity (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>September&nbsp;30,
2005 and one-half on November&nbsp;15, 2005. The Company valued this agreement using an option pricing model with an expected life of three months, expected
volatility of 48.58%, a 3.52% risk free interest rate and no expected dividends. As of June&nbsp;30, 2006 there was no unrecognized compensation cost related to this stock purchase agreement. On
November&nbsp;9, 2005 the Company and the employee determined that the employee would not be able to exercise his rights or fulfill his obligations within the terms of the agreement. As a result,
the Company and the employee mutually agreed to, and executed, a rescission of the restricted stock purchase agreement. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
June&nbsp;29, 2005, the Board of Directors of SYS approved the acceleration of the vesting of all outstanding unvested stock options (the Acceleration). The Acceleration was
effective for all such options outstanding on June&nbsp;30, 2005, all of which were granted by the Company when the accounting rules permitted use of the intrinsic-value method of accounting for
stock options. All of the other terms and conditions applicable to such outstanding stock option grants still apply. Under APB&nbsp;25, the Acceleration resulted in recognition of share-based
compensation expense of $51,000 which was determined by measuring the intrinsic value on the date of the modification of the options that otherwise would have expired unexercised. The Company's
decision to accelerate the vesting of these options was in anticipation of compensation expense to be recorded in connection with outstanding unvested stock options issued to employees subsequent to
the effective date of SFAS&nbsp;123R. As a result of the Acceleration, options to purchase 785,642 shares of the Company's common stock became immediately exercisable. If these options had not been
accelerated, additional share-based compensation expense totaling $189,000 would have been recognized in fiscal 2006, and a balance of $389,000 would have been recognized over a weighted average
remaining vesting period of approximately 3.0&nbsp;years. Holders of incentive stock options to purchase 246,800 shares of common stock elected to decline the acceleration of their options because
the acceleration would have the effect of changing the status of such options for federal income tax purposes from an incentive stock option to a non-qualified stock option. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Warrants  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the year ended June&nbsp;30, 2006, holders of warrants issued in connection with the Company's sale of common stock in June 2005 exercised warrants to
purchase 114,888 shares at an exercise price of $2.50 per share or $287,000. As of June&nbsp;30, 2007, the remaining outstanding warrants related to this sale of common stock are exercisable into
313,401 shares of common stock at $2.50 per share and expire in June 2010. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following warrants were issued during the year ended June&nbsp;30, 2006 and remain outstanding: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Exercisable
into 50,000 shares of common stock at $3.85 per share that were issued in September 2005 in conjunction with the acquisition of the technology from Lomasoft and
expire in September 2010.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Exercisable
into 110,000 shares of common stock at $4.00 per share that were issued in October 2005 to the investment bankers that assisted with a private offering of the
Company's common stock and expire October 2010.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Exercisable
into 20,000 shares of common stock at $2.44 per share that were issued in April 2006 related to the acquisition of Logic and expire in April 2011. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-28</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<UL>
<UL>
</UL>
</UL>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_go42501_1_29"> </A>


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<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>SYS AND SUBSIDIARIES  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;10&#151;SYS 401(k) Employee Stock Ownership Plan  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Employee Stock Ownership Plan was established in July 1999 and restated effective July 2002 as the SYS 401(k) Employee Stock Ownership Plan (the Plan). The
Plan includes an employee stock ownership plan component (ESOP Component) and a 401(k) component. The ESOP Component is designed for the Company, at its discretion, to make contributions of cash or
the Company's stock which is allocated to each eligible employee. The Company has not made a contribution to the ESOP Component since fiscal 2004. The 401(k) component enables employees to defer a
portion of their compensation and have it contributed to the 401(k) component of the Plan on their behalf. The Company, at its discretion, may make contributions to the 401(k) component of the Plan
matching a specified portion of employee contributions. During the Plan years ended June&nbsp;30, 2007 and 2006, the
Company elected to provide matching contributions equal to 100&nbsp;percent of the employees' contributions rate up to 3&nbsp;percent and then 50&nbsp;percent of the next two percent of the
employees' contribution rate. During the Plan year ended June&nbsp;30, 2005, the Company elected to provide matching contributions equal to 100&nbsp;percent of the employees' contributions rate up
to 4&nbsp;percent and then 50&nbsp;percent of the next one percent of the employees' contribution rate. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with the Plan and until such time as the Company's stock began trading on a national securities exchange as defined by the IRS, which excludes over the counter bulletin
board stocks, an independent appraiser valued the common stock at the end of each plan year for purposes of determining the number of shares to be contributed. Shares of the Company's stock commenced
trading on the American Stock Exchange in January 2005. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the years ended June&nbsp;30, 2007, 2006 and 2005 the Company recorded $1.0&nbsp;million, $732,000 and $672,000, respectively, of expense related to its match of employee
contributions to the 401(k) component. Of the expense for 2006 and 2005, $252,000 and $410,000, respectively, was paid in cash and the balance was paid with contributions of the Company's common
stock. All of the expense for 2007 was paid with contributions of the Company's common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;11&#151;Employee stock purchase plan  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2003, the Board of Directors approved the 2003 Employee Stock Purchase Plan (the Purchase Plan). The purpose of the Purchase Plan is to provide employees
of the Company and its designated subsidiaries with an opportunity to purchase common stock of the Company. The Purchase Plan provides for enrollment on the first day of a six-month period
in which the employees can elect payroll deductions for the purchase of the Company's common stock. The exercise date of the Purchase Plan shall be the last day of the six month period and the
purchase price shall be 85% of the fair market value of a share of common stock on the enrollment or exercise date, whichever is lower. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Purchase Plan allows employees to designate a portion of their base compensation to be used to purchase the Company's common stock at a purchase price per share at 85% of the lower
of the fair market value on the first or last day of each offering period. Each offering period lasts six months. For the years ended June&nbsp;30, 2007 and 2006, the Company recorded $221,000 and
$209,000, respectively, of compensation expense in accordance with SFAS No.&nbsp;123R which is included in the total of share-based compensation expense. Pursuant to APB&nbsp;25, no compensation
expense was recorded or recognized in 2005, and payroll withholdings totaling $196,000 as of June&nbsp;30, 2005 were classified as liabilities for the
issuance of approximately 88,719 shares of common stock. These shares were issued in the year ended June&nbsp;30, 2005. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-29</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_go42501_1_30"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;11&#151;Employee stock purchase plan (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchase
Plan awards were valued using the Black-Scholes model using the following assumptions: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="78%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Dividend yield</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Expected volatility</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>42.4</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>51.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Risk-free interest rate</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.2</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Expected lives</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>.50</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>.50</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of June&nbsp;30, 2007, there was no unrecognized compensation cost related to the Purchase Plan. The weighted average purchase price per common share issued under the Purchase Plan
was $1.83, $2.22 and $2.08 for the years ended June&nbsp;30, 2007, 2006 and 2005, respectively. Employees had payroll deductions totaling $508,000 and $550,000 in the years ended June&nbsp;30,
2007 and 2006, respectively, to purchase shares through the Purchase Plan. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;12&#151;Income taxes  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The provision (benefit) for income taxes in 2007, 2006 and 2005 consists of the following (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Current:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Federal</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>377</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(171</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>805</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>State</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>30</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>172</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Totals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>407</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(140</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>977</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Federal</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(970</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(389</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(61</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>State</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(110</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(159</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Totals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,080</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(548</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(24</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%" style="font-family:times;"><FONT SIZE=2>Totals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(673</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(688</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>953</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-30</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=316,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=766153,FOLIO='30',FILE='DISK112:[08ZAT1.08ZAT42501]GO42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_go42501_1_31"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;12&#151;Income taxes (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant
components of the Company's deferred tax assets and liabilities as of June&nbsp;30, 2007 and 2006 are shown below (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred tax assets:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued vacation and allowance for doubtful accounts</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>471</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>410</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Intangible asset</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>143</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Inventory obsolescence</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>102</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>89</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Future deductible amount for warrant and stock compensation expense</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net operating loss carryforwards</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,955</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>State taxes</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>229</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>233</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,757</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,002</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Valuation allowance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,955</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Total deferred tax assets net of valuation allowance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>802</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,002</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred tax liabilities:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Depreciation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(150</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(179</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(183</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,255</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Intangibles assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,204</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(13</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Total deferred tax liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,550</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,463</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net deferred tax liability</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(748</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(461</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
expected income tax provision (benefit), computed based on the Company's pre-tax income (loss) and the statutory Federal income tax rate (34%), is reconciled to the
actual tax provision reflected in the accompanying consolidated financial statements as follows (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="64%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Expected tax provision (benefit) at statutory rates</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(805</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(827</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>802</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Non-deductible share-based compensation expense</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>134</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>178</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>State taxes, net of Federal benefit</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(93</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(85</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>139</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Other, including other non-deductible items</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>91</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Totals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(673</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(688</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>953</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
June&nbsp;30, 2007, the Company had a California tax net operating loss carryforward of $1,362,000 available to offset future California taxable income but is limited to using no
more than $272,000 per year. This tax net operating loss carryforward expires in 2015. At June&nbsp;30, 2007, the Company had a Federal tax net operating loss carryforward of $5,177,000 available to
offset future federal taxable income. This net operating loss carryforward expires in 2025 and is limited to using no more than $272,000 per year. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-31</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=317,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=32366,FOLIO='31',FILE='DISK112:[08ZAT1.08ZAT42501]GO42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_go42501_1_32"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;12&#151;Income taxes (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
fiscal 2006 and 2005, the Company recorded $61,000 and $239,000, respectively, as an increase to common stock related to the excess tax benefit recognized from stock option
exercises. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
assessing the realizability of deferred tax assets, management considers, on a periodic basis, whether it is more likely than not that some portion or all of the deferred tax assets
will not be realized. In evaluating whether a valuation allowance was needed, management considered negative evidence and positive evidence as required under the provisions of FASB Statement
No.&nbsp;109, "Accounting for Income Taxes". The primary negative evidence considered by management is the net loss incurred by the Company in the years ended June&nbsp;30, 2007 and 2006. The
positive evidence considered by management is the historical profitability of the Company's operations prior to 2006 and the Company's forecasts of operations. Consequently, management concluded that
the positive evidence regarding the realization of the deferred tax asset out weighed the negative evidence and that a valuation allowance for the deferred tax assets was not deemed necessary, except
for a valuation allowance related to the deferred tax asset for the net operating loss carryforwards. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Internal Revenue Service (IRS) is currently examining the Company's federal income tax return for the year ended June&nbsp;30, 2004. The Company expects the IRS examination to be
completed in fiscal 2008. The Company has reclassified an amount from deferred taxes to income taxes payable and
accrued a provision for interest which it believes is adequate in relation to any potential adjustments. These amounts may be adjusted when there is more information available or an event occurs that
indicates a change is required. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;13&#151;Business combinations  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Year Ended June&nbsp;30, 2007:  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Merger with Ai Metrix  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;17, 2006, the Company acquired all the outstanding common stock of Ai Metrix in a stock transaction for approximately $6.5&nbsp;million,
inclusive of approximately $0.5&nbsp;million of transaction costs. The Company has included the financial results of Ai Metrix in its consolidated financial statements beginning October&nbsp;17,
2006. Ai Metrix is a Reston, Virginia-based provider of innovative network management solutions. The merger furthers one of SYS's goals of broadening its customer base for both commercial and
governmental entities as well as broadening its existing product base. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the merger, the Company issued approximately 3.1&nbsp;million shares of common stock, of which approximately 2.2&nbsp;million were issued directly to Ai Metrix
shareholders and 0.9&nbsp;million shares were issued to an escrow agent for future contingencies and potential additional earn-out consideration, which are more fully described below.
Additionally, the Company paid approximately $57,000 in cash, of which approximately $16,000 was paid to an escrow agent for future contingencies, which are more fully described below. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with the merger agreement, the Company issued approximately 0.9&nbsp;million shares and paid approximately $16,000 in cash to an escrow agent. Of the 0.9&nbsp;million
shares issued, 0.3&nbsp;million shares are being held for any possible indemnity claims and 0.6&nbsp;million shares are being held for potential additional earn-out or
claw-back consideration, which is more fully described below. Of the $16,000 in cash, approximately $6,000 is being held for any possible indemnity claims and $10,000 is being held for
potential earn-out or claw back consideration, which is more fully described below. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-32</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=318,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=241137,FOLIO='32',FILE='DISK112:[08ZAT1.08ZAT42501]GO42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_go42501_1_33"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;13&#151;Business combinations (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
purchase price of approximately $6.5&nbsp;million was calculated by using the Company's average closing stock price two days before and including the day of the transaction
multiplied by 2.5&nbsp;million shares (2.2&nbsp;million shares issued directly to Ai Metrix shareholders and 0.3&nbsp;million shares issued to an escrow agent for indemnity) and includes
$0.5&nbsp;million in direct acquisition costs and $41,000 of cash paid directly to Ai Metrix shareholders. The 0.3&nbsp;million shares issued to an escrow agent for any possible indemnity claims
are being included in the calculation of the purchase price because management believes the nature of the representations and warranties that are covered by the indemnity are
non-subjective and the issuance of these shares can be determined beyond a reasonable doubt. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional
consideration may be earned and the purchase price may be increased if Ai Metrix generates earnings before interest, taxes, depreciation and amortization (EBITDA) in excess of
$2.5&nbsp;million for the measurement period beginning on the closing date of the transaction and ending on December&nbsp;31, 2007. For each dollar of EBITDA generated in excess of
$2.5&nbsp;million, the Company will issue to the Ai Metrix shareholders one additional share of SYS common stock, up to a maximum of 1.9&nbsp;million shares. If Ai Metrix generates EBITDA of less
than $1.5&nbsp;million during the measurement period, the total purchase price will be reduced, and the Company will receive back one share of its common stock or one dollar of cash, for each dollar
of EBITDA less than $1.5&nbsp;million, up to a maximum of the 0.6&nbsp;million shares and $10,000 cash that is held by the escrow agent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
acquisition is being accounted for under the purchase method of accounting in accordance with SFAS&nbsp;141. Under the purchase method of accounting, the total estimated purchase
price is allocated to the net tangible and intangible assets of Ai Metrix acquired in connection with the merger, based on their estimated fair values as of the effective date of the merger. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes the allocation of the purchase price including transaction costs of approximately $0.5&nbsp;million, and liabilities assumed (dollars in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Estimated Life in Years</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>800</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,685</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Prepaid expenses and other current assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Property, furniture and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>145</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred taxes</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>182</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>800</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Technology</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,900</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Trade name</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,100</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,835</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Total assets acquired</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,523</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accounts payable, accrued liabilities, deferred taxes, and other liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,780</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,198</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Assets acquired less liabilities assumed</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,545</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-33</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=319,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=838590,FOLIO='33',FILE='DISK112:[08ZAT1.08ZAT42501]GO42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_go42501_1_34"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;13&#151;Business combinations (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company completed its allocation of the purchase price in the fourth quarter of fiscal 2007 related to deferred taxes resulting in an increase to goodwill of $1,367,000. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
goodwill recorded is not deductible for tax purposes and has been allocated to the PSSIG segment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Year Ended June&nbsp;30, 2006:  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> RBIS  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective April&nbsp;2, 2006, SYS acquired all of the outstanding stock of Reality Based IT Services,&nbsp;Ltd. ("RBIS"), a privately held, Laurel,
Maryland-based provider of information systems consulting addressing information security issues for the U.S. Department of Defense for approximately $9.4&nbsp;million in cash and shares of SYS
common stock. RBIS engineers develop, implement, and maintain convergent security services that are delivered by personnel with U.S. Top Secret government clearances. The acquisition enables the
Company to provide enhanced capabilities to pursue a broader cross section of SYS's customer base. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
transaction was completed pursuant to a Stock Purchase Agreement (SPA) by and between SYS, and the sole stockholder of RBIS. As a result of the acquisition, RBIS has become a wholly
owned subsidiary of SYS. Therefore the results of the combined entities are included in the consolidated financial statements of SYS effective for periods subsequent to April&nbsp;2, 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
consideration to the seller was funded with $5.6&nbsp;million of cash and 963,277 shares of SYS common stock with a value of $3.7&nbsp;million, or $3.87 per share, based on an
average of the closing price of SYS's common stock for the period two days before and two days after the measurement date. Additional consideration may be earned based on the final determination of
net assets acquired and subject to the achieving EBITDA milestones. As of June&nbsp;30, 2006, $326,000 was accrued for the net asset adjustment and payment related to the EBITDA milestone for 2006,
which was adjusted to $296,000 and paid in fiscal 2007. The remaining EBITDA milestone provided for additional consideration up to $2.5&nbsp;million for exceeding $0.5&nbsp;million of EBITDA for
the year ending June&nbsp;30, 2007, which was not exceeded. Furthermore, under the terms of the purchase agreement, the Company agreed to pay additional consideration of up to $375,000 to cover the
tax liability associated with the taxable gain to be reported in the seller's 2006 tax return. However, based on an agreement reached in July 2007 to settle various claims and counterclaims between
SYS and seller, the obligation to pay this additional consideration was eliminated. The acquisition is being accounted for using the purchase method of accounting in accordance with SFAS&nbsp;141.
The goodwill is reported as part of the DSG segment and is not subject to amortization. The amount assigned to goodwill is deductible for tax purposes since the transaction will be treated as a
taxable asset sale. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-34</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=320,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=457748,FOLIO='34',FILE='DISK112:[08ZAT1.08ZAT42501]GO42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_go42501_1_35"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;13&#151;Business combinations (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes the allocation of the purchase price on the date of acquisition including transaction costs of $280,000 (dollars in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Estimated Life in Years</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>512</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,903</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Property, furniture and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>161</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2-5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred tax assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>97</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,800</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Backlog</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>230</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>.5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Trade name</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>400</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Non compete agreement</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>40</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,487</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="64%" style="font-family:times;"><FONT SIZE=2>Total assets acquired</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,650</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(78</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accrued payroll and related expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(588</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other accrued expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(14</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net assets acquired less liabilities assumed</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,970</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> cVideo  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;2, 2005, SYS acquired all of the assets and assumed certain specified liabilities of cVideo,&nbsp;Inc., a San Diego based provider of
interactive video and information analysis products for business surveillance and security applications. The acquisition enables the Company to provide enhanced capabilities to pursue a broader cross
section of SYS's customer base. The purchase price consisted of approximately $1.9&nbsp;million of cash to the seller and various creditors as initial consideration and additional contingent
consideration based on future revenue milestones through June&nbsp;30, 2006. The additional consideration could be paid in cash or stock, depending on the level of revenues achieved through
June&nbsp;30, 2006. The revenue levels were not met during fiscal 2006 and no additional consideration was paid. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-35</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=7,SEQ=321,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=267419,FOLIO='35',FILE='DISK112:[08ZAT1.08ZAT42501]GO42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_gq42501_1_36"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>SYS AND SUBSIDIARIES  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;13&#151;Business combinations (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transaction was accounted for using the purchase method in accordance with SFAS&nbsp;141. The following table summarizes the fair values of the assets and
liabilities of cVideo at the date of acquisition (dollars in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Estimated Life in Years</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>117</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Inventory</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>246</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Property, furniture and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2-5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Technology</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>71</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,752</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total assets acquired</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,286</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(13</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accrued payroll and related expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(19</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(148</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other accrued liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(66</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Assets acquired less liabilities assumed</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,040</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
excess of the Company's total acquisition costs of $2.0&nbsp;million, including transaction costs of $172,000, over the estimated fair value of the net assets acquired was
allocated to goodwill. The goodwill is reported as part of the PSSIG segment and is not subject to amortization. The amount assigned to goodwill is deductible for tax purposes. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Logic Innovations  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;7, 2005, SYS acquired all of the outstanding stock of Logic Innovations,&nbsp;Inc. ("Logic"), a privately held, San Diego-based provider of
solutions that help to ensure the fast and efficient delivery of digital audio, video and data to the broadcasting, communications and consumer electronics industries for approximately
$4.0&nbsp;million in cash and stock. The acquisition enables the Company to provide enhanced capabilities to pursue a broader cross section of SYS's customer base. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
transaction was completed pursuant to an Agreement and Plan of Merger (Agreement) by and among the Company, Shadow II,&nbsp;Inc. (a wholly-owned subsidiary of the Company), Logic
and all of the stockholders of Logic. As a result of the acquisition, Shadow II became a wholly owned subsidiary of SYS and, therefore, is included in the consolidated financial results of SYS
effective for periods subsequent to November&nbsp;7, 2005. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
merger consideration consisted of $2.0&nbsp;million in cash and 445,768 shares of restricted SYS common stock with a value of $2.0&nbsp;million based on an average closing price
of $4.56 per share. Additional consideration consisting of $250,000 and shares of stock valued at $250,000 based on the average closing stock price for the 10&nbsp;days prior to June&nbsp;30, 2006
may be earned subject to achieving a certain revenue level through June&nbsp;30, 2006. The revenue level was not met and no additional </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-36</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=322,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=63751,FOLIO='36',FILE='DISK112:[08ZAT1.08ZAT42501]GQ42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gq42501_1_37"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;13&#151;Business combinations (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>consideration
was paid under this earn-out provision. Additional cash consideration may be earned equal to the amount calculated EBITDA exceeds certain percentages of net revenue generated
by Logic for the years ending June&nbsp;30, 2006, 2007 and 2008. For the years ended June&nbsp;30, 2007 and 2006, no additional consideration was paid as EBITDA did not exceed the required
percentage of net revenue. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
transaction was accounted for using the purchase method in accordance with SFAS&nbsp;141. The following table summarizes the fair values of the assets and liabilities of Logic at
the date of acquisition (dollars in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Estimated Life in Years</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cash</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>157</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Inventory</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>607</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Property, furniture and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>40</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2-5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>In-process research and development</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>68</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Expensed</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Backlog</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>94</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Technology</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>302</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Trade name</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>144</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,510</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Total assets acquired</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,133</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(122</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued payroll and related expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(83</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred taxes</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(295</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(166</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other accrued liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(197</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="66%" style="font-family:times;"><FONT SIZE=2>Assets acquired less liabilities assumed</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,270</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
excess of the Company's total acquisition costs of $4.3&nbsp;million, including transaction costs of $239,000, over the estimated fair value of the net assets acquired was
allocated to goodwill as part of the PSSIG segment. The goodwill is not subject to amortization and none of the amount assigned to goodwill is deductible for tax purposes. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> ForceViz Technology Purchase  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;27, 2005, the Company entered into an agreement to purchase certain technology and intellectual property rights related to the ForceViz
technology of Lomasoft Corporation. The purchase price consisted of $50,000 cash and warrants to purchase 50,000 shares of the Company's stock at a price of $3.87 per share. Transaction costs totaled
$19,000. The $64,000 fair value of the warrants was based on the Black Scholes model using a 34% expected volatility rate, 4% risk-free interest rate, an estimated life of five years and
assumed no dividends. The agreement provides for the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-37</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_gq42501_1_38"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;13&#151;Business combinations (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>issuance
of additional warrants if revenues from sales of the technology exceeded specified amounts or if the Company elected to continue marketing the technology as of June&nbsp;30, 2006 or
June&nbsp;30, 2007. There were no revenues through June&nbsp;30, 2006 and the Company has elected to discontinue the marketing of the technology, therefore no additional warrants are due. The
Company retains its ownership of the technology, but if requested, if may be required to issue a non-exclusive marketing license to Lomasoft. The total acquisition costs of $133,000,
including $19,000 of transaction costs, has been allocated to intangible assets and is being amortized over 5&nbsp;years. This transaction was accounted for as an asset purchase and not a business
combination. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
described in Note&nbsp;2, in the fourth quarter of the year ended June&nbsp;30, 2006 the Company recorded a $114,000 impairment charge related to this technology. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Web Tech  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective on August&nbsp;22, 2005, the Company acquired the assets of Web Technologies,&nbsp;LLC (Web Tech). The acquisition was to further the Company's goal
of acquiring technology companies which expand our products and customer base. The transaction was accounted for using the purchase method in accordance with SFAS&nbsp;141, Business Combinations,
whereby the net tangible and intangible assets acquired and liabilities assumed were recognized at their estimated fair market values at the date of acquisition. The consideration consisted of
$140,000 cash and an additional $100,000 due and paid on
January&nbsp;31, 2006. The fair value of the assets acquired were as follows: Equipment- $100,000, Intangible assets- $154,000, and Goodwill- $61,000. The intangible assets are being amortized over
a weighted average of three years. The excess of the Company's total acquisition costs of $317,000, including transaction costs of $77,000, over the estimated fair value of the net assets acquired was
allocated to goodwill. The goodwill is not subject to amortization but the amount assigned to goodwill is deductible for tax purposes and is reported in the assets of the DSG segment. The purchase
agreement provides for additional consideration to be earned upon sales of certain products and fees from services for two years from the date of acquisition. No additional consideration was earned or
paid during fiscal 2007 or 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Year Ended June&nbsp;30, 2005:  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Antin  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective January&nbsp;3, 2005, the Company acquired of all of the outstanding securities of Antin. The transaction was completed pursuant to an Agreement and
Plan of Merger (the Plan) by and among the Company, Shadow I,&nbsp;Inc. (a wholly-owned subsidiary of the Company), Antin, and all of its stockholders. Antin is a defense contractor that provides
information technology, C4ISR (command, control, communication, computer, intelligence, surveillance and reconnaissance), and technical support services. This acquisition furthers the Company's
strategy of expanding its capabilities and broadening the customer base. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
initial purchase price consisted of $49,000 cash paid at closing and $988,000 of SYS common stock (323,971 shares based on $3.05 per share value at acquisition date). The Company
incurred $236,000 of direct costs related to the acquisition, which were partially offset by the $124,000 of cash acquired from Antin. The Company also incurred $14,000 to register the shares issued
in conjunction with the acquisition which was deducted from the fair value of the shares issued. The fair value of the net assets acquired was approximately $1.7&nbsp;million and the Company
recorded $1.9&nbsp;million of goodwill, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-38</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=324,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=850394,FOLIO='38',FILE='DISK112:[08ZAT1.08ZAT42501]GQ42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gq42501_1_39"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;13&#151;Business combinations (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>which
is reported in the assets of the DSG segment. The goodwill is not subject to amortization and none of the amount assigned to goodwill is deductible for tax purposes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Plan also provided for Antin to incur a $305,000 payroll tax liability as of the acquisition date related to issuing stock to its employees that was included in the liabilities of
Antin and paid by the Company in April 2005. Pursuant to the Plan, an additional 314,027 shares were placed with an escrow
agent, on behalf of the Antin stockholders, which shares are contingently transferable to the stockholders based upon the future operating performance of Antin through June&nbsp;30, 2007. One of the
operating performance criteria milestones was reached as of June&nbsp;30, 2005 and, accordingly, 157,015 shares were transferred out of escrow to the Antin stockholders at a value of $408,000 (based
on $2.60 per share value at June&nbsp;30, 2005). As of June&nbsp;30, 2006 the remaining operating performance milestone was reached and the 157,012 shares held in escrow became issuable to the
Antin shareholders. The $454,000 value of these shares based on the share price at June&nbsp;30, 2006 ($2.89) was recorded as goodwill. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
September&nbsp;12, 2005, SYS's Board of Directors approved the issuance of an additional 25,130 shares of the Company's common stock to be issued to SYS employees that were former
Antin stockholders (former Antin stockholders), in addition to those shares still being held in escrow, as a result of a modification of a working capital purchase price adjustment provided for in the
purchase agreement. One-half of the shares were issued directly to the former Antin stockholders and the balance were placed in escrow and are issuable to the former Antin stockholders
based upon meeting the required future operating performance of Antin through June&nbsp;30, 2006. As a result of the terms of a modification to the original working capital purchase price
adjustment, the Company recorded $103,000 of share-based compensation expense for the year ending June&nbsp;30, 2006. The remaining 12,565 shares remained in escrow at June&nbsp;30, 2006 and were
issued to the former Antin stockholders in fiscal 2007. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-39</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=325,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=68871,FOLIO='39',FILE='DISK112:[08ZAT1.08ZAT42501]GQ42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gq42501_1_40"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;13&#151;Business combinations (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
transaction was accounted for using the purchase method in accordance with SFAS&nbsp;141. The following table summarizes the determined fair values of the assets and liabilities of
Antin at the date of acquisition (dollars in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Estimated Life in Years</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cash</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>124</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,260</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>69</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Property, furniture and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>101</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2-5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>210</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Backlog</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>54</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Trade name</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>48</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,857</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total assets acquired</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,723</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(325</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued payroll and related expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(740</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other accrued liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(132</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Notes payable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(845</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="68%" style="font-family:times;"><FONT SIZE=2>Assets acquired less liabilities assumed</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,681</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Xsilogy  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;16, 2004, SYS acquired all of the assets and certain liabilities of Xsilogy,&nbsp;Inc. (Xsilogy), a privately held, San Diego-based provider
of wireless sensor network technologies and applications. The acquisition of Xsilogy's wireless sensor technology represented the Company's first expansion into the products-oriented business and to
customers outside of the Department of Defense (DoD). The assets purchased consisted principally of intellectual property and technology, inventory, fixed assets and certain other intangible assets.
The total purchase price consisted of initial cash consideration of $345,000 and the assumption of liabilities totaling $112,000. The Company also incurred $281,000 of direct costs related to the
acquisition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
fair market value of the total assets acquired exceeded the consideration paid and direct costs incurred as of June&nbsp;30, 2005 resulting in a contingent consideration liability
of $97,000 as of June&nbsp;30, 2005. This contingent liability was offset with additional consideration paid in fiscal 2006 as a result of achieving some milestones for additional consideration. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
purchase agreement for Xsilogy,&nbsp;Inc., acquired in December 2004, provides for additional consideration to be earned upon achieving certain sales and operating results
milestones. As a result of a determination during the quarter ended September&nbsp;30, 2005 that certain milestones had been met as of June&nbsp;30, 2005, Xsilogy shareholders were paid cash of
$315,000 and issued 80,000 shares of SYS stock at a value of $376,000. The total of this consideration was first used to eliminate the contingent consideration liability of $97,000 and the balance of
$594,000 was added to goodwill. The goodwill is reported in the assets of the PSSIG segment. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-40</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=326,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=997657,FOLIO='40',FILE='DISK112:[08ZAT1.08ZAT42501]GQ42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gq42501_1_41"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;13&#151;Business combinations (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
transaction was accounted for using the purchase method in accordance with SFAS&nbsp;141. The following table summarizes the determined fair values of the assets acquired and
liabilities assumed at the date of acquisition (dollars in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Estimated Life in Years</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts receivable, net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Inventory</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>111</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Property, furniture and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>92</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2-5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cost-method investment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>72</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Patents</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>280</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>15</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Technology</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>190</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Trade name</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>60</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>10</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total assets acquired</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>835</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accrued payroll and related expense</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(43</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(69</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Assets acquired less liabilities assumed</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>723</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="70%" style="font-family:times;"><FONT SIZE=2>Less cash paid and acquisition costs</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(626</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Contingent consideration liability</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>97</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> Pro Forma Results of Operations (in thousands, except per share amounts):  </B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summary presents pro forma consolidated results of operations for the fiscal years ended June&nbsp;30, 2007, 2006 and 2005 as if the acquisitions
described above had occurred as of July&nbsp;1, 2004 and includes adjustments that were directly attributable to the transaction or were expected to have a continuing impact on the Company. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
pro forma results are unaudited and for illustrative purposes only for the applicable periods, and do not purport to be indicative of the actual results which would have occurred had
the transaction been completed as of the beginning of the periods, nor are they indicative of results of operations which may occur in the future. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="91%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2005</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>As Reported</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Pro Forma</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>As Reported</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Pro Forma</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>As Reported</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Pro Forma</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Revenues</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,798</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>77,948</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55,861</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>70,566</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45,769</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>76,416</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,666</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,621</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,062</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3,589</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,794</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,698</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,693</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,661</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,743</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3,074</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,407</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,188</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
Net income (loss) per common share:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="31%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.10</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.09</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.14</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.19</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.16</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.09</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="31%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.10</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.09</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.14</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.19</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.15</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.09</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Weighted average shares outstanding:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="31%" style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,619</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,347</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,691</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,081</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,655</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,893</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="31%" style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,619</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,347</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,691</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,081</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,206</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,904</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-41</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=327,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=321863,FOLIO='41',FILE='DISK112:[08ZAT1.08ZAT42501]GQ42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_gs42501_1_42"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>SYS AND SUBSIDIARIES  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;14&#151;Segment information:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company reports operating results and financial data for two reporting segments: Defense Solutions Group (DSG) and Public Safety, Security and Industrial
Systems Group (PSSIG). DSG provides engineering, technical, and financial and management services primarily to U.S. Government customers. Revenues in the PSSIG include products and equipment sales,
software, engineering and installation services for industrial and commercial customers as well as government customers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
July&nbsp;1, 2006 certain business activities that were managed and reported under the DSG were moved into the PSSIG and are now managed and reported within that business
group. The activities consisted principally of training related services and certain software services-based contracts that are inter-related with other activities in the PSSIG. Prior year amounts
have been reclassified to reflect the inclusion of these activities in the PSSIG. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company's revenues in 2005 were generated solely from engineering and technical services sold to various Federal, State and local government agencies. For the years ended
June&nbsp;30, 2007 and 2006, the Company's revenues were derived primarily from engineering and technical services, but also included product sales that represented approximately 8.0% of
consolidated revenues in 2007 and less than 5.3% of consolidated revenues in 2006. The Company's operations are primarily located in the U.S. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales
to the U.S., state and local government agencies, including both defense and non-defense agencies, and sales as a subcontractor as well as direct sales, aggregated
approximately $66.6&nbsp;million, or 87% and $52.5&nbsp;million, or 94% of consolidated revenues in fiscal years 2007 and 2006, respectively. The Company did not have any significant
non-government sales during fiscal 2005. No single contract or individual customer accounted for more than 10% of total revenue for fiscal 2007, 2006 and 2005. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-42</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=328,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=740519,FOLIO='42',FILE='DISK112:[08ZAT1.08ZAT42501]GS42501A.;8',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gs42501_1_43"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;14&#151;Segment information: (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summarized
financial information concerning our reportable business segments for the years ended June&nbsp;30, 2007, 2006 and 2005 are as follows (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="75%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2005</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Revenues:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>DSG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50,112</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45,176</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43,661</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>PSSIG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25,686</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,685</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,108</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Totals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,798</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55,861</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45,769</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Income (loss) from operations:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>DSG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,068</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>641</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,151</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>PSSIG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3,734</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,703</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(357</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Totals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,666</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,062</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,794</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Identifiable assets:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>DSG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24,751</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27,606</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,912</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>PSSIG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,640</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,567</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,806</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Corporate</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,992</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,033</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,037</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Totals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52,383</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>42,206</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24,755</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Goodwill:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>DSG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,344</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,277</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,563</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>PSSIG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,133</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,298</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,746</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Totals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,477</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,575</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,309</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Capital expenditures:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>DSG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>163</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>428</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>225</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>PSSIG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>608</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>290</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>83</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Corporate</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>66</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>134</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>329</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Totals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>837</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>852</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>637</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Depreciation and amortization:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>DSG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>914</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>623</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>487</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>PSSIG</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>823</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>566</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>73</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Corporate</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>235</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>192</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>132</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Totals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,972</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,381</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>692</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
expense and income taxes are not reported on an operating segment basis in accordance with the Company's method of internal reporting. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-43</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=329,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=33584,FOLIO='43',FILE='DISK112:[08ZAT1.08ZAT42501]GS42501A.;8',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gs42501_1_44"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Note&nbsp;15&#151;Selected quarterly financial data (unaudited):  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Summarized quarterly consolidated financial information for fiscal 2007 and 2006 follows (in thousands except per share amounts): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>1<SUP>st</SUP>&nbsp;Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2<SUP>nd</SUP>&nbsp;Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>3<SUP>rd</SUP>&nbsp;Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>4<SUP>th</SUP>&nbsp;Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><B><I>Fiscal 2007</I></B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Total revenues</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,243</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,216</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,069</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,270</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(222</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(215</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,100</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(129</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(115</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(342</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,056</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(181</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Basic income (loss) per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.06</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Diluted income (loss) per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.06</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Shares used in basic income (loss) per share computation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,405</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,521</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,666</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,872</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Shares used in diluted income (loss) per share computation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,405</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,521</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,666</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,872</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><BR><FONT SIZE=2><B><I>Fiscal 2006</I></B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Total revenues</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,094</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,448</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,388</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,931</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>881</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>425</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,831</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,537</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>475</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,333</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,079</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Basic income (loss) per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.02</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.10</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Diluted income (loss) per share</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.04</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.01</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.10</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Shares used in basic income (loss) per share computation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,880</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,871</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,133</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,899</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Shares used in diluted income (loss) per share computation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,657</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,090</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,133</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,899</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-44</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=330,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=425453,FOLIO='44',FILE='DISK112:[08ZAT1.08ZAT42501]GS42501A.;8',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_gu42501_1_45"> </A>


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 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="gu42501_sys_and_subsidiaries_condensed__sys04554"> </A>
<A NAME="toc_gu42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SYS AND SUBSIDIARIES    <BR>    <BR>    CONDENSED CONSOLIDATED BALANCE SHEETS    <BR>    <BR>    (UNAUDITED)    <BR>    <BR>    (amounts in thousands, except par value amounts)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>ASSETS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Current Assets:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,188</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,770</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accounts receivable, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,574</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,321</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Inventories, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>484</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>599</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>456</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>603</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>748</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>275</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Total current assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,450</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20,568</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2><BR>
Furniture, equipment and leasehold improvements, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1,997</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1,951</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Intangible assets, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,601</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,111</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,107</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,477</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Other assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>227</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>276</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53,382</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52,383</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
LIABILITIES AND STOCKHOLDERS' EQUITY</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Current Liabilities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Line of credit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,062</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,261</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,270</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accrued payroll and related expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,231</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,887</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Income taxes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>757</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>194</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other accrued liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,153</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,474</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Current portion of note payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>125</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,207</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,552</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Total current liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,796</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,377</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2><BR>
Convertible notes payable, related party</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
975</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
975</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Convertible notes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,150</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,150</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Note payable, net of current portion</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>375</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>500</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Other long-term liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>56</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>69</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Deferred revenue, net of current portion</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>330</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>210</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Deferred taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,023</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,023</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Total liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,705</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,304</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2><BR>
Commitments and Contingencies</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2><BR>
Stockholders' Equity:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>4% convertible preferred stock, $.50 par value; 250 shares authorized; none issued or outstanding</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>9% preference stock, $1.00 par value; 2,000 shares authorized; none issued or outstanding</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Common stock, no par value; 48,000 shares authorized; and 19,674 and 19,232 shares issued and outstanding as of December&nbsp;28, 2007 and June&nbsp;30, 2007, respectively</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>36,929</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,903</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(252</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(824</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Total stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>36,677</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,079</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total liabilities and stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53,382</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52,383</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to unaudited condensed consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-45</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=331,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=40682,FOLIO='45',FILE='DISK112:[08ZAT1.08ZAT42501]GU42501A.;12',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gu42501_1_46"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> CONDENSED CONSOLIDATED BALANCE SHEETS </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (UNAUDITED) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (amounts in thousands, except par value amounts) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="gu42501_sys_and_subsidiaries_condensed__sys04862"> </A>
<A NAME="toc_gu42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>SYS AND SUBSIDIARIES    <BR>    <BR>    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS    <BR>    <BR>    (UNAUDITED)    <BR>    <BR>    (amounts in thousands, except per share data)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Three Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Six Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;29,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;29,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Revenues</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,121</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,216</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>38,631</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,459</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Operating costs and expenses:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Costs of revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,517</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,655</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28,417</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27,185</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Selling, general and administrative expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,373</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,666</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,750</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,720</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Research, engineering and development expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,126</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,110</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,214</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,991</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2>Total operating costs and expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,016</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,431</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37,381</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,896</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Income (loss) from operations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
105</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(215</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1,250</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(437</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Other (income) expense:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other income</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(35</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(24</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(74</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(61</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>72</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>186</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>200</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>383</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2>Total other (income) expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>162</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>126</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>322</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Income (loss) before income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
68</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(377</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1,124</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(759</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Income tax provision (benefit)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
23</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(35</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
552</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(302</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(342</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>572</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(457</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Net income (loss) per share:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Weighted average shares:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,483</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,521</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,401</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,463</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,569</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,521</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,504</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,463</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to unaudited condensed consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-46</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=332,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=843763,FOLIO='46',FILE='DISK112:[08ZAT1.08ZAT42501]GU42501B.;3',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_gw42501_1_47"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="gw42501_sys_and_subsidiaries_condensed__sys05406"> </A>
<A NAME="toc_gw42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SYS AND SUBSIDIARIES    <BR>    <BR>    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS    <BR>    <BR>    SIX MONTHS ENDED DECEMBER 28, 2007 AND DECEMBER 29, 2006    <BR>    <BR>    (UNAUDITED)    <BR>    <BR>    (amounts
in thousands)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="85%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash Flows from Operating Activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>572</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(457</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Depreciation and amortization</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>983</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>968</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Share-based compensation expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>230</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>227</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accretion of debt discount</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(305</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Bad debt expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>152</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Stock contributed to employee benefit plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>467</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>475</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Loss (gain) on disposition of equipment</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Changes in operating assets and liabilities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,282</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,115</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Income tax refund receivable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>509</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Inventories</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>115</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>168</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>147</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>96</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Other assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>39</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,009</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>333</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Accrued payroll and related expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(656</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(120</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Income taxes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>90</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Other accrued liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(401</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Other long term liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(13</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="67%" style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(225</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(116</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net cash (used in) provided by operating activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,463</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>438</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Cash Flows from Investing Activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Purchases of furniture, equipment and leasehold improvements</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(511</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(432</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cash received from acquisitions, net</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>202</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net cash used in investing activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(510</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(197</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash Flows from Financing Activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Borrowings from line of credit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,523</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,751</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Payments on line of credit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11,461</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(15,075</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Payments of notes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(125</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Proceeds from issuance of stock to employee stock purchase plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>204</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>266</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Proceeds from exercise of stock options and warrants</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>125</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>60</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net cash provided by financing activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,391</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>877</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net (decrease) increase in cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(582</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,118</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents at beginning of period</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,770</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,106</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents at end of period</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,188</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,224</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Supplemental disclosure of cash flow information:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest paid</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>134</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>346</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income taxes paid</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>462</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Acquisition of capital leases</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>80</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Common stock issued upon cashless exercise of stock options</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See accompanying notes to unaudited condensed consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-47</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_gy42501_1_48"> </A>


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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="gy42501_sys_and_subsidiaries_notes_to___sys03348"> </A>
<A NAME="toc_gy42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SYS AND SUBSIDIARIES    <BR>    <BR>    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS    <BR>    <BR>    (Unaudited)    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>1. Basis of Financial Statement Preparation and Significant Accounting Policies:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying unaudited condensed consolidated financial information of SYS and its subsidiaries (SYS or the Company) should be read in conjunction with the audited consolidated
financial statements and notes to consolidated financial statements contained in our Annual Report on Form&nbsp;10-K for the year ended June&nbsp;30, 2007 filed with the Securities and
Exchange Commission (SEC). The accompanying unaudited condensed financial information includes all subsidiaries on a consolidated basis and all normal recurring adjustments which are considered
necessary by the Company's management for a fair presentation of the financial position, results of operations and cash flows for the periods presented. However, these results are not necessarily
indicative of results for a full fiscal year. All of the Company's operations are primarily conducted in the United States. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company's fiscal year is from July&nbsp;1 through June&nbsp;30. The Company uses the 5-4-4&nbsp;weeks per period method for each quarter; periods one
(July) and twelve (June) may vary slightly in the actual number of days due to the beginning and end of each fiscal year. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Use of Estimates:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States of America (US&nbsp;GAAP) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. In the future, the Company may realize actual results that differ from the current reported estimates. The Company's
significant estimates include those related to revenues and customer billings, recovery of indirect costs, allowance for doubtful accounts, valuation of long-lived assets including
identifiable intangibles and goodwill, accounting for income taxes including any related valuation allowance, contingencies, and share-based compensation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Indirect Expense Rate Variance:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For interim reporting purposes, SYS applies overhead and selling, general and administrative expenses as a percentage of direct contract costs based on annual
budgeted indirect expense rates. To the extent actual expenses for an interim period are greater than the budgeted rates (unfavorable variance), the variance is deferred if management believes it is
probable that the variance will be absorbed by future contract activity. This probability assessment includes projecting whether future indirect costs will be sufficiently less than the annual
budgeted rates or can be absorbed by seeking increased billing rates applied on cost-plus-fee contracts. At the end of each interim reporting period, management assesses the
recoverability of any amount deferred to determine if any portion should be charged to expense. In assessing the recoverability of variances deferred, management takes into consideration estimates of
the amount of direct labor and other direct costs to be incurred in future interim periods, the feasibility of modifications for provisional billing rates, and the likelihood that an approved increase
in provisional billing rates can be passed along to a customer. Variances are charged to expense in the periods in which it is determined that such amounts are not probable of recovery. As of
December&nbsp;28, 2007, the deferred unfavorable variance totaled $0.6&nbsp;million. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-48</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=334,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=800757,FOLIO='48',FILE='DISK112:[08ZAT1.08ZAT42501]GY42501A.;10',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gy42501_1_49"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (Unaudited) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>1. Basis of Financial Statement Preparation and Significant Accounting Policies: (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>Reclassifications:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain amounts in the prior period financial statements have been reclassified to conform to the current period financial statement presentation. In particular,
allocable indirect expenses that were previously reported for the three and six month periods ended December&nbsp;29, 2006 as costs of revenue were reclassified to selling, general and
administrative expenses in the amount of $0.1&nbsp;million for both periods. The Company believes these reclassifications were immaterial to the overall presentation of the accompanying financial
statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>2. New Accounting Pronouncements:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.&nbsp;141 (revised 2007)
("SFAS&nbsp;141R"), </FONT><FONT SIZE=2><I>Business Combinations</I></FONT><FONT SIZE=2>, which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but
requires a number of changes, including changes in the way assets and liabilities are recognized in purchase accounting. It also changes the recognition of assets acquired and liabilities assumed
arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred.
SFAS&nbsp;141R is effective for us beginning July&nbsp;1, 2009 and will apply prospectively to business combinations completed on or after that date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July&nbsp;1, 2007, the Company adopted the provisions of the FASB Interpretation No.&nbsp;48 ("FIN&nbsp;48"), </FONT><FONT SIZE=2><I>Accounting for Uncertainty in Income
Taxes&#151;an interpretation of FASB Statement No.&nbsp;109,</I></FONT><FONT SIZE=2> which provides a financial statement recognition threshold and measurement attribute for a tax position
taken or expected to be taken in a tax return. Under FIN&nbsp;48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based
on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN&nbsp;48 also provides guidance on derecognition of income tax assets and liabilities,
classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. Upon adoption, we recognized
a $19,000 charge to our beginning accumulated deficit as a cumulative effect of a change in accounting principle. See Note&nbsp;10&#151;Income Tax. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
May 2007, the FASB issued FASB Staff Position ("FSP") FIN&nbsp;48-1 Definition of Settlement in FASB Interpretation No.&nbsp;48 (FSP FIN&nbsp;48-1). FSP
FIN&nbsp;48-1 provides guidance on how to determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP
FIN&nbsp;48-1 is effective for the Company beginning July&nbsp;1, 2007. The implementation of this standard had no significant impact on the Company's condensed consolidated financial
statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February 2007, the FASB issued Statement No.&nbsp;159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No.&nbsp;115
("SFAS&nbsp;159"). SFAS&nbsp;159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair
value. SFAS&nbsp;159 will be effective for the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-49</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=335,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=544424,FOLIO='49',FILE='DISK112:[08ZAT1.08ZAT42501]GY42501A.;10',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gy42501_1_50"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (Unaudited) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>2. New Accounting Pronouncements: (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>Company
beginning July&nbsp;1, 2008. The Company is in the process of determining the impact of this statement on its consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September 2006, the FASB issued Statement No.&nbsp;157 (SFAS&nbsp;157), Fair Value Measurements. SFAS&nbsp;157 prescribes a single definition of fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting provisions of SFAS&nbsp;157 will be
effective for the Company beginning July&nbsp;1, 2008. The Company is in the process of determining the impact of this statement on its consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>3. Share-Based Compensation:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has two stock plans that provide or have provided for the grant to employees of stock options, permit the grant of non-statutory
share-based awards to paid consultants, and provide for the automatic grant of non-statutory share-based awards to outside directors. The plans may have options with terms of no more than
ten years. The maximum terms of the options granted under these plans have been seven years with a maximum vesting of five years. The Company also has an employee stock purchase plan (ESPP) for
employees to purchase its common stock at a discount. The ESPP provides for enrollment on the first day of a six-month period in which the employees can elect payroll deductions for the
purchase of the Company's common stock. The exercise date of the ESPP is the last day of the six-month period and the purchase price is 85% of the fair market value of a share of common
stock on the enrollment or exercise date, whichever is lower. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company adopted Statement of Financial Accounting Standards No.&nbsp;123 (revised 2004), "Share-Based Payment" ("SFAS&nbsp;123R"), effective July&nbsp;1, 2005 using a modified
prospective application, as permitted under SFAS&nbsp;123R. Under the modified-prospective-transition method, share-based compensation expense recognized during the three and six months ended
December&nbsp;28, 2007 and December&nbsp;29, 2006 includes stock options granted prior to, but not yet vested as of July&nbsp;1, 2005, based
on the grant-date fair value estimated in accordance with the original provisions of SFAS No.&nbsp;123 and the following items based on the grant date values estimated in accordance with
the provisions of SFAS No.&nbsp;123R: (a)&nbsp;stock options granted after June&nbsp;30, 2005, (b)&nbsp;ESPP with offering periods commencing subsequent to June&nbsp;30, 2005 and
(c)&nbsp;stock issued to employees of the Company. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-50</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=336,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=769343,FOLIO='50',FILE='DISK112:[08ZAT1.08ZAT42501]GY42501A.;10',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gy42501_1_51"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (Unaudited) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>3. Share-Based Compensation: (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes certain information regarding stock options during the six months ended and as of December&nbsp;28, 2007 (in thousands, except per share amounts): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="52%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Remaining Contractual Term (Yrs)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Aggregate Intrinsic Value</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Balance outstanding at June&nbsp;30, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,132</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.49</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Granted</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>344</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.19</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Exercised</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(129</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.25</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Forfeited</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(89</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.56</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Expired</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(81</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Balance outstanding at December&nbsp;28, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,177</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.49</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.56</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>27</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Options exercisable at December&nbsp;28, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,305</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.51</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.80</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a summary of the share-based compensation expense recognized by the Company for the three and six months ended December&nbsp;28, 2007 and December&nbsp;29, 2006 (in
thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="98%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Three Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Six Months Ended</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;29,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;29,<BR>
2006</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Stock options</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>112</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>112</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Employee stock purchase plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>62</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>108</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>115</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="33%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>103</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>112</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>220</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>227</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes the weighted average assumptions used to estimate the value of share-based awards granted for the six months ended December&nbsp;28, 2007 and
December&nbsp;29, 2006 for the Company's stock option plan and employee stock purchase plan: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="52%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Stock Options</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>ESPP</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="52%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="6%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Dividend yield</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.0</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Expected volatility</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>41.2</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>38.6</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46.3</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>38.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Risk-free interest rate</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.4</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.8</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.0</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="52%" style="font-family:times;"><FONT SIZE=2>Expected lives (in years)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.77</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.85</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.50</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.50</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the six months ended December&nbsp;28, 2007, the Company issued warrants to a consultant for services to purchase 15,000 shares of the Company's stock at an exercise price of
$2.25 per share. The warrants fully vested on December&nbsp;31, 2007 and expire on September&nbsp;18, 2012. The Company recorded $10,000 of share based compensation expense related to these
warrants. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-51</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=337,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=165421,FOLIO='51',FILE='DISK112:[08ZAT1.08ZAT42501]GY42501A.;10',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gy42501_1_52"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (Unaudited) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>4. Accounts Receivable:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable consisted of the following (in thousands): </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Amounts billed</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,985</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,600</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Amounts unbilled</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,014</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,150</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less allowance for doubtful accounts</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(425</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(429</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="63%" style="font-family:times;"><FONT SIZE=2>Totals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,574</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,321</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B>5. Inventories:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories consisted of the following (in thousands): </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="69%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2007</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Raw materials, net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>415</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>473</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>Finished goods, net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>69</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>126</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>484</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>599</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="69%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B>6. Furniture, Equipment and Leasehold Improvements:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furniture, equipment and leasehold improvements consisted of the following (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>June&nbsp;30, 2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Furniture and equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,726</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,266</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>460</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>412</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,186</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,678</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less accumulated depreciation and amortization</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3,189</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,727</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="61%" style="font-family:times;"><FONT SIZE=2>Net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,997</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,951</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
and amortization expense for furniture, equipment and leasehold improvements was $0.2&nbsp;million for both three months ended December&nbsp;28, 2007 and
December&nbsp;29, 2006, respectively, and $0.5&nbsp;million and $0.4&nbsp;million for the six months ended December&nbsp;28, 2007 and December&nbsp;29, 2006, respectively. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-52</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=338,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=273029,FOLIO='52',FILE='DISK112:[08ZAT1.08ZAT42501]GY42501A.;10',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_gy42501_1_53"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (Unaudited) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>7. Intangible Assets and Goodwill:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible assets consisted of the following (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="91%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="48%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted Average Amortization Period (Yrs)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Gross Carrying Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Accumulated Amortization</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Net</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2><B><I>December&nbsp;28, 2007</I></B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Technology</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,550</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(617</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,933</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Trade name</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,727</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(553</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,174</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,254</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(769</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,485</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Patents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Other intangibles</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>697</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(688</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,257</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,656</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,601</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2><B><I>June&nbsp;30, 2007</I></B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Technology</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,550</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(464</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,086</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Trade name</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,727</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(407</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,320</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Customer relationships</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,254</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(569</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,685</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Patents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Other intangibles</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>697</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(677</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,257</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,146</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,111</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="48%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
expense for intangible assets was $0.3&nbsp;million for both three months ended December&nbsp;28, 2007 and December&nbsp;29, 2006, respectively, and
$0.5&nbsp;million and $0.6&nbsp;million for the six months ended December&nbsp;28, 2007 and December&nbsp;29, 2006, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimated
aggregate future amortization expense for acquisition-related intangible assets in future fiscal years is as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="66%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Fiscal Year<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Six months ending June&nbsp;30, 2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>505</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>920</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2010</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>752</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2011</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>662</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2012</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>628</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,134</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="82%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,601</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-53</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=339,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=805448,FOLIO='53',FILE='DISK112:[08ZAT1.08ZAT42501]GY42501A.;10',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_ha42501_1_54"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>SYS AND SUBSIDIARIES  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (Unaudited)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>7. Intangible Assets and Goodwill: (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>Goodwill  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The changes in the carrying amount of goodwill during the six months ended December&nbsp;28, 2007 were as follows (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="88%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>DSG</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>PSSIG</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance June&nbsp;30, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,344</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,133</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,477</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="59%" style="font-family:times;"><FONT SIZE=2>Miscellaneous purchase price allocation adjustments</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(370</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(370</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance December&nbsp;28, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,344</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,763</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,107</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>8. Convertible Notes Payable and Other Debt:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;28, 2007 and June&nbsp;30, 2007, the Company had outstanding convertible notes payable totaling $3.1&nbsp;million, of which $1.0 was
payable to related parties. The convertible notes payable are unsecured and subordinate to the Company's bank debt, bear interest at 10% per annum payable quarterly, principal is due
February&nbsp;14, 2009 and are convertible at any time into shares of common stock at a conversion rate of $3.60 per share. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Related
parties consist of directors, officers and employees of the Company and their affiliates that are holders of the notes payable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has a bank line of credit facility which provides for borrowings of up to $4.0&nbsp;million. This facility expires on December&nbsp;28, 2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
credit facility, as it relates to any balances outstanding on the line of credit, contains financial and other covenants, and is collateralized by substantially all of the assets of
the Company. Borrowings pursuant to the line of credit bear interest at the bank's prime rate plus 0.25% (7.5% as of December&nbsp;28, 2007). As of December&nbsp;28, 2007, the Company had
approximately $1.1&nbsp;million of borrowings outstanding under this line of credit and none as of June&nbsp;30, 2007. On September&nbsp;27, 2006, the Company and the lender amended the terms of
the credit facility to eliminate the minimum quarterly net income covenant and the ratio of Senior debt to EBITDA covenant, and modified the tangible effective net worth covenant and cash flow
coverage ratio covenant. As of December&nbsp;28, 2007, the Company was in compliance with the covenants of the credit facility. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
credit facility allows the Company to use, under a Sub Facility, up to $2.0&nbsp;million of the credit facility for permitted acquisition purposes and $750,000 for minority
investment purposes. Borrowings under the Sub Facility bear interest at the bank's prime rate plus 0.50% (7.75% as of December&nbsp;28, 2007). The Company is subject to certain restrictions on the
permitted acquisitions and minority investments and in some cases must receive the lender's consent prior to using the facility for such purposes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the Sub Facility is used for permitted acquisitions or minority investments, such borrowings must be repaid over 48&nbsp;months. During fiscal 2006, in connection with the purchase
of RBIS, the Company utilized $1.0&nbsp;million of the line of credit for payment of a portion of the purchase consideration. In accordance with the terms of the credit facility, the
$1.0&nbsp;million was converted to a term note effective June&nbsp;10, 2006. The term note is payable in monthly installments of $21,000 plus interest for the fiscal </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-54</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=340,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=148765,FOLIO='54',FILE='DISK112:[08ZAT1.08ZAT42501]HA42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_ha42501_1_55"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (Unaudited) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>8. Convertible Notes Payable and Other Debt: (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>years
2007 through 2010, with payments beginning in October 2006. As of December&nbsp;28, 2007, approximately $0.5&nbsp;million was outstanding under the term note, of which $0.1&nbsp;million
was classified as a current liability as a result of the Company's $250,000 prepayment on June&nbsp;30, 2007 of the principal payments required through June&nbsp;30, 2008. Principal amounts of
$250,000 on this note are due annually in fiscal years 2009 and 2010. The outstanding balance related to the Sub Facility reduces the maximum borrowings available under the line of credit. As a
result, as of December&nbsp;28, 2007, the maximum borrowing capacity under the line of credit was $3.5&nbsp;million and the remaining available borrowing capacity was $2.4&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>9. Net Income (Loss) Per Share:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic net income (loss) per common share is calculated by dividing net income (loss) applicable to common stock by the weighted average number of common shares
outstanding during the period. The calculation of diluted net income (loss) per common share is similar to that of basic net income (loss) per common share, except that the denominator is increased to
include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally those issuable upon the conversion of notes payable and the
exercise of stock options and warrants, were issued during the period. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes the calculation of basic and diluted net income (loss) per common share for each period (in thousands except per share data): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Three Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Six Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;29,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;29,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Numerators:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(342</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>572</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(457</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Denominators:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Weighted average shares for basic net income (loss) per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,483</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,521</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,401</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,463</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2>Add dilutive effect of assumed exercise of stock options using the treasury stock method</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>47</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2>Add dilutive effect of shares related to employee stock purchase plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>86</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>56</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Weighted average shares for diluted net income (loss) per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,569</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,521</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,504</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,463</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Basic net income (loss) per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Diluted net income (loss) per common share</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.03</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the three and six months ended December&nbsp;28, 2007, 0.9&nbsp;million shares related to convertible notes were excluded from the calculation of diluted EPS because they were
anti-dilutive. For the three and six months ended December&nbsp;29, 2006, a total of 1.9&nbsp;million shares related to stock options, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-55</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=341,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=289225,FOLIO='55',FILE='DISK112:[08ZAT1.08ZAT42501]HA42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_ha42501_1_56"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (Unaudited) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>9. Net Income (Loss) Per Share: (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>warrants
and convertible notes were excluded from the calculation of diluted EPS because they were anti-dilutive. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>10. Income Tax:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;1, 2007, we adopted the provisions of FIN&nbsp;48, </FONT><FONT SIZE=2><I>Accounting for Uncertainty in Income Taxes&#151;an
interpretation of FASB Statement No.&nbsp;109,</I></FONT><FONT SIZE=2> which provides a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be
taken in a tax return. Under FIN&nbsp;48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by
the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that
has a greater than 50% likelihood of being realized upon ultimate settlement. FIN&nbsp;48 also provides guidance on derecognition of income tax assets and liabilities, classification of current and
deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Adopting
FIN&nbsp;48 had the following impact on our financial statements: increased current deferred tax assets by $0.5&nbsp;million and the current income tax payable by
$0.5&nbsp;million. As of July&nbsp;1, 2007 and as of December&nbsp;28, 2007, we had $1.1&nbsp;million of unrecognized tax benefits, none of which if recognized, would affect our effective tax
rate. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. As of July&nbsp;1, 2007 and December&nbsp;28, 2007, the
balance sheet included $0.1&nbsp;million of accrued interest related to uncertain tax positions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company files income tax returns in the U.S. federal jurisdiction and various states jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and
local income tax examinations by tax authorities for fiscal years before 2004. In January 2008, the Internal Revenue Service (IRS) completed its examination of the Company's U.S. income tax returns
for fiscal years ended June&nbsp;30, 2004 through June&nbsp;30, 2006. The Company has agreed to IRS adjustments to reverse the acceleration of the deduction of certain expenses incurred in a
subsequent year for the tax years under audit resulting in a payment in January 2008 for taxes of $483,000. This amount was included in the income taxes payable as of June&nbsp;30, 2007 and
December&nbsp;28, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>11. Legal Matters:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are involved in legal actions in the normal course of business, including audits and investigations by various governmental agencies that result from our work
as a governmental contractor. We are named as defendants in legal proceedings from time to time and we may assert claims from time to time. Management is of the opinion that any liability or loss
associated with such matters, either individually or in the aggregate, will not have a material adverse effect on the Company's operations and liquidity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>12. Segment Information:  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company reports operating results and financial data for two reporting segments: Defense Solutions Group (DSG) and Public Safety, Security and Industrial
Systems Group (PSSIG). DSG </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-56</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=342,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=968041,FOLIO='56',FILE='DISK112:[08ZAT1.08ZAT42501]HA42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_ha42501_1_57"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS AND SUBSIDIARIES </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> (Unaudited) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>12. Segment Information: (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>provides
engineering, technical, and financial and management services primarily to U.S. Government customers. Revenues in the PSSIG include products and equipment sales, software, engineering and
installation services for industrial and commercial customers as well as government customers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company's revenues are derived primarily from engineering and technical services, but also included product sales. For the three and six months ended December&nbsp;28, 2007, the
product revenues represented 7.8% and 10.1%, respectively of total revenues, compared to 9.3% and 8.4%, respectively, of the comparable periods in fiscal 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales
to government agencies, including both defense and non-defense agencies, and sales as a subcontractor as well as direct sales, aggregated approximately
$16.1&nbsp;million (89%) and $34.7&nbsp;million (90%) of consolidated revenues in the three and six months ended December&nbsp;28, 2007, respectively. No single contract or individual customer
accounted for more than 10% of total revenue for the three and six months ended December&nbsp;28, 2007 and December&nbsp;29, 2006, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selected
financial data by segment is as follows (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Three Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Six Months Ended</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;29,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;28,<BR>
2007</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>December&nbsp;29,<BR>
2006</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><B>Revenue:</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>DSG</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,846</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,508</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,079</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24,868</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>PSSIG</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,275</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,708</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,552</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,591</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><B>Totals</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,121</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,216</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>38,631</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,459</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><B>Income (loss) from operations:</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>DSG</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>96</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>373</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>668</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>918</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>PSSIG</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(588</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>582</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,355</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><B>Totals</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>105</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(215</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,250</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(437</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FII-57</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=343,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=317136,FOLIO='57',FILE='DISK112:[08ZAT1.08ZAT42501]HA42501A.;9',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_hc42501_1_1"> </A>


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<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="hc42501_haverstick_financial_statements"> </A>
<A NAME="toc_hc42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>HAVERSTICK FINANCIAL STATEMENTS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2007, Kratos acquired Haverstick. The following Consolidated Financial Statements of Haverstick and the accompanying Notes are provided
pursuant to Rule&nbsp;3-05 of Regulation&nbsp;S-X in order to provide you with information regarding Haverstick's operations on a stand-alone basis and provide context for
the pro-forma combined financial statements provided this proxy statement/prospectus at page 196. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="hc42501_contents"> </A>
<A NAME="toc_hc42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>CONTENTS    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="77%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Page</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>FIII-2</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
CONSOLIDATED FINANCIAL STATEMENTS</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="88%" style="font-family:times;"><BR><FONT SIZE=2> CONSOLIDATED BALANCE SHEET</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
FIII-3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="88%" style="font-family:times;"><BR><FONT SIZE=2> CONSOLIDATED STATEMENT OF OPERATIONS</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
FIII-4</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="88%" style="font-family:times;"><BR><FONT SIZE=2> CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
FIII-5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="88%" style="font-family:times;"><BR><FONT SIZE=2> CONSOLIDATED STATEMENT OF CASH FLOWS</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
FIII-6</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="88%" style="font-family:times;"><BR><FONT SIZE=2> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
FIII-7</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-1</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=344,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=134969,FOLIO='1',FILE='DISK112:[08ZAT1.08ZAT42501]HC42501A.;14',USER='KSOLTER',CD=';8-APR-2008;20:48' -->
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NAME="page_he42501_1_2"> </A>


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 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="he42501_report_of_independent_certified_public_accountants"> </A>
<A NAME="toc_he42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Board
of Directors<BR>
Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have audited the accompanying consolidated balance sheet of Haverstick Consulting,&nbsp;Inc. (an Indiana Corporation) and subsidiaries (the "Company") as of December&nbsp;31, 2007
(prior to the acquisition by Kratos Government Solutions,&nbsp;Inc.), and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
conducted our audit in accordance with auditing standards generally accepted in the United States of America as established by the American Institute of Certified Public Accountants.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Haverstick Consulting,&nbsp;Inc. and
subsidiaries as of December&nbsp;31, 2007, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United
States of America. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>/s/
Grant Thornton&nbsp;LLP </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Irvine,
California<BR>
March&nbsp;24, 2008 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-2</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=345,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=630561,FOLIO='2',FILE='DISK112:[08ZAT1.08ZAT42501]HE42501A.;3',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
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NAME="page_hg42501_1_3"> </A>


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 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="hg42501_haverstick_consulting,_inc._co__hav02342"> </A>
<A NAME="toc_hg42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc.<BR>  <BR>    CONSOLIDATED BALANCE SHEET<BR>  <BR>    December&nbsp;31, 2007    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="82%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>ASSETS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Current assets:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,558,453</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts and other receivables (net)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,727,499</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,498,502</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred income tax</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,651</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Inventory (net)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>647,991</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Total current assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>32,435,096</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Property and equipment (net)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2,340,884</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50,930,209</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other non-current assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,368,972</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>88,075,161</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>LIABILITIES AND STOCKHOLDERS' EQUITY</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Current liabilities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Notes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,499,205</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Term loan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,000,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Current portion of long-term liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>99,285</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts payable and accrued expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,467,422</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,510,922</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Total current liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>58,576,834</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Deferred income tax</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2,651</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Long-term liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,913,864</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other non-current liability</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>226,536</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Total liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,719,885</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Commitments and contingencies</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Stockholders' equity:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Common stock, no par value</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59,109,059</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(32,753,783</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Total stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,355,276</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Total liabilities and stockholders' equity</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>88,075,161</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-3</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=346,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=323690,FOLIO='3',FILE='DISK112:[08ZAT1.08ZAT42501]HG42501A.;5',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_hg42501_1_4"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="hg42501_haverstick_consulting,_inc._co__hav03408"> </A>
<A NAME="toc_hg42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc.<BR>  <BR>    CONSOLIDATED STATEMENT OF OPERATIONS<BR>  <BR>    For Year Ended December&nbsp;31, 2007    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="82%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>94,173,808</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Direct costs</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>73,392,028</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Gross margin</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20,781,780</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Costs and expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,977,178</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Operating income before interest and taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,804,602</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other income (expense):</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Amortization of remaining loan discount on loan payoff</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,291,127</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Amortization of remaining deferred financing costs on loan payoff</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,444,046</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Interest expense</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,295,895</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Interest income</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>82,548</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Loss before income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11,143,918</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>459,899</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net loss and comprehensive loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11,603,817</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-4</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=347,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=314663,FOLIO='4',FILE='DISK112:[08ZAT1.08ZAT42501]HG42501A.;5',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_hg42501_1_5"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="hg42501_haverstick_consulting,_inc._co__hav04249"> </A>
<A NAME="toc_hg42501_3"> </A>
<BR></FONT><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc.<BR>  <BR>    CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY<BR>  <BR>    For Year Ended December&nbsp;31, 2007    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="95%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Common Stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Accumulated Deficit</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Total Stockholders' Equity</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance, January&nbsp;1, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31,194,243</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33,249,080</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(21,149,966</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,099,114</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><BR><FONT SIZE=2> Termination of put options</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
25,859,979</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
25,859,979</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><BR><FONT SIZE=2> Net loss and comprehensive loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(11,603,817</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(11,603,817</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Balance, December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31,194,243</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59,109,059</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(32,753,783</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,355,276</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-5</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=348,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=257098,FOLIO='5',FILE='DISK112:[08ZAT1.08ZAT42501]HG42501A.;5',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_hg42501_1_6"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="hg42501_haverstick_consulting,_inc._co__hav03381"> </A>
<A NAME="toc_hg42501_4"> </A>
<BR></FONT><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc.<BR>  <BR>    CONSOLIDATED STATEMENT OF CASH FLOWS<BR>  <BR>    For Year Ended December&nbsp;31, 2007    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="82%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash flow from operating activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11,603,817</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Adjustments to reconcile net loss to net cash provided by operating activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Depreciation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>605,987</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Amortization</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,859,654</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Amortization of remaining loan discount on loan payoff</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,291,127</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Amortization of remaining deferred financing costs on loan payoff</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,444,046</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Changes in assets and liabilities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Restricted cash</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>792,417</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts and other receivables</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,497,332</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,163,947</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Inventory</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(300,484</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other non-current assets</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,314,665</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts payable and accrued expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,165,426</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,140,394</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Long-term liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>868,593</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other non-current liability</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>226,536</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="73%" style="font-family:times;"><FONT SIZE=2>Net cash provided by operating activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,513,935</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash flow from investing activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Purchases of property and equipment</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(178,615</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="73%" style="font-family:times;"><FONT SIZE=2>Net cash used in investing activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(178,615</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash flow from financing activities:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Net borrowings on notes payable</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,628,183</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Payments on long-term debt</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,485,467</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="73%" style="font-family:times;"><FONT SIZE=2>Net cash provided by financing activities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,142,716</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="73%" style="font-family:times;"><FONT SIZE=2>Net increase in cash and cash equivalents</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,478,036</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents, beginning of year</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>80,417</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>Cash and cash equivalents, end of year</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,558,453</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See
accompanying notes to consolidated financial statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-6</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=349,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=631745,FOLIO='6',FILE='DISK112:[08ZAT1.08ZAT42501]HG42501A.;5',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_hi42501_1_7"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>NOTE 1&#151;MERGER  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2007, Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., a Delaware corporation (Kratos), Kratos Government Solutions,&nbsp;Inc., a
Delaware corporation and wholly-owned subsidiary of Kratos (Parent), Haverstick Acquisition Corporation, a Delaware corporation (Merger Sub), and Haverstick Consulting,&nbsp;Inc., an Indiana
corporation (Haverstick or the Company), consummated the merger of the Merger Sub with and into Haverstick (the Merger) pursuant to the terms of that certain Agreement and Plan of Merger, dated as of
November&nbsp;2, 2007 (the Merger Agreement). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the Merger, all outstanding shares of common stock of Haverstick were converted into the right to receive a ratable portion of the merger consideration. The total
purchase price was $90.2&nbsp;million including transaction costs incurred by Kratos of $0.5&nbsp;million. The purchase price paid to the Company was $89.7&nbsp;million which comprised of
$70.3&nbsp;million in cash and issuance of 7.48&nbsp;million shares of Kratos' common stock valued at $2.60 per share or an aggregate consideration of $19.4&nbsp;million. Of the merger
consideration, Kratos paid $81.1&nbsp;million, $66.7&nbsp;million of which was cash paid at closing, $2.4&nbsp;million was paid thereafter, and $12.0&nbsp;million in Kratos common stock. The
remaining $8.6&nbsp;million of consideration was held back (the Holdback Consideration) to secure any negative working capital adjustments required by the Merger Agreement and the Parent's indemnity
rights. The Holdback Consideration is comprised of both cash and Kratos common stock in the amounts of $1.2&nbsp;million and $7.4&nbsp;million, respectively. The aggregate $8.6&nbsp;million
holdback will be released at the rate of 50% on the 12&nbsp;month anniversary of the closing and the remaining 50% on the 21&nbsp;month anniversary of the closing, with the exact amounts being
subject to any unresolved and pending claims. Subsequent to the Merger, Parent paid outstanding loan amounts owed by Haverstick at December&nbsp;31, 2007 on a Line of Credit and Term Loan of
$21.0&nbsp;million and $17.5&nbsp;million, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 2&#151;SIGNIFICANT ACCOUNTING POLICIES  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying consolidated financial statements of Haverstick Consulting,&nbsp;Inc. and its wholly-owned subsidiaries, HGS Holdings,&nbsp;Inc., Haverstick
Government Solutions,&nbsp;Inc., DTI Associates,&nbsp;Inc., and Rocket Support Services,&nbsp;LLC, are presented in accordance with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements presents the consolidated balance sheet of the Company just prior to the Merger Agreement with Kratos and do not reflect any adjustments that might
result from the application of Statements of Financial Accounting Standards (SFAS) No.&nbsp;141, "Accounting for Business Combinations". Haverstick is headquartered in Indianapolis, Indiana, and
provides information technology solutions, management consulting, and outsourcing to the U.S. Government, state and local governments, and the private sector. The Company's primary service offerings
include government outsourcing, technology solutions, engineering and program management, learning and transformation, facilities operation and management, conference and event planning, suborbital
rockets and rocket launch support services, marketing and public affairs, and business consulting. The Company was incorporated in December 1994. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Principles of Consolidation  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been
eliminated. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-7</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>

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<A NAME="page_hi42501_1_8"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 2&#151;SIGNIFICANT ACCOUNTING POLICIES (Continued) </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Cash and Cash Equivalents  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company considers all highly liquid investments with maturity of three months or less to be cash equivalents and maintains its cash equivalents in a
money-market fund. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Revenue Recognition, Accounts Receivable and Deferred Revenue  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company recognizes revenues when a contract has been executed, the contract price is fixed and determinable, delivery of services or products has occurred,
and collection of the contract price is considered probable and can be reasonably estimated. Revenues are earned under time-and-materials, fixed-price and cost-plus
contracts. Revenue is deferred when billings are made in excess of amounts recognized as revenues as defined in the succeeding paragraphs. Contract costs, other than those described as inventory, are
expensed as incurred. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues
on time-and-materials contracts are recognized based on direct labor hours expended at contract billing rates and other billable costs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has three categories of fixed-price contracts: fixed-price-level-of-effort, fixed-unit-price, and fixed-price-completion.
Revenue recognition for fixed-price-level-of-effort contracts is dependent on whether the services are specific to defined deliverables or are primarily for support and
maintenance. Revenues on fixed-price contracts for specified service deliverables are recognized as deliverables are provided. Revenues for support and maintenance services are recognized over the
contractual period of performance on a straight-line basis. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fixed-unit-price
contracts primarily relate to long-term fixed-price agreements for the manufacture of complex aerospace equipment and custom software
solutions. In 2007, the Company changed its method of accounting for these long-term contracts from units of delivery, primarily based upon individual elements of a contract, to a
percentage of completion method based upon cost incurred to total estimated costs to complete. The Company believes that the new method more accurately reflects periodic results of operations and
conforms to revenue recognition practices predominant in the industry. The effects of this change on previous years were not significant. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
recognition for fixed-price-completion contracts primarily relate to short-term construction projects for the Company's facilities maintenance contracts. Revenue is
recognized under the completed-contract method and costs allocable to the uncompleted projects are reported in the balance sheet as inventory. No such costs were included in inventory at
December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
cost-plus contracts, the Company is reimbursed for allowable costs plus a fixed fee or percentage of cost. Revenues on cost-plus contracts are recognized
based on costs incurred plus applicable fees earned. The Company considers fixed fees under cost-plus contracts to be earned in proportion to the allowable costs incurred. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract
revenue recognition inherently involves estimation. From time to time, facts arise that require revisions to estimated total costs or expected revenues. The cumulative impact of
any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-8</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_hi42501_1_9"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 2&#151;SIGNIFICANT ACCOUNTING POLICIES (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company's contracts with agencies of the government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception
of the contract or annually throughout the contract consistent with the government's fiscal year. In evaluating the probability of funding for purposes of recognizing revenue and assessing collection
of the contract price, the Company considers its previous experiences with its customers, communications with its customers regarding funding status, and the Company's knowledge of available funding
for the contract or program. Revenue is recognized only when realization is probable. For the year ended December&nbsp;31, 2007, the Company had recognized approximately $450,000 of revenue in
excess of funding. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
allowability of certain costs under government contracts is subject to audit by the government. Certain indirect costs are charged to contracts using provisional or estimated
indirect rates, which are subject to later revisions based on governmental audits of those costs. The majority of such audits have been completed through 2004. Management is of the opinion that any
revisions of prior revenue based on audits of prior costs will not be significant. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company occasionally sells or sublicenses materials or software obtained from others to its clients. Revenue and related costs for such transactions are recognized when the material
or software is delivered to the client. Haverstick is not generally obligated to render services in connection with such sales of materials or software. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management periodically determines
the adequacy of this allowance by evaluating the comprehensive risk profiles of all individual customer receivable balances including, but not limited to, the customer's financial condition, credit
agency reports, financial statements and overall current economic conditions. Additionally, on certain contracts whereby the Company performs services, a specified percentage of the invoiced trade
accounts receivable may be retained by the customer until the project is completed. The Company periodically reviews all retainages for collectibility and records allowances for doubtful accounts when
deemed appropriate, based on its assessment of the associated credit risks. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred
revenues include advance progress billings on fixed-unit-price contracts (aerospace equipment and custom software solutions) and billings in excess of
amounts recognized as revenue on fixed-price-level-of-effort contracts. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Inventory  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or market and consist of accumulated rocket components and parts used in the Company's launch support services.
Inventory obsolescence is recognized when, in management's opinion, the item is no longer likely to be used. At December&nbsp;31, 2007, inventory obsolescence reserves were $108,607. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Property and Equipment  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment are recorded at costs net of accumulated depreciation. The Company depreciates these assets over their estimated useful lives of 3 to
5&nbsp;years using the straight-line depreciation method. Maintenance, repairs and minor renewals are expensed as incurred. Property and </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-9</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=352,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=102741,FOLIO='9',FILE='DISK112:[08ZAT1.08ZAT42501]HI42501A.;5',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_hi42501_1_10"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 2&#151;SIGNIFICANT ACCOUNTING POLICIES (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>equipment
acquired under capital leases is recorded at the present value of future minimum lease payments and is amortized over the shorter of the lease term or the estimated useful life of the asset. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Goodwill  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's goodwill resulted from the acquisition of DTI Associates,&nbsp;Inc. (DTI) in 2004 and A.F. Kelly&nbsp;&amp; Associates,&nbsp;Inc. (Kelly) in 2002
and represents the excess of cost over the fair value of net tangible and identifiable intangible assets acquired. Tax benefits realized from costs incurred by DTI and Kelly prior to their acquisition
are credited to goodwill. Such goodwill is accounted for in accordance with the provisions of FASB Statement No.&nbsp;142, </FONT><FONT SIZE=2><I>Goodwill and Other Intangible
Assets</I></FONT><FONT SIZE=2> (SFAS No.&nbsp;142). SFAS No.&nbsp;142 requires that the Company perform an impairment test annually or more frequently if events or circumstances indicate that the
value of goodwill might be impaired. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
it is determined that the carrying value of goodwill may not be recoverable based upon the existence of one or more indicators of impairment, measurement of any impairment will be
based on a projected discounted cash flow method using a discount rate commensurate with the risk inherent in
the current business model. No goodwill impairment was recorded as a result of the SFAS No.&nbsp;142 annual impairment test completed as of December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Long-Lived Assets  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived assets and certain intangibles are reviewed for impairment, based upon the undiscounted expected future cash flows, whenever events or
circumstances indicate that the carrying amount of such assets may not be recoverable. There has been no impairment as of December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Loan Costs  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments made to lenders to obtain financing are treated as loan discounts that are deducted from the reported amount of the liabilities and are amortized on the
effective interest method over the life of the loans. Payments to obtain financing that are made to parties other than the lenders are charged to deferred financing costs and are amortized on the
effective interest method over the life of the loan. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Income Taxes  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes are accounted for using the asset and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the consolidated financial statements carrying amounts of assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and operating loss carryforwards are expected to be
recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance has
been established to offset the deferred tax asset at December&nbsp;31, 2007. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-10</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_hi42501_1_11"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 2&#151;SIGNIFICANT ACCOUNTING POLICIES (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Advertising Costs  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Advertising costs are charged to expense as incurred and totaled $99,450 the year ended December&nbsp;31, 2007. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I>Concentration of Risk  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial instruments, which subject the Company to concentrations of credit risk, consist primarily of cash and trade accounts receivable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company maintains its cash and cash equivalents in bank deposit accounts which may exceed the federally insured limits. The Company has not experienced any losses in such accounts.
Management believes it is not exposed to any significant credit risk on cash and cash equivalents. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the year ended December&nbsp;31, 2007, two clients accounted for 30% and 11%, respectively, of total revenue. As of December&nbsp;31, 2007, two clients accounted for 44% and 13%,
respectively, of total accounts receivable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the year ended December&nbsp;31, 2007, approximately 76% of revenue was generated from services rendered to the U.S. Government or as a subcontractor to other government prime
contractors. The Company is subject to all of the risks associated with conducting business with the U.S. Government, including the risk of contract terminations at the convenience of the government.
In addition, government funding continues to be dependent on Congressional approval of program level funding and on contracting agency approval for the Company's work. The extent to which the
Company's existing contracts will be funded in the future cannot be determined. However, the Company has not experienced any significant cancellations, terminations or loss of funding during the life
of a contract in the past. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the year ended December&nbsp;31, 2007, one vendor accounted for 13% of total purchases. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Estimates  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Accounts requiring the use of significant
estimates include proportionate completion of contracts with fixed prices; provisional cost rates used for interim billings on cost-plus contracts; allowance for doubtful accounts;
inventory obsolescence reserves; depreciable lives of property and equipment; deferred tax asset valuation allowance; the initial and continuing valuation of goodwill and purchased intangible assets;
and tax and loss contingencies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Fair Value of Assets and Liabilities  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS No.&nbsp;107, "Disclosures about Fair Value of Financial Instruments," requires that fair values be disclosed for the Company's financial instruments. The
carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, deferred revenue, and its credit facility approximate fair value due to the
short-term nature of these instruments. The fair value of the Company's debt and capital lease obligations is estimated based on the quoted market prices for the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-11</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_hi42501_1_12"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>NOTE 2&#151;SIGNIFICANT ACCOUNTING POLICIES (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>same
or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The fair value of the Company's debt and capital lease obligations as of
December&nbsp;31, 2007 is $38.5&nbsp;million and $1.2&nbsp;million, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Stock-Based Compensation  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective January&nbsp;1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No.&nbsp;123R ("SFAS&nbsp;123R"),
"Share-Based Payments," which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values.
SFAS&nbsp;123R supersedes the Company's previous accounting methodology using the intrinsic value method under Accounting Principles Board Opinion APB No.&nbsp;25, "Accounting for Stock Issued to
Employees." Under the intrinsic value method, no share-based compensation expense related to stock option awards granted to employees at market price on date of grant had been recognized in the
Company's Consolidated Statement of Operations prior to January&nbsp;1, 2006. The Company has no awards with market or performance conditions and the Company has not issued any options since the
adoption of SFAS&nbsp;123R. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Common Stock Subject to Put Agreements  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company entered into a contract providing stockholders an option to put shares to the Company. Based on this contract, the Company recorded a liability and an
offsetting charge to equity equal to the estimated value as if the put option were settled at that day the contract was entered into. This is consistent with SFAS No.&nbsp;150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and Equity", which requires that equity securities subject to put agreement be recorded by the issuer as a liability rather than
equity at the value of those securities when the put option is established. SFAS No.&nbsp;150 further requires that those securities be revalued periodically and that any subsequent increases or
decreases in the estimated value of the put option be reflected in the amount of the liability with a corresponding adjustment to interest expense at each balance sheet date. All of the put options
terminate in the event of an initial public offering of the Company's shares or the acquisition of the Company by another party. In that event, the amount carried as a liability is transferred to
equity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I>Recently Issued Accounting Standards  </I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2006, the EITF reached a consensus on Issue No.&nbsp;06-3, How Sales Taxes Collected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation) (EITF&nbsp;06-3) by concluding that companies should disclose their accounting policy
(i.e.,&nbsp;gross or net presentation) regarding presentation of taxes within the scope of this issue. The Task Force also concluded that once the new standard is effective (January&nbsp;1, 2007),
companies should disclose the amount of such taxes for periods in which these taxes included in gross revenues are considered material. The Company collects and remits sales taxes on equipment that it
purchases and sells under its contracts with customers, and reports such amounts under the gross method as revenue, and as other direct costs, in its consolidated statements of operations. The Company
has evaluated the amount of sales taxes collected and remitted to government authorities in recent years and determined that such amounts are insignificant. The Company will monitor amounts </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-12</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_hi42501_1_13"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 2&#151;SIGNIFICANT ACCOUNTING POLICIES (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>of
sales taxes collected and remitted in future periods and will disclose such amounts if they are material. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
July 2006, the FASB issued FASB Interpretation No.&nbsp;48, </FONT><FONT SIZE=2><I>Accounting for Uncertainty in Income Taxes</I></FONT><FONT SIZE=2> (FIN No.&nbsp;48), which
prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN
No.&nbsp;48 provides guidance on the recognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The provisions of FIN No.&nbsp;48 will be
effective for financial statements issued for fiscal years beginning after December&nbsp;15, 2007. The Company is in the
process of determining the effect, if any, the adoption of FIN No.&nbsp;48 will have on its financial statements and related disclosures. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September 2006, the FASB issued SFAS No.&nbsp;157, </FONT><FONT SIZE=2><I>Fair Value Measurements</I></FONT><FONT SIZE=2> (SFAS No.&nbsp;157). SFAS No.&nbsp;157 establishes a
framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value and expands disclosures about fair value measurements. SFAS No.&nbsp;157 does
not require any new fair value measurements. However, the application of SFAS No.&nbsp;157 may change current practice for some entities. SFAS No.&nbsp;157 is effective for financial statements
issued for fiscal years beginning after November&nbsp;15, 2007, and interim periods within those fiscal years. The Company is in the process of determining the impact of SFAS No.&nbsp;157 on its
consolidated results of operations and financial position. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February 2007, the FASB issued FASB Statement No.&nbsp;159, </FONT><FONT SIZE=2><I>The Fair Value Option for Financial Assets and Financial Liabilities&#151;Including an
Amendment of FASB Statement No.&nbsp;115.</I></FONT><FONT SIZE=2> This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option
is available to all entities, including not-for-profit organizations. Most of the provisions in Statement 159 are elective; however, the amendment to FASB Statement
No.&nbsp;115, </FONT><FONT SIZE=2><I>Accounting for Certain Investments in Debt and Equity Securities,</I></FONT><FONT SIZE=2> applies to all entities with
available-for-sale and trading securities. Some requirements apply differently to entities that do not report net income. The FASB's stated objective in issuing this standard
is as follows: "to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
fair value option established by Statement 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report
unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent
reporting date. A not-for-profit organization will report unrealized gains and losses in its statement of activities or similar statement. The fair value option: (a)&nbsp;may
be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b)&nbsp;is irrevocable (unless a new election date occurs); and
(c)&nbsp;is applied only to entire instruments and not to portions of instruments. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statement
159 is effective as of the beginning of an entity's first fiscal year that begins after November&nbsp;15, 2007. Early adoption is permitted as of the beginning of the
previous fiscal year provided that the entity makes that choice in the first 120&nbsp;days of that fiscal year and also elects to apply the provisions of FASB Statement No.&nbsp;157, </FONT> <FONT SIZE=2><I>Fair Value Measurements.</I></FONT><FONT
SIZE=2> The Company is in the process of determining the impact of this statement on its consolidated financials statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-13</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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 </FONT> <FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>NOTE 2&#151;SIGNIFICANT ACCOUNTING POLICIES (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2007, the FASB issued SFAS No.&nbsp;141 (revised 2007) ("SFAS&nbsp;141R"), "Business Combinations" and SFAS No.&nbsp;160 ("SFAS&nbsp;160")
"Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No.&nbsp;51". SFAS&nbsp;141R will change how business acquisitions are accounted for
and will impact financial statements both on the acquisition date and in subsequent periods. SFAS&nbsp;160 will change the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of equity. The provisions of SFAS&nbsp;141R and SFAS&nbsp;160 are effective for financial statements issued for fiscal
years beginning after December&nbsp;15, 2008. Early adoption is not permitted. The Company is in the process of determining the impact of these statements on its consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 3&#151;ACCOUNTS AND OTHER RECEIVABLES  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts and other receivables were as follows at December&nbsp;31, 2007: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Billed revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,872,025</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Unbilled revenue</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,672,890</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income taxes</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>125,579</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>135,176</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Due from stockholders</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>41,829</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="71%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,847,499</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less allowance for doubtful accounts</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(120,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="71%" style="font-family:times;"><FONT SIZE=2>Net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,727,499</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B>NOTE 4&#151;PREPAID EXPENSES  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses were as follows at December&nbsp;31, 2007: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="66%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Prepaid direct costs:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Progress payments on rocket components</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,690,503</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Subcontractor services</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>671,101</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Prepaid insurance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>92,507</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Other prepayments</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44,391</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="73%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,498,502</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B>NOTE 5&#151;INVENTORY  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory consisted of the following at December&nbsp;31, 2007: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Rocket components and parts</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>756,598</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Reserve for obsolescence</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(108,607</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="73%" style="font-family:times;"><FONT SIZE=2>Net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>647,991</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-14</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=357,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=877016,FOLIO='14',FILE='DISK112:[08ZAT1.08ZAT42501]HK42501A.;7',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_hk42501_1_15"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 6&#151;PROPERTY AND EQUIPMENT  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment consisted of the following at December&nbsp;31, 2007: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Computer equipment</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,680,723</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Capital lease&#151;facility</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,169,542</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Office equipment and furniture</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>960,621</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>134,754</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Software</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>132,560</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,078,200</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less accumulated depreciation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,737,316</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="71%" style="font-family:times;"><FONT SIZE=2>Net</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,340,884</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B>NOTE 7&#151;NOTES PAYABLE AND TERM LOAN  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Simultaneously with acquiring DTI on January&nbsp;16, 2004, Haverstick entered into a Loan Agreement to obtain a Term Loan of $24&nbsp;million (all of which
was borrowed to fund the DTI purchase) and a Line of Credit of up to the lesser of $20&nbsp;million or the sum of 90&nbsp;percent of eligible government accounts receivable and 75&nbsp;percent
of eligible commercial accounts receivable (approximately $18.0&nbsp;million at December&nbsp;31, 2007). The lender was a stockholder of the Company. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2007, $21.0&nbsp;million and $17.5&nbsp;million was outstanding on the Term Loan and the Line of Credit, respectively. Total interest expense related to the
Term Loan and the Line of Credit was $2.6&nbsp;million and $1.3&nbsp;million, respectively, for the year ended December&nbsp;31, 2007. The Term Loan and the Line of Credit was fully paid by
Parent subsequent to the Merger (See Note&nbsp;1). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
on the Line of Credit was due monthly at a variable rate based on the LIBOR Market Index Rate plus 3.0&nbsp;percent (approximately 7.6&nbsp;percent at December&nbsp;31,
2007) and the principal was due July&nbsp;1, 2012. Interest on the Term Loan was due monthly at 12&nbsp;percent and the principal was initially due in monthly payments beginning in July 2004, with
the final payment due February 2011. In 2005, the Company negotiated a two year moratorium of principal payments through June&nbsp;30, 2007. Effective July&nbsp;1, 2007, the Term Loan was amended
again extending the final payment due to July&nbsp;1, 2012. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Loan Agreement provided a lien on substantially all of the Company's assets, a pledge of the Company's common stock held by stockholders representing approximately 43&nbsp;percent
of the Company's common stock, and personal guarantees by several stockholders. At the closing of the Company's merger with Kratos, the Company paid a $420,000 prepayment penalty fee to the lender.
The prepayment penalty fee is included in other expense for year ended December&nbsp;31, 2007. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Simultaneously
with acquiring DTI and entering into a loan agreement on January&nbsp;16, 2004, the Company issued 5,109,331 shares of its common stock valued at $15.3&nbsp;million to
the lender and guarantors and incurred approximately $1.0&nbsp;million in costs related to the Loan Agreement. Those costs were amortized on the interest method over the life of the Term Loan. At
December&nbsp;31, 2007, the remaining unamortized loan costs and discount totaling $8.7&nbsp;million were written-off because of the termination of the loan agreement and Parent's full
payment of the loans subsequent to the Merger (Note&nbsp;1). </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-15</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=358,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=810825,FOLIO='15',FILE='DISK112:[08ZAT1.08ZAT42501]HK42501A.;7',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_hk42501_1_16"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>NOTE 8&#151;ACCOUNTS PAYABLE AND ACCRUED EXPENSES  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and accrued expenses consisted of the following at December&nbsp;31, 2007: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accounts payable, trade</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,059,443</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Compensation and related items</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,959,799</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Investment banking fees</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,550,347</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest and prepayment penalty</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>756,347</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Taxes</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>141,486</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>13,467,422</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>NOTE 9&#151;LONG-TERM LIABILITIES  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term liabilities consisted of the following at December&nbsp;31, 2007: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Retention payable to long-term subcontractor</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,535,693</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Obligations under related party capital lease</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,147,057</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred rental payments</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>180,721</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Compensation payable</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>149,678</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,013,149</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less current portion</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(99,285</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Long-term liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,913,864</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2007, approximate future annual payments on the $3,013,149 total long-term liabilities were as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="66%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Year Ending December&nbsp;31,<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>99,285</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,808,950</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2010</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>138,362</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2011</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>164,257</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2012</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>188,322</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>613,973</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="73%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,013,149</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company leases one facility from a company affiliated with significant stockholders under a capital lease. The capital lease has a weighted average interest rate of approximately
10.8&nbsp;percent and will expire in August 2016. The capital lease was recorded at fair value at the inception of the lease of $1,169,542, which is lower than the present value of future minimum
lease payments under the lease </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-16</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=359,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=735659,FOLIO='16',FILE='DISK112:[08ZAT1.08ZAT42501]HK42501A.;7',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_hk42501_1_17"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 9&#151;LONG-TERM LIABILITIES (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>agreement.
Total future minimum lease payments at the inception of the lease amounted to $2,888,412. Future minimum lease payments under the capital lease as of December&nbsp;31, 2007 are as
follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Year Ending December&nbsp;31,<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>326,990</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>326,990</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>2010</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>326,990</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>2011</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>326,990</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>2012</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>326,990</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,171,714</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Less: interest</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,659,607</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net minimum lease payments under capital lease</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,147,057</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Less: current portion of net minimum lease payments</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(94,855</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Long-term portion of net minimum lease payments</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,052,202</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
interest expense incurred in 2007 under the capital lease amounted to $59,263. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 10&#151;OPERATING LEASES  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company leases its office facilities and various office and computer equipment under several operating leases. Total rent expense was $1,742,197 for the year
ended December&nbsp;31, 2007. Future minimum lease payments required under noncancellable operating leases at December&nbsp;31, 2007, were as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Year Ending December&nbsp;31,<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,339,355</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,091,814</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2010</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>641,483</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2011</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>615,922</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>2012</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>572,263</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>267,991</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,528,828</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
lease on certain office facilities includes scheduled base rent increases over the term of the lease. The total amount of the base rent payments is being charged to expense on the
straight-line method over the term of the lease. In addition to the base rent payment, the Company pays a monthly allocation of the building's operating expenses. The Company has
recorded deferred rent, included in long-term liabilities and the current portion is included in current liabilities in the consolidated balance sheet of $180,721 at December&nbsp;31,
2007 to reflect the excess of rent expense over cash payments since inception of the respective leases. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-17</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=360,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=391167,FOLIO='17',FILE='DISK112:[08ZAT1.08ZAT42501]HK42501A.;7',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_hk42501_1_18"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>NOTE 11&#151;COMMON STOCK  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's authorized capital consists of 500,000,000 shares of no par voting common stock. The Company and holders of a majority of the common stock
outstanding at December&nbsp;31, 2007, have entered into shareholders' agreements that provide rights of first refusal, co-sale rights, anti-dilution rights, and other rights
to the various stockholders. The Company was prohibited from entering into certain transactions, such as "squeeze out mergers," to the detriment of the stockholders and had to obtain approval of
certain stockholders before issuing convertible securities. In certain circumstances, the Company had an option, but not an obligation, to buy shares of one of the stockholders at fair market value.
The stockholders' agreements terminate upon several defined events, including a public offering. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
were no changes in the number of shares of common stock outstanding during the year ended December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 12&#151;COMMON STOCK SUBJECT TO PUT AGREEMENTS  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2004, Haverstick common shares issued to the sellers of DTI and to the lender were subject to agreements that permitted the holders of those shares to require
the Company to repurchase those shares at various times beginning (i)&nbsp;as to shares issued to the lender, on the later of three years after repayment of the January&nbsp;16, 2004, Loan
Agreement or January&nbsp;15, 2011 and (ii)&nbsp;as to the shares issued to the DTI sellers, on January&nbsp;16, 2009. The date when the DTI sellers could have put their shares to the Company
was extended for up to two years if the put transaction would have violated provisions of the Company's debt agreements. If the put would have been exercised, the Company could have elected to make
periodic payments over one to three years. The price would have been the fair market value as determined by negotiation or independent appraisal. As required under SFAS No.&nbsp;150, the Company
recorded a liability and an offsetting charge to equity account amounting to $25.9&nbsp;million. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2007, all of the put options terminated with the Merger as discussed in Note&nbsp;1 and the amount recorded as liability was transferred to equity at December&nbsp;31, 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 13&#151;STOCK OPTIONS AND STOCK GRANTS  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's 1999 Stock Option Plan (the Option Plan) authorized the Company to grant to employees options to purchase its common stock. The total number of
shares of common stock which could have been issued under the Option Plan was 3,048,780 shares. The Option Plan was administered by the Company's Board of Directors, which selected the employees to
whom stock options were granted and determined the number of shares, exercise prices, vesting terms and expiration dates of options granted. The exercise price of options granted was not less than the
grant date fair market value of the common stock. Stock options granted under the Option Plan were nontransferable, became exercisable generally over a five-year period and expired five to
ten years after the date of grant (subject to earlier termination in the event the optionee ceased to be employed with the Company). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November&nbsp;14, 2007, the Option Plan was cancelled. All optionees were provided a Notice of Option Cancellation and Payment. Each optionee was offered Substitute Consideration in
the amount of one cent per option held. Total Substitute Consideration paid by the Company was $6,820. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-18</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=361,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=122722,FOLIO='18',FILE='DISK112:[08ZAT1.08ZAT42501]HK42501A.;7',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_hk42501_1_19"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 13&#151;STOCK OPTIONS AND STOCK GRANTS (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock
option activity of the Company is summarized as follows: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="60%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="13%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Number of<BR>
Options</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="21%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Weighted-Average<BR>
Exercise Price of<BR>
Options</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Unexercised at January&nbsp;1, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>526,124</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.99</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Granted in 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Forfeited in 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(133,237</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2.89</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Exercised in 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Cancelled in 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(392,887</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.03</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>Unexercised at December&nbsp;31, 2007</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="21%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2><B>NOTE 14&#151;401(K) RETIREMENT PLAN  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's 401(k) plan covers all employees who have reached 21&nbsp;years of age. Participants may contribute up to limits established by law. The Company
contributed $450,565 to the plan in 2007. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 15&#151;COSTS AND EXPENSES  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Major components of costs and expenses for the year ended December&nbsp;31, 2007: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Compensation and related items</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,753,489</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Facilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,175,926</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Professional fees and services</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>830,473</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Depreciation</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>605,987</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Supplies</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>500,404</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Travel</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>300,583</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>General insurance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>263,012</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Operating taxes (non-income related)</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>212,339</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Training</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>180,479</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Advertising</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>99,450</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Recruiting</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>83,437</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Investment banking fees related to the plan of merger with Kratos</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,550,347</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,421,252</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>16,977,178</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="78%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-19</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=362,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=883400,FOLIO='19',FILE='DISK112:[08ZAT1.08ZAT42501]HK42501A.;7',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_hk42501_1_20"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 16&#151;CASH FLOW  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are supplemental disclosures to the Statement of Cash Flows for the year ended December&nbsp;31, 2007: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest paid in cash</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,005,173</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Income tax paid in cash</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>386,439</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Noncash investing and financing information:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="77%" style="font-family:times;"><FONT SIZE=2>Obligations under capital leases</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,169,542</FONT></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2><B>NOTE 17&#151;RELATED PARTY TRANSACTIONS  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2007, the Company recorded revenue totaling $914,356 for services rendered to other companies affiliated with significant stockholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2007, accounts receivable due from related parties for trade related services and shared operating expenses were $144,982 and $41,829, respectively. Accounts
receivable from related parties at December&nbsp;31, 2007 were substantially collected by March 2008. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October 2007, the Company entered into a sub-lease of 13,776 square feet of office space with a company affiliated with significant stockholders (Note&nbsp;9). The terms
of the sub-lease extend through August of 2016 at base rent of $326,990 per year. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
January&nbsp;16, 2004, the Company entered into a Loan Agreement and a Line of Credit with a stockholder of the Company (see Note&nbsp;7). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>NOTE 18&#151;INCOME TAXES  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The income tax expense for the year ended December&nbsp;31, 2007 is comprised of the following: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Current</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Federal</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>113,444</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>State</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>346,455</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="76%" style="font-family:times;"><FONT SIZE=2>Total current income tax expense</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>459,899</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is no deferred income tax expense in 2007. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-20</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=7,SEQ=363,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=244074,FOLIO='20',FILE='DISK112:[08ZAT1.08ZAT42501]HK42501A.;7',USER='RCHENEY',CD=';8-APR-2008;08:08' -->
<A NAME="page_hk42501_1_21"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 18&#151;INCOME TAXES (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income
tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34&nbsp;percent to pretax loss for the year ended December&nbsp;31, 2007 as
shown below: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Loss before income taxes</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(11,143,918</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Expected tax benefit at 34%</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3,788,932</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Current year net operating loss for which no tax benefit is recognized</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,306,556</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Current year state income tax</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>180,406</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Adjustments for prior year federal tax</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44,053</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Increase in tax reserves</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>226,536</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Nondeductible expenses</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>491,280</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>Total income tax expense</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>459,899</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred
income taxes reflect the net tax effects of tax carryforward items and temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows at December&nbsp;31, 2007: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred tax assets:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Net operating loss carryforwards</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,842,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Reserves and accruals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>985,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Credit carryforwards</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Gross deferred tax assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,836,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Valuation allowance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8,707,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred tax assets after valuation allowance</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>129,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Deferred tax liabilities:</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Depreciation deductions</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(129,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Reserves and accruals</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Gross deferred tax liabilities</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(129,000</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Net deferred tax assets</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Realization
of the Company's deferred tax asset is dependent upon the Company generating future taxable income. The Company has concluded that it is more likely than not that it will not
realize its deferred tax assets; therefore, the Company has placed a valuation allowance against its net deferred tax asset. After classifying and netting the above deferred tax assets, valuation
allowance, and deferred tax liabilities in accordance with SFAS&nbsp;109 paragraph&nbsp;41 and 42, the Company is reporting a current deferred tax asset of $2,651 and a non-current
deferred tax liability of $2,651, which when netted arrive at a total net deferred tax asset of zero. At December&nbsp;31, 2007, the Company has federal and state net operating loss carryforwards of
approximately $21.4&nbsp;million and $12.0&nbsp;million, respectively. The Company's net operating losses will expire on various dates beginning 2019 to 2027. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Federal
and state tax laws impose restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an "ownership change" for tax purposes as defined by
Section&nbsp;382 of the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-21</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_hk42501_1_22"> </A>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Haverstick Consulting,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>NOTE 18&#151;INCOME TAXES (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>Internal
Revenue Code. The Company may have incurred one or more "ownership changes" under Section&nbsp;382. If an "ownership change" did occur, utilization of the net operating loss or credit
carryforward amounts may be limited. As shown above, deferred tax assets relating to the net operating loss and credit carryforwards are offset by a full valuation allowance. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FIII-22</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>


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 </FONT></P>

<!-- TOC_END -->
<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="la42501_annex_a"> </A>
<A NAME="toc_la42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>Annex A    <BR>    </B></FONT></P>

<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><B>Execution Version  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><hr
noshade width=100% align=left size=4>
<hr noshade width=100% align=left size=1> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>AGREEMENT AND PLAN OF MERGER AND REORGANIZATION  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>among: </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.,<BR>  </B></FONT><FONT SIZE=2>a Delaware corporation; </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>WHITE SHADOW,&nbsp;INC.,<BR>  </B></FONT><FONT SIZE=2>a California corporation; and </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>SYS,<BR>  </B></FONT><FONT SIZE=2>a California corporation </FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Dated
as of February&nbsp;20, 2008 </FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">

<P style="font-family:times;"><FONT SIZE=2><hr
noshade width=100% align=left size=1>
<hr noshade width=100% align=left size=4> </FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_lc42501_1_1"> </A>


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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="lc42501_table_of_contents"> </A>
<A NAME="toc_lc42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>TABLE OF CONTENTS    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="74%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Page</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>SECTION&nbsp;1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>DESCRIPTION OF TRANSACTION</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-1</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><BR><FONT SIZE=2> 1.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
Merger of Merger Sub into the Company</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-1</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>1.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Effect of the Merger</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-2</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>1.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Closing; Effective Time</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-2</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>1.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Articles of Incorporation and Bylaws; Directors and Officers</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-2</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>1.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Conversion of Shares</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-2</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>1.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Closing of the Company's Transfer Books</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>1.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Exchange of Certificates</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-3</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>1.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Treatment of Company Options and Other Equity-Based Awards</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-4</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Tax Consequences</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>1.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Further Action</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
SECTION&nbsp;2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
REPRESENTATIONS AND WARRANTIES OF THE COMPANY</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><BR><FONT SIZE=2> 2.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
Organization and Good Standing</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-5</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Authority; No Conflict</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-6</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Capitalization</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-7</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>SEC Reports</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-8</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Financial Statements</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-9</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Property</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-10</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Real Property; Equipment; Leasehold</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-10</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Proprietary Rights</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-10</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>No Undisclosed Liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-15</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-15</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.11</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Employee Benefits</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-18</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Compliance with Legal Requirements; Governmental Authorizations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-21</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.13</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Environmental Matters</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-21</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Legal Proceedings</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-22</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Absence of Certain Changes and Events</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-22</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Contracts; No Defaults</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-23</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.17</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Insurance</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-25</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.18</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Labor Matters</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-25</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.19</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Government Contracting</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-25</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.20</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Interests of Officers and Directors</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-26</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.21</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Export Control Laws; Encryption and Other Restricted Technology</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-26</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Business Relationships</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-27</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.23</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>International Trade Matters</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-27</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.24</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Rights Plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-27</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.25</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Opinion of Financial Advisor</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-27</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.26</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Brokers</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-27</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.27</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Full Disclosure</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-27</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>2.28</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Sale of Products; Performance of Services</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-28</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
SECTION&nbsp;3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
REPRESENTATIONS AND WARRANTIES OF PARENT</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-28</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><BR><FONT SIZE=2> 3.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
Organization and Good Standing</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-28</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Authority; No Conflict</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-29</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Capitalization</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-30</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>SEC Reports</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-31</FONT></TD>
</TR>
</TABLE>
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<BR>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-i</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Financial Statements</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-32</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Absence of Certain Changes and Events</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-33</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Operation of Merger Sub</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-34</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Property</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-34</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Proprietary Rights</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-34</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>No Undisclosed Liabilities</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-35</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.11</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Taxes</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-35</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Employee Benefits</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-37</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.13</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Compliance with Legal Requirements; Governmental Authorizations</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-40</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Environmental Matters</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-40</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Legal Proceedings</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-41</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Real Property; Equipment; Leasehold</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-41</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.17</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Contracts; No Defaults</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-41</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.18</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Insurance</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-43</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.19</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Labor Matters</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-43</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.20</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Government Contracting</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-43</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.21</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Interests of Officers and Directors</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-44</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Export Control Laws; Encryption and Other Restricted Technology</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-45</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.23</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>International Trade Matters</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-45</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.24</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Brokers</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-45</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.25</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Full Disclosure</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-45</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>3.26</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Sale of Products; Performance of Services</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-46</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
SECTION&nbsp;4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
CONDUCT OF BUSINESS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-46</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><BR><FONT SIZE=2> 4.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
Covenants of the Company</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-46</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Covenants of Parent</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-49</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>4.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Confidentiality</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-50</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
SECTION&nbsp;5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
ADDITIONAL AGREEMENTS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-50</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><BR><FONT SIZE=2> 5.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
No Solicitation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-50</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Joint Proxy Statement/Prospectus; Registration Statement</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-53</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>NASDAQ Quotation; AMEX Quotation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-54</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Access to Information</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-54</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Stockholders' Meeting</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-54</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Legal Conditions to the Merger</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-56</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Public Disclosure</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-57</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Section&nbsp;368(a) Reorganization</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-57</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>NASDAQ Stock Market Listing</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-58</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Shareholder Litigation</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-58</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.11</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Indemnification</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-58</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Employee Matters</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-58</FONT></TD>
</TR>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.13</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Employee Benefit Plan&#151;401(k) Plan</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-59</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Notification of Certain Matters</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-59</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Exemption from Liability Under Section&nbsp;16(b)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-59</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Tax Matters</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-60</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>5.17</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Obligations of Merger Sub</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-60</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-ii</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
SECTION&nbsp;6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
CONDITIONS TO MERGER</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-60</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><BR><FONT SIZE=2> 6.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
Conditions to Each Party's Obligation To Effect the Merger</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-60</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>6.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Additional Conditions to Obligations of Parent and the Merger Sub</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-61</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>6.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Additional Conditions to Obligations of the Company</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-62</FONT></TD>
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<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
SECTION&nbsp;7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
TERMINATION AND AMENDMENT</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-63</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><BR><FONT SIZE=2> 7.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
Termination</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-63</FONT></TD>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>7.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Effect of Termination</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-64</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>7.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Fees and Expenses</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-65</FONT></TD>
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<TR VALIGN="TOP">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><BR>
SECTION&nbsp;8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
MISCELLANEOUS PROVISIONS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-65</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><BR><FONT SIZE=2> 8.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2><BR>
Amendment</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
A-65</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Remedies Cumulative; Waiver</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-65</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>No Survival</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-66</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Entire Agreement</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-66</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Execution of Agreement; Counterparts; Electronic Signatures</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-66</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Governing Law</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-67</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Consent to Jurisdiction; Venue</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-67</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>WAIVER OF JURY TRIAL</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-67</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Disclosure Schedules</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-67</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Attorneys' Fees</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-67</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.11</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Assignments and Successors</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-67</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.12</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>No Third Party Rights</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-67</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.13</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Notices</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-67</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.14</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Construction; Usage</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-68</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.15</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Enforcement of Agreement</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-69</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.16</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Severability</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-69</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>8.17</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="74%" style="font-family:times;"><FONT SIZE=2>Time of Essence</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>A-69</FONT></TD>
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</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-iii</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=369,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=885898,FOLIO='A-iii',FILE='DISK112:[08ZAT1.08ZAT42501]LC42501A.;10',USER='RCHENEY',CD=';8-APR-2008;08:09' -->
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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<A NAME="toc_lc42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>EXHIBITS    <BR>    </B></FONT></P>

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<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="72%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Page</B></FONT><HR NOSHADE></TH>
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<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><B>EXHIBIT&nbsp;A</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2>Certain Definitions </FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1</FONT></TD>
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<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><B><BR>
EXHIBIT&nbsp;B</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Company Voting Undertaking </FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
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<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><B><BR>
EXHIBIT&nbsp;C</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Parent Voting Undertaking </FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
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<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><B><BR>
EXHIBIT&nbsp;D</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2><BR>
Articles of Incorporation </FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><B><BR>
EXHIBIT&nbsp;E</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2><BR>
Agreement of Merger </FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><B><BR>
EXHIBIT&nbsp;F</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Letter of Transmittal from Parent Exchange Agent </FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><B><BR>
EXHIBIT&nbsp;G</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2><BR>
Employment Agreement for Key Employees </FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><B><BR>
Schedule&nbsp;A</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2><BR>
List of Signatories for Company Voting Undertakings </FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><B><BR>
Schedule&nbsp;B</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2><BR>
List of Signatories for Parent Voting Undertakings </FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="18%" style="font-family:times;"><FONT SIZE=2><B><BR>
Schedule&nbsp;6.2(c)</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD WIDTH="72%" style="font-family:times;"><FONT SIZE=2><BR>
Key Employees </FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-iv</FONT></P>

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 </FONT> <FONT SIZE=2><B>EXECUTION VERSION  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>AGREEMENT AND PLAN OF MERGER AND REORGANIZATION  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION</B></FONT><FONT SIZE=2> ("</FONT><FONT SIZE=2><B><I>Agreement</I></B></FONT><FONT SIZE=2>")
is made and entered into as of February&nbsp;20, 2008, by and among: </FONT><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS, INC</B></FONT><FONT SIZE=2>, a Delaware corporation
("</FONT><FONT SIZE=2><B><I>Parent</I></B></FONT><FONT SIZE=2>"); </FONT><FONT SIZE=2><B>WHITE SHADOW,&nbsp;INC.</B></FONT><FONT SIZE=2>, a California corporation and a wholly owned subsidiary of Parent
("</FONT><FONT SIZE=2><B><I>Merger Sub</I></B></FONT><FONT SIZE=2>"); and </FONT><FONT SIZE=2><B>SYS</B></FONT><FONT SIZE=2>, a California corporation (the
"</FONT><FONT SIZE=2><B><I>Company</I></B></FONT><FONT SIZE=2>"). Capitalized terms used in this Agreement are defined in </FONT><FONT SIZE=2><B><I>EXHIBIT&nbsp;A</I></B></FONT><FONT SIZE=2>. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>RECITALS  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;&nbsp;&nbsp;&nbsp;Parent,
Merger Sub and the Company intend to effect a merger of Merger Sub into the Company in accordance with this Agreement, Delaware Law and California Law (the
"</FONT><FONT SIZE=2><B><I>Merger</I></B></FONT><FONT SIZE=2>"). Upon consummation of the Merger, Merger Sub will cease to exist, and the Company will become a wholly owned subsidiary of Parent. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;&nbsp;&nbsp;&nbsp;The
respective Boards of Directors of Parent, Merger Sub and the Company have deemed it advisable and in the best interests of their respective corporations and
shareholders that Merger Sub and the Company consummate the Merger provided for herein. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.&nbsp;&nbsp;&nbsp;&nbsp;For
U.S. federal income tax purposes, the parties intend that the Merger will qualify as a tax free reorganization within the meaning of Section&nbsp;368(a) of the
Internal Revenue Code of 1986, as amended (the "</FONT><FONT SIZE=2><B><I>Code</I></B></FONT><FONT SIZE=2>") and intend for this Agreement to constitute a "plan of reorganization" within the meaning of
Sections&nbsp;1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.&nbsp;&nbsp;&nbsp;&nbsp;Concurrent
with the execution of this Agreement and as a condition to and inducement of Parent's willingness to enter into this Agreement, the executive officers and
certain directors of the Company set forth on </FONT><FONT SIZE=2><B><I>Schedule&nbsp;A</I></B></FONT><FONT SIZE=2> are entering into voting undertakings in substantially the form attached as </FONT> <FONT
SIZE=2><B><I>EXHIBIT&nbsp;B</I></B></FONT><FONT SIZE=2> (the "</FONT><FONT SIZE=2><B><I>Company Voting Undertakings</I></B></FONT><FONT SIZE=2>"). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;E.&nbsp;&nbsp;&nbsp;&nbsp;Concurrent
with the execution of this Agreement and as a condition to and inducement of the Company's willingness to enter into this Agreement, the directors and
executive officers of Parent set forth on </FONT><FONT SIZE=2><B><I>Schedule&nbsp;B</I></B></FONT><FONT SIZE=2> are entering into voting undertakings in substantially the form attached as </FONT> <FONT SIZE=2><B><I>EXHIBIT&nbsp;C</I></B></FONT><FONT
SIZE=2> (the "</FONT><FONT SIZE=2><B><I>Parent Voting Undertakings</I></B></FONT><FONT SIZE=2>," and, with the Company Voting Undertakings, the
"</FONT><FONT SIZE=2><B><I>Voting Undertakings</I></B></FONT><FONT SIZE=2>"). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
respective boards of directors of Parent, Merger Sub and the Company have approved this Agreement and approved the Merger. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;G.&nbsp;&nbsp;&nbsp;&nbsp;Parent,
Merger Sub and the Company desire to make certain representations and warranties and other agreements in connection with the Merger. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>AGREEMENT  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The parties to this Agreement, intending to be legally bound, agree as follows: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION&nbsp;1</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;DESCRIPTION OF TRANSACTION. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.1</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Merger of Merger Sub into the Company.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Upon the terms and subject to the conditions
set forth in this Agreement, the Agreement of Merger (the "</FONT><FONT SIZE=2><B><I>Merger Agreement</I></B></FONT><FONT SIZE=2>") attached hereto as </FONT> <FONT SIZE=2><B><I>EXHIBIT&nbsp;D</I></B></FONT><FONT SIZE=2> and the applicable provisions
of Delaware Law and California Law, at the Effective Time, Merger Sub shall be merged with and into the
Company, and the separate existence of Merger Sub shall cease. Following the Effective Time, the Company shall continue as the surviving corporation (the "</FONT><FONT SIZE=2><B><I>Surviving
Corporation</I></B></FONT><FONT SIZE=2>"). </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-1</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.2</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Effect of the Merger.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Merger shall have the effects set forth in this Agreement,
the Merger Agreement and in the applicable provisions of Delaware Law and California law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.3</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Closing; Effective Time.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The consummation of the transactions contemplated by this
Agreement (the "</FONT><FONT SIZE=2><B><I>Closing</I></B></FONT><FONT SIZE=2>") shall take place at the offices of DLA Piper US&nbsp;LLP, 4365&nbsp;Executive Drive, San&nbsp;Diego, CA 92121, at
10:00&nbsp;a.m. on a date to be designated by Parent (the "</FONT><FONT SIZE=2><B><I>Closing Date</I></B></FONT><FONT SIZE=2>"), which shall be no later than the third business day after the satisfaction
or waiver of the last to be satisfied or waived of the conditions set forth in </FONT><FONT SIZE=2><B>Section&nbsp;6</B></FONT><FONT SIZE=2> (other than those conditions that by their nature are to
be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions). Subject to the provisions of this Agreement, the Merger Agreement shall be duly executed by the Company and
Merger Sub and, simultaneously with or as soon as practicable following the Closing, filed with the Secretary of State of the State of California (the "</FONT><FONT SIZE=2><B><I>California Secretary of
State</I></B></FONT><FONT SIZE=2>"). The Merger shall become effective upon the later of: (a)&nbsp;the date and time of the filing of the Agreement of Merger with the California Secretary of State, or
(b)&nbsp;such later date and time as may be specified in the Merger Agreement. The date and time the Merger becomes effective is referred to in this Agreement as the
"</FONT><FONT SIZE=2><B><I>Effective Time</I></B></FONT><FONT SIZE=2>." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.4</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Articles of Incorporation and Bylaws; Directors and Officers. At the Effective
Time:</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.4(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;the Articles of Incorporation of the Surviving Corporation shall be amended and restated in its entirety to read as set forth in
</FONT> <FONT SIZE=2><B>Exhibit&nbsp;E</B></FONT><FONT SIZE=2>; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.4(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;the Bylaws of the Surviving Corporation shall be the Bylaws of the Merger Sub, as in effect immediately prior to the Effective
Time, until
thereafter amended; and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.4(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;the directors and officers of the Surviving Corporation immediately after the Effective Time shall be the respective individuals
who are the
directors and officers of Merger Sub immediately prior to the Effective Time. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.5</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Conversion of Shares.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.5(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;At the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or
any
shareholder of the Company:</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>any shares of Company Common Stock then held by the Company or any wholly owned Subsidiary of the Company shall be canceled and
retired and
shall cease to exist, and no consideration shall be delivered in exchange therefor; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>any shares of Company Common Stock then held by Parent, Merger Sub or any other Subsidiary of Parent shall be canceled and retired and
shall
cease to exist, and no consideration shall be delivered in exchange therefor; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>except as provided in clauses&nbsp;(i) and (ii) above and subject to </FONT><FONT SIZE=2><B>Sections&nbsp;1.5(b)</B></FONT><FONT SIZE=2>
and </FONT><FONT SIZE=2><B>1.5(c),</B></FONT><FONT SIZE=2> each share of Company Common Stock then outstanding shall be converted into the right to receive 1.2582 shares of Parent Common Stock; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>each share of the common stock, $0.001 par value per share, of Merger Sub then outstanding shall be converted into one share of common stock
of
the Surviving Corporation. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
fraction determined by the number of shares of Parent Common Stock to be issued for each share of Company Common Stock as specified in </FONT> <FONT SIZE=2><B>Section&nbsp;1.5(a)(iii)</B></FONT><FONT SIZE=2> (as such fraction may be adjusted in
accordance with </FONT><FONT SIZE=2><B>Section&nbsp;1.5(b)</B></FONT><FONT SIZE=2>)
is referred to as the "</FONT><FONT SIZE=2><B><I>Exchange Ratio</I></B></FONT><FONT SIZE=2>." </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-2</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.5(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If, between the date of this Agreement and the Effective Time, the outstanding shares of Company Common Stock or Parent Common
Stock are
changed into a different number or class of shares by reason of any stock split, stock dividend, reverse stock split, reclassification, recapitalization or other similar transaction, then the Exchange
Ratio shall be appropriately adjusted. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.5(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No fractional shares of Parent Common Stock shall be issued in connection with the Merger, and no certificates or scrip for any
such
fractional shares shall be issued. Any holder of Company Common Stock who would otherwise be entitled to receive a fraction of a share of Parent Common Stock (after aggregating all fractional shares
of Parent Common Stock issuable to such holder) shall, in lieu of such fraction of a share and upon surrender of such holder's Company Stock Certificate(s) (as defined in </FONT> <FONT SIZE=2><B>Section&nbsp;1.6</B></FONT><FONT SIZE=2>), be paid in
cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by
the average closing price of Parent Common Stock during the three trading days immediately preceding the Closing Date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.5(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Prior to the Effective Time, Parent shall reserve for issuance a sufficient number of shares of Parent Common Stock adequate for
the purpose
of issuing its shares to the shareholders of the Company in accordance with this Agreement and the Company Warrants. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.6</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Closing of the Company's Transfer Books.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;At the Effective Time: (a)&nbsp;all
holders of certificates representing shares of Company Common Stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as shareholders of the Company other
than the right to receive shares of Parent Common Stock (and cash in lieu of any fractional share of Parent Common Stock) as contemplated by </FONT> <FONT SIZE=2><B>Section&nbsp;1.5</B></FONT><FONT SIZE=2>; and (b)&nbsp;the stock transfer books of
the Company shall be closed with respect to all shares of Company Common Stock
outstanding immediately prior to the Effective Time. No further transfer of any such shares of Company Common Stock shall be made on such stock transfer books after the Effective Time. If, after the
Effective Time, a valid certificate previously representing shares of Company Common Stock (a "</FONT><FONT SIZE=2><B><I>Company Stock Certificate</I></B></FONT><FONT SIZE=2>") is presented to the Exchange
Agent or to the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in </FONT> <FONT SIZE=2><B>Section&nbsp;1.7</B></FONT><FONT SIZE=2>. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.7</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Exchange of Certificates.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.7(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;On or prior to the Closing Date, Parent shall select a reputable bank or trust company to act as exchange agent in the Merger
(the
"</FONT><FONT SIZE=2><B><I>Exchange Agent</I></B></FONT><FONT SIZE=2>"). Promptly after the Effective Time, but in no event later than two business days thereafter, Parent shall deposit with the Exchange
Agent (i)&nbsp;certificates representing the shares of Parent Common Stock issuable pursuant to this </FONT><FONT SIZE=2><B>Section&nbsp;1</B></FONT><FONT SIZE=2>, and (ii)&nbsp;cash sufficient
to make payments in lieu of fractional shares in accordance with </FONT><FONT SIZE=2><B>Section&nbsp;1.5(c)</B></FONT><FONT SIZE=2>. The shares of Parent Common Stock and cash amounts so deposited
with the Exchange Agent, together with any dividends or distributions received by the Exchange Agent with respect to such shares, are referred to collectively as the "</FONT><FONT SIZE=2><B><I>Exchange
Fund</I></B></FONT><FONT SIZE=2>." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.7(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;As soon as reasonably practicable after the Effective Time but in any event not later than five business days after the
Effective Time, the
Exchange Agent will mail to the record holders of Company Stock Certificates (i)&nbsp;a letter of transmittal in the form attached hereto as </FONT> <FONT SIZE=2><B>Exhibit&nbsp;F</B></FONT><FONT SIZE=2>, and (ii)&nbsp;instructions for use in
effecting the surrender of Company Stock Certificates in exchange for certificates
representing Parent Common Stock. Upon surrender of a Company Stock Certificate to the Exchange Agent for exchange, together with a duly executed letter of transmittal and such other documents as may
be reasonably required by the Exchange Agent or Parent, (1)&nbsp;the holder of such Company Stock Certificate shall be entitled to receive in exchange therefor a certificate or evidence of shares in
book entry form representing the number of whole shares of Parent Common Stock that such holder has the right to receive pursuant to the provisions of </FONT> <FONT SIZE=2><B>Section&nbsp;1.5</B></FONT><FONT SIZE=2> (and cash in lieu of any
fractional share of Parent Common Stock), and (2)&nbsp;the </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-3</FONT></P>

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<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>Company
Stock Certificate so surrendered shall be canceled. Until surrendered as contemplated by this </FONT><FONT SIZE=2><B>Section&nbsp;1.7</B></FONT><FONT SIZE=2>, each Company Stock Certificate
shall be deemed, from and after the Effective Time, to represent only the right to receive shares of Parent Common Stock (and cash in lieu of any fractional share of Parent Common Stock) as
contemplated by this </FONT><FONT SIZE=2><B>Section&nbsp;1</B></FONT><FONT SIZE=2>. If any Company Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its discretion and as
a condition precedent to the issuance of any certificate representing Parent Common Stock, require the owner of such lost, stolen or destroyed Company Stock Certificate to provide an appropriate
affidavit and to deliver a bond (in such sum as Parent may reasonably direct) as indemnity against any claim that may be made against the Exchange Agent, Parent or the Surviving Corporation with
respect to such Company Stock Certificate. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.7(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No dividends or other distributions declared or made with respect to Parent Common Stock with a record date after the Effective
Time shall be
paid to the holder of any unsurrendered Company Stock Certificate with respect to the shares of Parent Common Stock that such holder has the right to receive in the Merger until such holder surrenders
such Company Stock Certificate in accordance with this </FONT><FONT SIZE=2><B>Section&nbsp;1.7</B></FONT><FONT SIZE=2> (at which time such holder shall be entitled, subject to the effect of
applicable abandoned property laws, escheat laws or similar laws, to receive all such dividends and distributions, without interest). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.7(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Any portion of the Exchange Fund that remains undistributed to holders of Company Stock Certificates as of the date
180&nbsp;days after the
Effective Time shall be delivered to Parent upon demand, and any holders of Company Stock Certificates who have not theretofore surrendered their Company Stock Certificates in accordance with this </FONT> <FONT
SIZE=2><B>Section&nbsp;1.7</B></FONT><FONT SIZE=2> shall thereafter look only to Parent for satisfaction of their claims for Parent Common Stock, cash in lieu of fractional shares of
Parent Common Stock and any dividends or distributions with respect to Parent Common Stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.7(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of the Exchange Agent, Parent and the Surviving Corporation shall be entitled to deduct and withhold from any consideration
payable or
otherwise deliverable pursuant to this Agreement to any holder or former holder of Company Common Stock such amounts as may be required to be deducted or withheld therefrom under the Code or any
provision of state, local or foreign tax law or
under any other applicable Legal Requirement. To the extent such amounts are so deducted or withheld and paid over to the proper Governmental Body, such amounts shall be treated for all purposes under
this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.7(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Neither Parent nor the Surviving Corporation shall be liable to any holder or former holder of Company Common Stock or to any
other Person
with respect to any shares of Parent Common Stock (or dividends or distributions with respect thereto), or for any cash amounts properly delivered to any public official pursuant to any applicable
abandoned property law, escheat law or similar Legal Requirement. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.8</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Treatment of Company Options and Other Equity-Based Awards.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.8(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;At the Effective Time each option granted (or previously assumed) by the Company to purchase shares of Company Common Stock
(each a
"</FONT><FONT SIZE=2><B><I>Company Option</I></B></FONT><FONT SIZE=2>"), which is outstanding and unexercised immediately prior to the Effective Time (each an "</FONT><FONT SIZE=2><B><I>Outstanding Company
Option</I></B></FONT><FONT SIZE=2>"), other than the Company Warrants, shall cease to represent a right to acquire shares of Company Common Stock and shall be terminated. Prior to the Closing Date, the
Company shall take all action necessary to effect the termination of all Company Options as contemplated by this </FONT><FONT SIZE=2><B>Section&nbsp;1.8(a)</B></FONT><FONT SIZE=2>, including
without limitation acceleration of the vesting of Outstanding Company Options in accordance with their terms. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-4</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.8(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Prior to the Effective Time, the Company shall take all actions (including, if appropriate, amending the terms of the Company's
Employee Stock
Purchase Plan (the "</FONT><FONT SIZE=2><B><I>ESPP</I></B></FONT><FONT SIZE=2>")) that are necessary to (i)&nbsp;cause the ending date of the then current purchase period under the ESPP to occur on or
before the last trading day prior to the Effective Time (the "</FONT><FONT SIZE=2><B><I>Final Purchase Date</I></B></FONT><FONT SIZE=2>"), (ii)&nbsp;cause all then existing offerings under the ESPP to
terminate immediately following the purchase on the Final Purchase Date, (iii)&nbsp;suspend all future offerings that would otherwise commence under the ESPP following the Final Purchase Date and
(iv)&nbsp;cease all further payroll deductions under the ESPP effective as of the Final Purchase Date. On the Final Purchase Date, the Company shall apply the funds credited as of such date under
the ESPP within each participant's payroll withholding account to the purchase of whole shares of Company Common Stock in accordance with the terms of the ESPP, which shares shall be treated in the
manner described in </FONT><FONT SIZE=2><B>Section&nbsp;1.5</B></FONT><FONT SIZE=2>. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.8(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No Company Options, or any other equity compensation plans of the Company, including plan documents governing options or any
other
equity-based award which may have been assumed as a result of corporate acquisition transactions by the Company, as applicable (collectively, and in each case as the same may be amended to the date
hereof, the "</FONT><FONT SIZE=2><B><I>Company Stock Plans</I></B></FONT><FONT SIZE=2>") will continue after the Effective time or be assumed or continued by Parent or the Surviving Corporation; provided
that Company Warrants will continue to be in effect pursuant to their terms. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.9</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Consequences.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For federal income tax purposes, the Merger is intended to
constitute a reorganization within the meaning of Section&nbsp;368(a) of the Code. The parties to this Agreement hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Sections&nbsp;1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.10</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Further Action.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If, at any time after the Effective Time, any further action is
determined by Parent to be necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full right, title and possession of and to all rights and
property of Merger Sub and the Company, the officers and directors of the Surviving Corporation and Parent shall be fully authorized (in the name of Merger Sub, in the name of the Company and
otherwise) to take such action. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION&nbsp;2</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;REPRESENTATIONS AND WARRANTIES OF THE COMPANY. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
as set forth in the Company Disclosure Schedule, the Company represents and warrants to Parent and Merger Sub as follows: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.1</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Organization and Good Standing.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations are corporations or other Entities duly organized, validly existing, and in good standing (where such
concept is
applicable) under the laws of their respective jurisdictions of incorporation or organization, with full corporate power or other Entity authority to conduct their respective businesses as now being
conducted, to own or use the respective properties and assets that they purport to own or use, and to perform all their respective obligations under Acquired Corporation Contracts. Each of the
Acquired Corporations is duly qualified to do business as a foreign corporation or other Entity and is in good standing (where such concept is applicable) under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where the failure to be so
qualified could not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect on the Acquired Corporations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.1(b)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule lists, as of the date hereof,
all
Acquired Corporations and indicates as to each the type of Entity, its jurisdiction of organization and, except in the case of the Company, its shareholders or other equity holders. Part&nbsp;2.1(b)
of the </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-5</FONT></P>

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<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>Company
Disclosure Schedule lists, and the Company has made available to Parent copies of, the certificate or articles of incorporation, bylaws and other organizational documents (collectively, the
"</FONT><FONT SIZE=2><B><I>Organizational Documents</I></B></FONT><FONT SIZE=2>") of each of the Acquired Corporations, as currently in effect. For the purposes of this Agreement, the phrase "made
available" when used in connection with either party shall constitute the production by that party of such document(s) in an electronic dataroom for purposes of review by the other party and its legal
counsel and advisors in connection with the negotiation of this Agreement. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company has made available to Parent copies of, the charters of each committee of the Company's Board of Directors (the
"</FONT><FONT SIZE=2><B><I>Company Board</I></B></FONT><FONT SIZE=2>") and any code of conduct or similar policy adopted by the Company. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.2</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Authority; No Conflict.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company has all necessary corporate power and authority to execute and deliver this Agreement and the other agreements
referred to in this
Agreement to which it is a party, to perform its obligations hereunder and thereunder and to consummate the Merger and the other transactions contemplated hereby and thereby (collectively, and
including the transactions contemplated by the Company Voting Undertakings, the "</FONT><FONT SIZE=2><B><I>Contemplated Transactions</I></B></FONT><FONT SIZE=2>"). The execution and delivery of this
Agreement by the Company and the consummation by the Company of the Contemplated Transactions have been duly and validly authorized by all necessary corporate action and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to consummate the Contemplated Transactions (other than, with respect to the Merger, the Required Company Shareholder Vote and
the filing of appropriate merger documents as required by Delaware Law and California Law). The Board of Directors of the Company has unanimously approved this Agreement, declared it to be advisable
and resolved to recommend to the shareholders of the Company that they vote in favor of the adoption of this Agreement in accordance with Delaware Law and California Law. This Agreement has been duly
and validly executed and delivered by the Company and, assuming the due execution and delivery of this Agreement by Parent and Merger Sub, constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject to the effect of (i)&nbsp;applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to rights of creditors generally and (ii)&nbsp;rules of law and equity governing specific performance, injunctive relief and other equitable remedies. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Neither the execution and delivery of this Agreement nor the consummation of any of the Contemplated Transactions do or will,
directly or
indirectly (with or without notice or lapse of time or both), (i)&nbsp;contravene, conflict with, or result in a violation of (A)&nbsp;any provision of the Organizational Documents of any of the
Acquired Corporations, or (B)&nbsp;any resolution adopted by the board of directors or the stockholders of any of the Acquired Corporations; (ii)&nbsp;contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief (other than dissenter's rights)
under, any Legal Requirement or any order to which any of the Acquired Corporations, or any of the assets owned or used by any of the Acquired Corporations, is or may be subject;
(iii)&nbsp;contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or
modify, any Governmental Authorization that is held by any of the Acquired Corporations or to which any Acquired Corporation is a party or by which any Acquired Corporation or its assets are bound;
(iv)&nbsp;cause any of the Acquired Corporations to become subject to, or to become liable for the payment of, any Tax; (v)&nbsp;cause any of the assets owned by any of the Acquired Corporations
to be reassessed or revalued by any Governmental Body; (vi)&nbsp;contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-6</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>performance
of, or to cancel, terminate, or modify, any Acquired Corporation Contract; (vii)&nbsp;require a Consent from any Person; or (viii)&nbsp;result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by any of the Acquired Corporations, except, in the case of clauses&nbsp;(ii), (iii), (iv), (v), (vi), (vii) and (viii), for any
such conflicts, violations, breaches, defaults or other occurrences that would not prevent or delay consummation of the Merger in any material respect, or otherwise prevent the Company from performing
its obligations under this Agreement in any material respect, or would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect on the Acquired
Corporations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement and the consummation
of the
Contemplated Transactions by the Company will not, require any Consent of, or filing with or notification to, any Governmental Body, except for (i)&nbsp;(A)&nbsp;applicable requirements, if any,
of the Exchange Act, the Securities Act, the American Stock Exchange and state securities or "blue sky" laws ("</FONT><FONT SIZE=2><B><I>Blue Sky Laws</I></B></FONT><FONT SIZE=2>"), (B)&nbsp;the
pre-merger notification requirements of the HSR Act, (C)&nbsp;the filing of the Certificate of Merger as required by Delaware Law and California Law and (D)&nbsp;any applicable
non-United States competition, antitrust and investment laws, and (ii)&nbsp;such other Consents, filings or notifications where failure to obtain such Consents, or to make such filings
or notifications, would not prevent or delay the consummation of the Merger in any material respect, or otherwise prevent the Company from performing its obligations under this Agreement in any
material respect, and would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect on the Acquired Corporations. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.3</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Capitalization.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The authorized capital stock of the Company consists of 48,000,000
shares of Company Common Stock, 2,000,000 shares of Company Preference Stock, and 250,000 shares of Company Preferred Stock. As of the date hereof, (a)&nbsp;19,722,108 shares of Company Common Stock
are issued and outstanding, all of which have been duly authorized and validly issued, and are fully paid and nonassessable, (b)&nbsp;2,140,200 shares of Company Common Stock are reserved for
issuance upon the exercise of outstanding Company Options or the exercise, settlement or conversion of any other equity-based awards outstanding under the Company Stock Plans, (c)&nbsp;1,554,900
shares of Company Common Stock are reserved for issuance and available for the future grant of equity-based awards under the Company Stock Plans, (d)&nbsp;508,401 shares of Company Common Stock are
reserved for issuance upon the exercise of the Company Warrants, (e)&nbsp;1,118,261 shares of Company Common Stock are reserved for issuance under the ESPP, (f)&nbsp;868,000 shares of Company
Common Stock reserved for issuance upon the conversion of the outstanding convertible debt of the Company, and (g)&nbsp;877,406 shares of Company Common Stock reserved for issuance under the
Company's 401(k) Plan. Except as described above, there are not any bonds, debentures, notes or other indebtedness or other securities of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which shareholders of the Company may vote. Except as set forth in this </FONT> <FONT SIZE=2><B>Section&nbsp;2.3</B></FONT><FONT SIZE=2>, as of the date hereof no shares of
capital stock or other voting securities of the Company are issued, reserved for issuance or
outstanding, and no shares of capital stock or other voting securities of the Company will be issued or become outstanding after the date hereof and before the Effective Time other than upon exercise
of the Company Options or the exercise, settlement or conversion of any other equity-based awards under the Company Stock Plans outstanding as of the date hereof, the exercise of Company Warrants, the
conversion of outstanding convertible debt of the Company, or issuances under the ESPP or the Company 401(k) Plan. Except as set forth in this </FONT> <FONT SIZE=2><B>Section&nbsp;2.3</B></FONT><FONT SIZE=2>, as of the date hereof, there are no
Options relating to the issued or unissued capital stock of any of the Acquired Corporations, or
obligating any of the Acquired Corporations to issue, grant or sell any shares of capital stock of, or other equity interests in, or securities convertible into, or exercisable or exchangeable for,
equity interests in, the Company or any of its Subsidiaries. Since December&nbsp;28, 2007 through the date of this Agreement, the Company has not issued any shares of its capital stock or </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-7</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>Options
in respect thereof except upon the exercise of the Company Options, the exercise, settlement or conversion of any other equity-based awards, or issuances under the ESPP or the Company 401(k)
Plan referred to above. All shares of Company Common Stock subject to issuance as described above will, upon issuance on the terms and conditions specified in the instruments pursuant to which they
are issuable, be duly authorized, validly issued, fully paid and nonassessable. None of the Acquired Corporations has any Contract or other obligation to repurchase, redeem or otherwise acquire any
shares of Company Common Stock or any capital stock of any of the Company's Subsidiaries, or make any investment (in the form of a loan, capital contribution or otherwise) in any of the Company's
Subsidiaries or any other Person. Each outstanding share of capital stock of each of the Company's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable and is owned by the
Company or one of its Subsidiaries free and clear of all Encumbrances other than Permitted Encumbrances. None of the outstanding equity securities or other securities of any of the Acquired
Corporations was issued in violation of the Securities Act or any other Legal Requirement. None of the Acquired Corporations owns, or has any Contract or other obligation to acquire, any equity
securities or other securities of any Person (other than Subsidiaries of the Company) or any direct or indirect equity or ownership interest in any other business. None of the Acquired Corporations is
a general partner of any general or limited partnership. Each Company Option or other right to acquire Company Common Stock or other equity of the Company has at all times since July&nbsp;1, 2004
been properly accounted for in accordance with GAAP in the Company's audited financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.4</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;SEC Reports.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company has filed on a timely basis all forms, reports and documents required to be filed by it with the SEC since
July&nbsp;1, 2004.
Except to the extent available in full without redaction on the SEC's web site through the Electronic Data Gathering, Analysis and Retrieval System
("</FONT><FONT SIZE=2><B><I>EDGAR</I></B></FONT><FONT SIZE=2>") two days prior to the date of this Agreement, the Company has made available to Parent copies in the form filed with the SEC (including the
full text of any document filed subject to a request for confidential treatment) of all of the following that have been filed with the SEC prior to the date hereof: (i)&nbsp;the Company's Annual
Reports on Form&nbsp;10-K for each fiscal year of the Company beginning on or after July&nbsp;1, 2004, (ii)&nbsp;the Company's Quarterly Reports on Form&nbsp;10-Q for
each of the first three fiscal quarters in each of the fiscal years of the Company referred to in clause&nbsp;(i), (iii)&nbsp;all proxy and information statements relating to the Company's
meetings of shareholders (whether annual or special) held, and all information statements relating to shareholder consents, since the beginning of the first fiscal year referred to in
clause&nbsp;(i), (iv)&nbsp;the Company's Current Reports on Form&nbsp;8-K filed since the beginning of the first fiscal year referred to in clause&nbsp;(i), (v)&nbsp;all other
forms, reports, registration statements and other documents (other than drafts of such materials if the corresponding definitive materials have been provided to Parent pursuant to this </FONT> <FONT SIZE=2><B>Section&nbsp;2.4</B></FONT><FONT SIZE=2>)
filed by the Company with the SEC since the beginning of the first fiscal year referred to in clause&nbsp;(i) (the forms, reports,
registration statements and other documents referred to in clauses&nbsp;(i), (ii), (iii), (iv) and (v) above, whether or not available through EDGAR, are, collectively, the
"</FONT><FONT SIZE=2><B><I>Company SEC Reports</I></B></FONT><FONT SIZE=2>," and, to the extent available in full without redaction through EDGAR at least two business days prior to the date of this
Agreement, the "</FONT><FONT SIZE=2><B><I>Filed Company SEC Reports</I></B></FONT><FONT SIZE=2>," (vi)&nbsp;all certifications and statements required by Rules&nbsp;13a-14 and
15d-14 under the Exchange Act and Sections&nbsp;302 and 906 of the Sarbanes-Oxley Act of 2002 ("</FONT><FONT SIZE=2><B><I>SOX</I></B></FONT><FONT SIZE=2>"), and the rules and regulations of
the SEC promulgated thereunder, with respect to any report referred to in clause&nbsp;(i) or (ii)&nbsp;(collectively, the "</FONT><FONT SIZE=2><B><I>Company Certifications</I></B></FONT><FONT SIZE=2>"),
and (vii)&nbsp;all comment letters received by the Company from the staff of the SEC since July&nbsp;1, 2004 and all responses to such comment letters by or on behalf of the Company. No Subsidiary
of the Company is, or since July&nbsp;1, 2004 has been, required to file any form, report, registration statement or other document with the SEC. As used in this </FONT> <FONT SIZE=2><B>Section&nbsp;2.4</B></FONT><FONT SIZE=2>, the term "file" shall
be broadly construed to include any manner in which a document or information is furnished, transmitted or
otherwise made available to the SEC. </FONT></P>

</UL>
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<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of the Company SEC Reports (i)&nbsp;as of the date of the filing of such report, complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as the case may be, and, to the extent then applicable, SOX, including in each case, the rules and regulations thereunder, and (ii)&nbsp;as
of its filing date (or, if amended or superseded by a subsequent filing prior to the date hereof, on the date of such filing) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company Certifications complied with Rules&nbsp;13a-14 and 15d-14 under the Exchange Act and Sections&nbsp;302
and 906 of SOX and the rules and regulations of the SEC promulgated thereunder, and the statements contained in the Company Certifications were true and correct as of the date of the filing thereof. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations have implemented and maintain disclosure controls and procedures (as defined in Rules&nbsp;13a-15(e)
and 15d-15(e) under the Exchange Act), and such controls and procedures are effective to ensure that (i)&nbsp;all material information required to be disclosed by the Company in the
reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii)&nbsp;all such information is
accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required
disclosure. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company is, and since January&nbsp;1, 2005 has been, in compliance in all material respects with (i)&nbsp;the applicable
listing and
corporate governance rules and regulations of the American Stock Exchange, and (ii)&nbsp;the applicable provisions of SOX. The Company has made available to Parent true, correct and complete copies
of (i)&nbsp;all correspondence between the Acquired Corporations and the SEC since July&nbsp;1, 2004 and (ii)&nbsp;all correspondence between the Acquired Corporations and the American Stock
Exchange since January&nbsp;1, 2005. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations have implemented and maintain a system of internal control over financial reporting (as defined in
Rules&nbsp;13a-15(f) and 15d-15(f) under the
Exchange Act) sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP,
including, without limitation, that (i)&nbsp;transactions are executed in accordance with management's general or specific authorizations, (ii)&nbsp;transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii)&nbsp;access to assets is permitted only in accordance with management's general or
specific authorization, and (iv)&nbsp;the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any
differences. Since December&nbsp;28, 2007, (a)&nbsp;there have not been any changes in the Acquired Corporations' internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Acquired Corporations' internal control over financial reporting, and (b)&nbsp;all "significant deficiencies" and "material weaknesses" (as such terms are
defined by the Public Accounting Oversight Board) have been disclosed to the Company's outside auditors and the audit committee of the Company Board. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.5</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Financial Statements.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of the financial statements (including, in each case, any notes thereto) contained or incorporated by reference in the
Company SEC
Reports complied with the rules and regulations of the SEC (including Regulation&nbsp;S-X) as of the date of the filing of such reports, was prepared in accordance with GAAP, and fairly
presents in all material respects the financial condition and the results of operations, changes in stockholders' equity and cash flow of the Company and its consolidated Subsidiaries as at the
respective dates of and for the periods referred to in such </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-9</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>financial
statements, subject, in the case of interim financial statements, to (i)&nbsp;the omission of notes to the extent permitted by Regulation&nbsp;S-X (that, in the case of
interim financial statements included in the Company SEC Reports since the Company's most recent Annual Report on Form&nbsp;10-K, would not differ materially from the notes to the
financial statements included in such Annual Report) (the consolidated balance sheet included in such Annual Report, the "</FONT><FONT SIZE=2><B><I>Company Balance Sheet</I></B></FONT><FONT SIZE=2>"), and
(ii)&nbsp;normal, recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse to the Acquired Corporations, taken as a whole).
The financial statements referred to in this </FONT><FONT SIZE=2><B>Section&nbsp;2.5</B></FONT><FONT SIZE=2> reflect the consistent application of such accounting principles throughout the periods
involved, except as disclosed in the notes to such financial statements. No financial statements of any Person other than the Subsidiaries of the Company are, or, since July&nbsp;1, 2004 have been,
required by GAAP to be included in the consolidated financial statements of the Company. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.5(b)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule lists, and the Company has
made
available to Parent copies of, the documents creating or governing all of the Company's Off-Balance Sheet Arrangements. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.6</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Property.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations (i)&nbsp;have good and valid title to all
property material to the business of the Acquired Corporations and reflected in the latest audited financial statements included in the Filed Company SEC Reports as being owned by the Acquired
Corporations or acquired after the date thereof (except for property sold or otherwise disposed of in the Ordinary Course of Business since the date thereof), free and clear of all Encumbrances except
(A)&nbsp;the lien of the Company's principal lender, (B)&nbsp;Permitted Encumbrances and (C)&nbsp;such imperfections or irregularities of title or Encumbrances as do not affect the use of the
properties or assets subject thereto or affected thereby or otherwise materially impair the business operations in which such properties are used, in either case in such a manner as to have a Material
Adverse Effect on the Acquired Corporations, and (ii)&nbsp;are collectively the lessee of all property material to the business of the Acquired Corporations and reflected as leased in the latest
audited financial statements included in the Company SEC Reports (or on the books and records of the Company as of the date thereof) or acquired after the date thereof (except for leases that have
expired by their terms) and are in possession of the properties purported to be leased thereunder, and each such lease is valid and in full force and effect without default thereunder by the lessee
or, to the Knowledge of the Company, the lessor, other than defaults that would not have a Material Adverse Effect on the Acquired Corporations. For the avoidance of doubt, the representations and
warranties set forth in this </FONT><FONT SIZE=2><B>Section&nbsp;2.6</B></FONT><FONT SIZE=2> do not apply to Proprietary Rights, which matters are specifically addressed in </FONT> <FONT SIZE=2><B>Section&nbsp;2.8</B></FONT><FONT SIZE=2>. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.7</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Real Property; Equipment; Leasehold.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All material items of equipment and other
tangible assets owned by or leased to the Acquired Corporations are adequate for the uses to which they are being put, are in good and safe condition and repair (ordinary wear and tear excepted) and
are adequate for the conduct of the business of the Acquired Corporations in the manner in which such business is currently being conducted. None of the Acquired Corporations own any material real
property or any material interest in real property. </FONT><FONT SIZE=2><B>Part&nbsp;2.7</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule contains an accurate and complete list of all the
Acquired Corporations' material real property leases. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.8</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Proprietary Rights.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.8(a)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule lists the following with
respect to
Proprietary Rights of each Acquired Corporation:</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;Part&nbsp;2.8(a)(i)(A)</B></FONT><FONT SIZE=2> lists all of the Patents and Patent Applications owned by any of the Acquired Corporations and relating to
any Acquired
Corporation Product, setting forth in each case the applicable jurisdiction. </FONT><FONT SIZE=2><B>Part&nbsp;2.8(a)(i)(B)</B></FONT><FONT SIZE=2> lists all of the Patents and Patent Applications
relating to any Acquired Corporation Product in which, any of the Acquired Corporations has any right, title or interest (including, without limitation, any interest acquired </FONT></P>

</UL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-10</FONT></P>

<HR NOSHADE>
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<UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>through
a license, other right to use or any covenant not to sue/assert or other immunity from suit granted to any Acquired Corporation) other than those owned by the Acquired Corporations, and
excluding nonexclusive licenses for "off the shelf" software widely available through regular commercial distribution channels on standard terms and conditions, setting forth in each case the
applicable jurisdiction and the nature of the right, title or interest held by any of the Acquired Corporations. As used in this Section&nbsp;2.8, "Knowledge" or "knowledge" as it relates to an
Acquired Corporation Product acquired by the Acquired Corporations from a third-party shall limited to the actual knowledge either: (i)&nbsp;acquired from materials and information provided during
due diligence undertaken during the acquisition; or (ii)&nbsp;acquired since acquisition of the applicable Acquired Corporation Product. As used in this Section&nbsp;2.8 and in
Section&nbsp;2.16, the phrase "related to" (and any substantially similar phrase (e.g.,&nbsp;"relating to")) shall mean that absent the ownership of or a license to such Proprietary Right, the
using, making, selling, offering for sale, marketing, importing, reproducing, modifying or distributing the Acquired Corporation Product would infringe or misappropriate such Proprietary Right. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;Part&nbsp;2.8(a)(ii)(A)</B></FONT><FONT SIZE=2> lists all of the Registered Trademarks owned by any of the Acquired Corporations and relating to any Acquired
Corporation Product, setting forth in each case the applicable jurisdiction. </FONT><FONT SIZE=2><B>Part&nbsp;2.8(a)(ii)(B)</B></FONT><FONT SIZE=2> lists all of the Registered Trademarks relating
to any Acquired Corporation Product in which, to the Knowledge of the Company, any of the Acquired Corporations has any right, title or interest, other than those owned by the Acquired Corporations
(including, without limitation, any interest acquired through a license or other right to use), setting forth in each case the applicable jurisdiction and the nature of the right, title or interest
held by any of the Acquired Corporations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;Part&nbsp;2.8(a)(iii)(A)</B></FONT><FONT SIZE=2> lists all of the Registered Copyrights and applications for copyright registration owned by any of the Acquired
Corporations and relating to any Acquired Corporation Product, setting forth in each case the applicable jurisdiction. </FONT><FONT SIZE=2><B>Part&nbsp;2.8(a)(iii)(B)</B></FONT><FONT SIZE=2> lists
all of the Registered Copyrights relating to any Acquired Corporation Product in which, to the Knowledge of the Company, any of the Acquired Corporations has any right, title or interest, other than
those owned by the Acquired Corporations (including, without limitation, any interest acquired through a license or other right to use), and excluding nonexclusive licenses for "off the shelf"
software widely available through regular commercial distribution channels on standard terms and conditions, setting forth in each case the applicable jurisdiction. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations are the sole and exclusive owners of and have good and valid title to all of the Acquired Corporation
Proprietary
Rights identified in </FONT><FONT SIZE=2><B>Parts&nbsp;2.8(a)(i)(A), 2.8(a)(ii)(A)</B></FONT><FONT SIZE=2> and </FONT><FONT SIZE=2><B>2.8(a)(iii)(A)</B></FONT><FONT SIZE=2> of the Company
Disclosure Schedule and all Trade Secrets owned by any Acquired Corporation and relating to any Acquired Corporation Product, free and clear of all Encumbrances, except for (i)&nbsp;any lien for
current taxes not yet due and payable, (ii)&nbsp;minor liens that have arisen in the Ordinary Course of Business and that do not (individually or in the aggregate) materially detract from the value
of the assets subject thereto or materially impair the operations of the Acquired Corporations and (iii)&nbsp;general or blanket liens identified elsewhere in the Company Disclosure Schedule. To the
Knowledge of the Company, the Acquired Corporations have the rights set forth in the Company Disclosure Schedule to exploit the Proprietary Rights identified in </FONT> <FONT SIZE=2><B>Parts&nbsp;2.8(a)(i)(B), 2.8(a)(ii)(B)</B></FONT><FONT SIZE=2>,
and </FONT><FONT SIZE=2><B>2.8(c)(iii)(B)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule and all
Trade Secrets used by any Acquired Corporation and relating to any Acquired Corporation Product, other than those owned by the Acquired Corporations (including without limitation interest acquired
through a license or other right to use). With respect to any Proprietary Rights licensed from a third party, to the Knowledge of the Company, no third party that has licensed Proprietary Rights to
any Acquired Corporation has any ownership or license </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-11</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2>rights
to improvements or derivative works to such Proprietary Rights made by or on behalf of such Acquired Corporation. The Acquired Corporation Proprietary Rights identified in </FONT> <FONT SIZE=2><B>Part&nbsp;2.8(a)</B></FONT><FONT SIZE=2>, together
with the Trade Secrets used by any Acquired Corporation and relating to any Acquired Corporation Product, constitutes, to
the Knowledge of the Company all Proprietary Rights used or currently proposed to be used in the business of any of the Acquired Corporations relating to any Acquired Corporation Technology or to any
Acquired Corporation Product as such business was conducted prior to or on the date of this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.8(c)</B></FONT><FONT SIZE=2> lists all Company Material Contracts relating to any Acquired
Corporation
Proprietary Rights and any Acquired Corporation Technology, as follows:</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;Part&nbsp;2.8(c)(i)</B></FONT><FONT SIZE=2> lists Contracts that grant, transfer or license any rights in any Acquired Corporation Proprietary Rights to any
Person,
provided that </FONT><FONT SIZE=2><B>Part&nbsp;2.8(c)(i)</B></FONT><FONT SIZE=2> does not list any Acquired Corporation Contract entered into with customers in the Ordinary Course of Business which
Contracts are in the form of the Acquired Corporations' standard form agreement without material modification and copies of such standard forms have been provided to Parent or its counsel; and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;Part&nbsp;2.8(c)(ii)</B></FONT><FONT SIZE=2> lists Contracts, other than nonexclusive licenses for "off the shelf" software widely available through regular
commercial distribution channels on standard terms and conditions, that grant, transfer or license to any Acquired Corporation any rights in any Proprietary Rights or Technology relating to any
Acquired Corporation Product or any Acquired Corporation Technology that are not owned by the Company. To the Knowledge of the Company, other than as provided in the Contracts listed in
Part&nbsp;2.8(c)(ii), there are no royalties, fees or other amounts payable by any of the Acquired Corporations to any Person by reason of the ownership, use, sale or disposition of Acquired
Corporation Proprietary Rights, Acquired Corporation Technology or Acquired Corporation Products; and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Except as provided for in Contracts of the types listed in </FONT> <FONT SIZE=2><B>Part&nbsp;2.8(c)(i-ii)</B></FONT><FONT SIZE=2>, none of the
Acquired Corporations has entered into any written or oral Contract, or other arrangement to indemnify
any other person against any charge of infringement by any Acquired Corporation Proprietary Rights, Acquired Corporation Technology or Acquired Corporation Product other than unaltered indemnification
provisions contained in standard form sales or other agreements with customers, end users or distributors arising in the Ordinary Course of Business, the forms of which have been made available to
Parent or its counsel. No Acquired Corporation is a party to any Contract limiting any Acquired Corporation's ability to market, sell or distribute an Acquired Corporation Product in any market, field
or geographical area or that restricts the use, transfer, delivery or licensing of any Acquired Corporation Proprietary Rights or Acquired Corporation Technology; and </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;Part&nbsp;2.8(c)(iv)</B></FONT><FONT SIZE=2> lists each Acquired Corporation Product that, to the Knowledge of the Company, contains any software that is subject to
an open source license and lists the open source license applicable to such Acquired Corporation Product. For purposes of the foregoing the term "open source license" means any software that is
distributed as free software, open source software, or general public software (e.g.,&nbsp;Linux), including without limitation software licensed or distributed under any of the following licenses:
(i)&nbsp;GNU's General Public License (GPL) or Lesser/Library&nbsp;GPL (LGPL); (ii)&nbsp;the Artistic License (e.g.,&nbsp;PERL); (iii)&nbsp;the Mozilla Public License; (iv)&nbsp;the
Netscape Public License); (v)&nbsp;the Sun Community Source License (SCSL); (vi)&nbsp;the Sun Industry Standards License (SISL); (vii)&nbsp;the BSD License; and (viii)&nbsp;the Apache License.
The Acquired Corporations have complied with the terms and conditions in each such open source license Contract. </FONT></P>

</UL>
</UL>
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<UL>
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<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as listed in </FONT><FONT SIZE=2><B>Part&nbsp;2.8(d)</B></FONT><FONT SIZE=2> of the Company Disclosure
Schedule,</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>None of the Acquired Corporations jointly owns, licenses or claims any right, title or interest with any other Person any Acquired
Corporation
Proprietary Rights or Acquired Corporation Technology, </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>No Person has asserted or threatened a claim, against an Acquired Corporation, nor to the Knowledge of the Company are there any facts
which
could give rise to a claim, which would adversely affect (i)&nbsp;any Acquired Corporation's ownership rights to, or rights under, any Acquired Corporation Proprietary Rights or Acquired Corporation
Technology or (ii)&nbsp;any Contract under which any Acquired Corporation claims any right, title or interest under any Acquired Corporation Proprietary Rights or Acquired Corporation Technology; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>None of the Acquired Corporations is subject to any proceeding or outstanding decree, order, judgment or stipulation restricting the use,
transfer or licensing of any Acquired Corporation
Proprietary Rights, Acquired Corporation Technology or any Acquired Corporation Products by any of the Acquired Corporations, or which adversely affects the validity, use or enforceability of any
Acquired Corporation Proprietary Rights; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>To the Knowledge of the Company, no Acquired Corporation Proprietary Rights or Acquired Corporation Technology owned by an Acquired
Corporation
have been infringed or misappropriated by any Person. To the Knowledge of the Company, there is no unauthorized use, disclosure or misappropriation of any Acquired Corporation Proprietary Rights or
Acquired Corporation Technology; and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>To the Knowledge of the Company, all Registered Copyrights, Registered Trademarks and domain names owned by any Acquired Corporation and
relating
to any Acquired Corporation Product (A)&nbsp;have been duly filed or registered (as applicable) with the applicable Governmental Body, and maintained in accordance with the legal and administrative
requirements in the applicable jurisdictions, (B)&nbsp;have not lapsed, expired or been abandoned and (C)&nbsp;no opposition proceedings have been commenced related thereto. To the Knowledge of
the Company, there does not exist any fact with respect to the Trademarks owned by the Acquired Corporations that would (i)&nbsp;preclude the issuance of any Registered Trademarks from any trademark
applications, or (ii)&nbsp;render any such Registered Trademarks invalid or unenforceable. To the Knowledge of the Company, there does not exist any fact with respect to any Copyrights owned by the
Acquired Corporations and relating to any Acquired Corporation Product that would (i)&nbsp;preclude the issuance of any Registered Copyright from any copyright applications, or (ii)&nbsp;render
any such Copyrights invalid or unenforceable. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as listed in </FONT><FONT SIZE=2><B>Parts&nbsp;2.8&nbsp;(a)-(d)</B></FONT><FONT SIZE=2> of the Company Disclosure
Schedule,</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>(A)&nbsp;To the Knowledge of the Company, all Patents in which any of the Acquired Corporations has any ownership interest and
relating to any
Acquired Corporation Product, have been prosecuted in good faith and are in good standing, (B)&nbsp;there are no inventorship challenges, opposition or interference proceedings relating to any such
Patents, (C)&nbsp;to the Knowledge of the Company, all such Patents are valid and enforceable, and (D)&nbsp;to the Knowledge of the Company, all prosecution, maintenance and annual fees have been
fully paid when due in the correct entity status amount; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>To the Knowledge of the Company, there is no material fact with respect to any Patent Application in which any of the Acquired
Corporations has
any ownership interest and relating to any Acquired Corporation Product that would (i)&nbsp;preclude the issuance of an Issued Patent from such Patent Application or (ii)&nbsp;render any Issued
Patent issuing from such Patent Application invalid or unenforceable; </FONT></P>

</UL>
</UL>
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<UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>No Person has asserted or threatened a claim against an Acquired Corporation, nor to the Knowledge of the Company are there any facts which
could give rise to a claim, that any Acquired Corporation Product (or any Acquired Corporation Proprietary Right or Acquired Corporation Technology embodied in any Acquired Corporation Product)
infringes or misappropriates or constitutes unlawful use of any Person's Proprietary Rights. Other than: (i)&nbsp;the parties granting rights and identified in </FONT> <FONT SIZE=2><B>Part&nbsp;2.8(c)(ii)</B></FONT><FONT SIZE=2> or (ii)
&nbsp;licensees for "off the shelf" software widely available through regular commercial distribution channels on
standard terms and conditions, no Person has notified any Acquired Corporation that the Acquired Corporation requires a license to any of that Person's Proprietary Rights and no Acquired Corporation
has received any unsolicited written offer to license (or any other notice of) any Person's Proprietary Rights. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>To the knowledge of the Company, each of the Acquired Corporations has taken commercially reasonable and customary measures and precautions
necessary to protect and maintain the confidentiality and restrict the use of all Trade Secrets in which any of the Acquired Corporations has any right, title or interest and which relate to any
Acquired Corporation Product or any Acquire Corporation Technology. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations have not inserted into any Acquired Corporation Product or system, program or software module included
therein, any
"back door," "time bomb," "Trojan horse," "worm," "drop dead device," "virus" or other software routines or hardware components designed to permit unauthorized access or to disable or erase software,
hardware or data without the consent of the user. To the knowledge of the Company, no Acquired Corporation Product or system, program or software module included therein, includes any "back door,"
"time bomb," "Trojan horse," "worm," "drop dead device," "virus" or other software routines or hardware components designed to permit unauthorized access or to disable or erase software, hardware or
data without the consent of the user. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8(g)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations are and never have been a member or promoter of, or a contributor to or made any commitments or
agreements
regarding any patent pool, industry standards body, standard setting organization, industry or other trade association or similar organization, in each case that could or does require or obligate an
Acquired Corporation to grant or offer to any other Person any license or right to the Acquired Corporation Proprietary Rights and/or Acquired Corporation Technology. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8(h)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the knowledge of the Company, the execution, delivery or performance of this Agreement or any ancillary agreement
contemplated hereby, the
consummation of the transactions contemplated by this Agreement or such ancillary agreements and the satisfaction of any closing condition will not contravene, conflict with or result in any
limitation on any Acquired Corporation's, or the Parent's right, title or interest in or to the Acquired Corporation Proprietary Rights and/or Acquired Corporation Technology. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations have provided to Parent copies of all Contracts with Governmental Bodies pursuant to which any
Acquired Corporation
Product or Acquired Corporation Technology was developed or created, in whole or in part, using the funding, facilities or personnel of any Governmental Body. For such Acquired Corporation Products
and the Acquired Corporation Technology, the applicable Acquired Corporation has (i)&nbsp;timely made all required disclosures regarding any Patents or patentable inventions resulting from or
conceived during the development of any portion of such Acquired Corporation Technology or Acquired Corporation Products developed under a Contract with any Governmental Body such that the
Governmental Body does not have the right to take or claim title to such Patents or patentable inventions and (ii)&nbsp;timely made all required disclosures (on the appropriate Governmental Body
schedule) of all technical data and technical information resulting from the development of any </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-14</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2>portion
of any such Acquired Corporation Technology or Acquired Corporation Products developed under any Contract with any Governmental Body in which the Governmental Body has unlimited, limited,
restricted, government purpose or specifically negotiated rights. The Acquired Corporations will provide to Parent prior to the Closing copies of any such disclosures described in (i) and (ii) above. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.8(j)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Company Products.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>To the knowledge of the Company, all Technology and all Proprietary Rights that are incorporated into or part of any Acquired
Corporation
Product or that are necessary for the manufacture, test, sale and use of the Acquired Corporation Products is owned or licensed by the Acquired Corporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>To the knowledge of the Company, no customer or other Person has asserted or, to the Knowledge of the Company, threatened to assert any
claim
against any Acquired Corporation under or based upon any other warranty relating to any Acquired Corporation Product. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>No product liability claims have been threatened, alleged or filed against any Acquired Corporation related to any Acquired Corporation
Product. </FONT></P>

</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.9</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;No Undisclosed Liabilities.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations have no liabilities or
obligations of any nature (whether absolute, accrued, contingent, determined, determinable, choate, inchoate or otherwise), except for (i)&nbsp;liabilities or obligations reflected or reserved
against in the Company Balance Sheet, or (ii)&nbsp;current liabilities incurred in the Ordinary Course of Business since the date of the Company Balance Sheet that, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect on the Acquired Corporations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Taxes.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(a)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Timely Filing of Tax Returns.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations have filed or will cause
to be filed all Tax Returns that are or were required to be filed by or with respect to any of them, either separately or as a member of a group of corporations, pursuant to applicable Legal
Requirements for periods ending on or prior to the Closing. All Tax Returns filed by (or that are included on a consolidated basis) any of the Acquired Corporations were (and, as to Tax Returns not
filed as of the date hereof, will be) in all respects true, complete and correct and filed on a timely basis. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(b)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Payment of Taxes.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations have, within the time and in the
manner prescribed by law, paid (and until Closing will pay within the time and in the manner prescribed by law) all Taxes that are due and payable by the Acquired Corporations. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(c)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Withholding Taxes.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of the Acquired Corporations have complied (and until
the Closing will comply) with all applicable laws, rules and regulations relating to the withholding of Taxes and have, within the times and in the manner prescribed by law, paid over (and until the
Closing will pay over) to the proper Governmental Body all amounts required to be paid under applicable laws, rules and regulations relating to the paying over of Taxes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(d)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Audits.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To Company's Knowledge, no Tax Return of any of the Acquired
Corporations is under audit or examination by any Governmental Body, and no notice of such an audit or examination has been received by any of the Acquired Corporations and none of the Acquired
Corporations has Knowledge of any threatened audits, investigations or claims for or relating to Taxes, and there are no matters under discussion with any Governmental Body with respect to Taxes. No
issues relating to Taxes were raised in writing by the relevant Governmental Body during any presently pending audit or examination, and no issues relating to Taxes were raised in writing by the
relevant Governmental Body in any completed audit or examination that </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-15</FONT></P>

<HR NOSHADE>
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<!-- ZEQ.=7,SEQ=385,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=242751,FOLIO='A-15',FILE='DISK112:[08ZAT1.08ZAT42501]LG42501A.;3',USER='RCHENEY',CD=';8-APR-2008;08:09' -->
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<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>can
reasonably be expected to recur in a later taxable period. </FONT><FONT SIZE=2><B>Part&nbsp;2.10(d)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule lists, and the Company has made
available to Parent copies of, all examiner's or auditor's reports, notices of proposed adjustments or similar commissions received by any of the Acquired Corporations from any Governmental Body since
December&nbsp;31, 2004. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(e)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Reserves.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The charges, accruals, and reserves with respect to Taxes on the
respective books of each of the Acquired Corporations are adequate (and until Closing will continue to be adequate) to pay all Taxes not yet due and payable and have been determined in accordance with
generally accepted United States accounting principles. No differences exist between the amounts of the book basis and the tax basis of assets (net of liabilities) that are not accounted for on any
accrual on the books of the Acquired Corporations for federal income tax purposes. There exists no proposed assessment of Taxes against any of the Acquired Corporations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(f)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Liens.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No Encumbrance for Taxes exists with respect to any assets or
properties of any of the Acquired Corporations, nor will any such encumbrances exist at Closing except for statutory liens for Taxes not yet due. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(g)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Sharing
Agreements.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.10(g)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule lists, and the Company has made available to
Parent copies of, any Tax sharing agreement, Tax allocation agreement, Tax indemnity obligation or similar written or unwritten agreement, arrangement, understanding or practice with respect to Taxes
(including any advance pricing agreement, closing agreement or other agreement relating to Taxes with any Governmental Body) to which any of the Acquired Corporations is a party or by which any of the
Acquired Corporations is bound. No such agreements shall be modified or terminated prior to Closing without the consent of Parent. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(h)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Extensions of Time for Filing Tax Returns.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations has
requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(i)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Waiver of Statutes of Limitations.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations has
executed any outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(j)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Powers of Attorney.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No power of attorney currently in force has been granted by
any of the Acquired Corporations concerning any Taxes or Tax Return. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(k)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Rulings.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations has received or been the subject
of a Tax Ruling (as defined below) or a request for Tax Ruling. None of the Acquired Corporations has entered into a Closing Agreement (as defined below) with any Governmental Authority that would
have a continuing effect after the Closing Date. "</FONT><FONT SIZE=2><B><I>Tax Ruling</I></B></FONT><FONT SIZE=2>" shall mean a written ruling of a Governmental Authority relating to Taxes.
"</FONT><FONT SIZE=2><B><I>Closing Agreement</I></B></FONT><FONT SIZE=2>" shall mean a written and legally binding agreement with a Governmental Authority relating to Taxes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(l)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Availability of Tax
Returns.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.10(l)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule lists, and Company has made available to Parent
complete and accurate copies of all Tax Returns, and any amendments thereto, filed by or on behalf of, or which include, any of the Acquired Corporations, for all taxable periods ending after
December&nbsp;31, 2004 and on or prior to the Closing Date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(m)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Opinions of
Counsel.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.10(m)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule lists, and Company has provided to Parent true and
complete copies of all memoranda and opinions of counsel, whether inside or outside counsel, and all memoranda and opinions of accountants or other tax advisors, which have been received by any of the
Acquired Corporations with respect to Taxes. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-16</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(n)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;481 Adjustments.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations is required to
include in income any adjustment pursuant to Internal Revenue Code Section&nbsp;481 by reason of a voluntary change in accounting method initiated by any of the Acquired Corporations, and the
Internal Revenue Service has not proposed any such change in accounting method. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(o)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Net Operating Loss Carryovers.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The amount of each Acquired Corporation's net
operating losses, and the dates on which they arose, are set forth in </FONT><FONT SIZE=2><B>Part&nbsp;2.10(o)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(p)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Credit Carryovers.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The amount of each Acquired Corporation's tax credit
carryover, and the nature of those tax credits and years in which they arose, are set forth in </FONT><FONT SIZE=2><B>Part&nbsp;2.10(p)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(q)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;338 Election.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No election under Section&nbsp;338 of the Code
has been made by or with respect to any of the Acquired Corporations or any of their respective assets or properties. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(r)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Intercompany Transactions.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations has engaged in any
transactions with Affiliates which would require the recognition of income by any of the Acquired Corporations with respect to such transaction for any period ending on or after the Closing Date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(s)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Real Property Transfer Tax.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations owns any interest
in real estate as a result of which ownership the Merger or any related transaction contemplated by this Agreement would be subject to any realty transfer Tax or similar tax. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(t)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;162(m).</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The disallowance of a deduction under
Section&nbsp;162(m) of the Code for employee remuneration will not apply to any amount paid or payable by any of the Acquired Corporations under any Acquired Corporation Contract, Benefit Plan,
program, arrangement or understanding currently in effect. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(u)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;280(G).</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations is a party to any
agreement, contract or arrangement that could result separately or in the aggregate, in the payment of an "excess parachute payment" within the meaning of Section&nbsp;280G of the Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(v)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Qualification as a Reorganization.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations has taken
any action, nor to the Company's Knowledge is there any fact or circumstance, that could reasonably be expected to prevent the Merger from qualifying as a reorganization within the meaning of
Section&nbsp;368(a) of the Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(w)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Deferred Revenue.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations has any material deferred or
unearned income that will be reportable in a taxable period beginning after the Closing that is attributable to a transaction that occurred prior to the Closing. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(x)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Shelters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations has participated in any
transaction that is either a "listed transaction" or that the Acquired Corporation believes in good faith is a "reportable transaction" or a "transaction of interest" (all as defined in Treas.
Reg.&nbsp;&sect;&nbsp;1.6011-4). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(y)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Taxable Presence.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Acquired Corporations has a permanent
establishment in any country other than its country of organization or is subject to Tax in a jurisdiction outside its country of organization. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(z)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Deferred Compensation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No Acquired Corporation is a party to any "nonqualified
deferred compensation plan" subject to Section&nbsp;409A of the Code that would subject any Person to tax pursuant to Section&nbsp;409A of the Code based upon a good faith interpretation of all
applicable regulations, notices and regulatory guidance. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(aa)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Transfer Pricing.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All material related party transactions involving any
Acquired Corporation is in compliance with applicable U.S. and foreign transfer pricing principles and is </FONT></P>

</UL>
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<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>supported
by a study prepared in compliance with transfer pricing documentation requirements and, to the extent applicable, Section&nbsp;482 of the Code and the Treasury Regulations promulgated
thereunder, as well as any comparable provisions of state, local, or foreign law, to the extent applicable. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(bb)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Joint Venture.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the Knowledge of the Company, none of the Acquired
Corporations has ever been a party to any joint venture, partnership or other agreement that could be treated as a partnership for Tax purposes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(cc)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;USRPHC.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the acquired corporations has ever been a "United States Real
Property Holding Corporation" within the meaning of Section&nbsp;897(c)(2) of the Code. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.10(dd)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;FIN&nbsp;48.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.10(dd)</B></FONT><FONT SIZE=2>
of the Company Disclosure Schedule lists all open or uncertain tax positions (as defined in Financial Accounting Standards Board Interpretation No.&nbsp;48) taken by the Company, if any. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.11</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Employee Benefits.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;There has not been (i)&nbsp;any adoption or material amendment by any of the Acquired Corporations of any collective bargaining
agreement
or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, stock appreciation right, retirement, vacation,
severance, disability, death benefit, hospitalization, medical, worker's compensation, supplementary unemployment benefits, or other plan, arrangement or understanding (whether or not legally binding,
written or unwritten) or any employment or service agreement providing compensation or benefits to any current or former employee, officer, director or independent contractor of the Company or any of
its Subsidiaries or any beneficiary thereof or entered into, maintained or contributed to, as the case may be, by any of the Acquired Corporations (collectively, "</FONT><FONT SIZE=2><B><I>Benefit
Plans</I></B></FONT><FONT SIZE=2>"), or (ii)&nbsp;any adoption of, or amendment to, or change in employee participation or coverage under, any Benefit Plans which would increase materially the expense
of maintaining such Benefit Plans above the level of the expense incurred in respect thereof for the fiscal year ended on December&nbsp;31, 2006. Neither the execution and delivery of this Agreement
nor the consummation of the Contemplated Transactions will (either alone or in conjunction with any other event) result in, cause the accelerated vesting or delivery of, or increase the amount or
value of, any payment or benefit to any employee of the Acquired Corporations, and all Benefit Plans permit assumption by Parent upon consummation of the Contemplated Transactions without the consent
of any participant or other party. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this Agreement, the following definitions apply: "</FONT><FONT SIZE=2><B><I>Controlled Group
Liability</I></B></FONT><FONT SIZE=2>"
means any and all liabilities under (i)&nbsp;Title&nbsp;IV of ERISA, (ii)&nbsp;section&nbsp;302 of ERISA, (iii)&nbsp;sections&nbsp;412 and 4971 of the Code, (iv)&nbsp;the continuation
coverage requirements of section&nbsp;601 et seq. of ERISA and section&nbsp;4980B of the Code, and (v)&nbsp;corresponding or similar provisions of foreign laws or regulations, other than such
liabilities that arise solely out of, or relate solely to, the Plans; "</FONT><FONT SIZE=2><B><I>ERISA</I></B></FONT><FONT SIZE=2>" means the Employee Retirement Income Security Act of 1974, as amended, and
the regulations thereunder; "</FONT><FONT SIZE=2><B><I>ERISA Affiliate</I></B></FONT><FONT SIZE=2>" means, with respect to any entity, trade or business, any other entity, trade or business that is a member
of a group described in Section&nbsp;414(b), (c), (m) or (o) of the Code or Section&nbsp;4001(b)(1) of ERISA that includes the first entity, trade or business, or that is a member of the same
"controlled group" as the first entity, trade or business pursuant to Section&nbsp;4001(a)(14) of ERISA. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.11(c)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule includes a complete list of
all
employee benefit plans, programs, policies, practices, and other arrangements providing benefits to any current or former employee, officer or director of any of the Acquired Corporations or
beneficiary or dependent thereof, whether or not written, and whether covering one person or more than one person, including the Benefit Plans, sponsored or maintained by any Acquired </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-18</FONT></P>

<HR NOSHADE>
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<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>Corporation,
to which any Acquired Corporation contributes or is obligated to contribute, or with respect to which an Acquired Corporation has or may have any liability
("</FONT><FONT SIZE=2><B><I>Plans</I></B></FONT><FONT SIZE=2>"). Without limiting the generality of the foregoing, the term "Plans" includes all employee welfare benefit plans within the meaning of
Section&nbsp;3(1) of ERISA, all employee pension benefit plans within the meaning of Section&nbsp;3(2) of ERISA, and all other employee benefit, bonus, incentive, deferred compensation, stock
purchase, stock option, severance (or restriction on termination in the absence of a notice period), change of control and fringe benefit plans, programs or agreements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;With respect to each Plan, the Company has made available to Parent a true, correct and complete copy of: (i)&nbsp;each writing
constituting a part of such Plan, including without limitation all plan documents, benefit schedules, trust agreements, and insurance contracts and other funding vehicles, and a written description of
any unwritten Plan; (ii)&nbsp;the three most recently filed Annual Reports (Form&nbsp;5500 Series) and accompanying schedules, if any, and audit reports; (iii)&nbsp;the current summary plan
description and any material modifications thereto, if any; (iv)&nbsp;the most recent annual financial report, if any; (v)&nbsp;the most recent actuarial report, if any; (vi)&nbsp;the most
recent advisory, opinion, and/or determination letter from the IRS, as applicable; and (vii)&nbsp;all discrimination tests for the three most recent plan years. Except as specifically provided in
the foregoing documents made available to Parent, there are no amendments to any Plan or any new Plan that have been adopted or approved nor has the Company undertaken to make any such amendments or
adopt or approve any new Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.11(e)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule identifies each Plan that
is intended
to be a "qualified plan" within the meaning of Section&nbsp;401(a) of the Code ("</FONT><FONT SIZE=2><B><I>Qualified Plans</I></B></FONT><FONT SIZE=2>"). Each Qualified Plan is so qualified, and the
Internal Revenue Service has issued a currently applicable favorable determination letter with respect to each Qualified Plan that has not been revoked or the Plan is a prototype plan which may rely
on a currently applicable opinion letter issued with respect to the Plan, and, to the Knowledge of the Company, there are no existing circumstances nor any events that have occurred that could
adversely affect the qualified status of any Qualified Plan or the related trust. No act or omission has occurred with respect to any Qualified Plan which could increase the cost of any such plan or
result in the imposition of any liability, lien, penalty, or tax under ERISA or the Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All contributions required to be made to any Plan by applicable law or regulation or by any plan document or other contractual
undertaking,
and all premiums due or payable with respect to insurance policies funding any Plan, for any period through the date hereof have been timely made or paid in full or, to the extent not required to be
made or paid on or before the date hereof, have been fully reflected on the financial statements contained in the Company SEC Reports. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(g)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company has complied, and is now in compliance, in all material respects with all provisions of ERISA, the Code and all
laws and
regulations applicable to the Plans, and each Plan has been maintained, funded, and administered in accordance with its terms. There is not now, nor do any circumstances exist that could give rise to,
any requirement for the posting of security with respect to a Plan or the imposition of any Encumbrance on the assets of the Company under ERISA or the Code. No prohibited transaction has occurred
with respect to any Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(h)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Neither the Acquired Companies nor any ERISA Affiliate maintains, contributes to (or has ever maintained, contributed to or
been required to
contribute to), or has any liability or potential liability under (or with respect to) any (a)&nbsp;plan or arrangement which is subject to (i)&nbsp;the minimum funding requirements of Code
Section&nbsp;412, (ii)&nbsp;Part&nbsp;3 of Title&nbsp;I of ERISA, or (iii)&nbsp;Title&nbsp;IV of ERISA, (b)&nbsp;"multiemployer plan" (as defined in Section&nbsp;3(37) of ERISA),
(c)&nbsp;multiple employer plan, including any multiple employer welfare arrangement (as defined in </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-19</FONT></P>

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<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>Section&nbsp;3(40)
of ERISA), (d)&nbsp;voluntary employees' beneficiary association (within the meaning of Code Section&nbsp;501(c)(9)), (e)&nbsp;welfare benefit fund (within the meaning of
Code Section&nbsp;419), (f)&nbsp;nonqualified deferred compensation plan as described in Code Section&nbsp;409A, or (g)&nbsp;self-funded group health plan. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All liabilities in connection with the termination of any employee pension benefit plan that was sponsored, maintained or
contributed to by
any Acquired Corporation at any time within the past three years have been fully satisfied. Each Plan can be amended, terminated or otherwise discontinued at any time in accordance with its terms
without liability on the part of the Acquired Companies or any ERISA Affiliate. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(j)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the Knowledge of the Company, there does not now exist, nor do any circumstances exist that could result in, any Controlled
Group
Liability that could be a liability of any Acquired Corporation following the Closing. Without limiting the generality of the foregoing, neither any Acquired Corporation nor any ERISA Affiliate of any
Acquired Corporation has engaged in any transaction described in Section&nbsp;4069 or Section&nbsp;4204 of ERISA. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(k)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No Acquired Corporation has any liability for life, health, medical or other welfare benefits to former employees or
beneficiaries or
dependents thereof, except for health continuation coverage as required by Section&nbsp;4980B of the Code or Part&nbsp;6 of Title&nbsp;I of ERISA and at no expense to any Acquired Corporation. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(l)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All Plans covering foreign employees of the Acquired Corporations comply with applicable local law and are fully funded and/or
book reserved
to the extent applicable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(m)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No labor organization or group of employees of the Acquired Corporations has made a pending demand for recognition or
certification, and
there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or threatened to be brought or filed, with the National Labor Relations
Board or any other labor relations tribunal or authority. Each of the Acquired Corporations has complied with the Worker Adjustment and Retraining Notification Act. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(n)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;There are no pending or threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations
which have been
asserted or instituted against the Plans, any fiduciaries thereof with respect to their duties to the Plans or the assets of any of the trusts under any of the Plans which could reasonably be expected
to result in any liability of any Acquired Corporation to any Person including the Pension Benefit Guaranty Corporation, the Department of Treasury, or the Department of Labor. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(o)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.11(o)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule contains an accurate and
complete list
as of the date of this Agreement of all currently outstanding loans and advances made by any of the Acquired Corporations to any employee, director, consultant or independent contractor, or an
Affiliate of any of the foregoing, other than routine travel and expense advances made to employees in the Ordinary Course of Business. The Acquired Corporations have not, since July&nbsp;1, 2004,
extended or maintained credit, arranged for the extension of credit, or renewed an extension of credit, in the form of a personal loan to or for any director or executive officer of the Company, or an
Affiliate of any such director or executive officer. </FONT><FONT SIZE=2><B>Part&nbsp;2.11(o)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule identifies any extension of credit
maintained by the Acquired Corporations to which the second sentence of Section&nbsp;13(k)(1) of the Exchange Act applies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(p)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of the Acquired Corporations has complied, and are presently in material compliance with all Legal Requirements relating
to employment,
equal opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, income tax withholding, occupational safety and
health, and/or privacy rights of employees. During the three-year period prior to the date of this Agreement, none of the </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-20</FONT></P>

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<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>Acquired
Corporations has been a party to any action in which any of the Acquired Corporations was, or is, alleged to have violated any Legal Requirement relating to employment, equal opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and/or privacy rights of employees. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11(q)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as described on </FONT><FONT SIZE=2><B>Part&nbsp;2.11(q)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule,
there are no
retired employees, officers, managers or directors of any of the Acquired Corporations, or their dependents, receiving benefits or scheduled to receive benefits from any of the Acquired Corporations
in the future. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.12</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Compliance with Legal Requirements; Governmental Authorizations.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired
Corporations are, and at all times since July&nbsp;1, 2004 have been, in material compliance with each Legal Requirement that is or was applicable to any of them or to the conduct or operation of
their business or the ownership or use of any of their assets; no event has occurred or circumstance exists that (with or without notice or lapse of time or both) (A)&nbsp;may constitute or result
in a material violation by any of the Acquired Corporations of, or a substantial failure on the part of any of the Acquired Corporations to comply with, any Legal Requirement, or (B)&nbsp;may give
rise to any obligation on the part of any of the Acquired Corporations to undertake, or to bear all or any portion of the cost of, any substantial remedial action of any nature; and none of the
Acquired Corporations has received, at any time since July&nbsp;1, 2004, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding
(A)&nbsp;any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement, or (B)&nbsp;any actual, alleged, possible, or potential obligation on the part
of any of the Acquired Corporations to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. </FONT><FONT SIZE=2><B>Part&nbsp;2.12</B></FONT><FONT SIZE=2> of
the Company Disclosure Schedule lists, and the Company has made available to Parent copies of, all reports made by any attorney to the Company's chief legal officer, chief executive officer, Company
Board (or committee thereof) or other representative pursuant to 17 CFR Part&nbsp;205, and all responses thereto. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.13</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Environmental Matters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of the Acquired Corporations is, and at all times has
been, in substantial compliance with, and has not been and is not in material violation of or subject to any material liability under, any Environmental Law. None of the Acquired Corporations has any
basis to expect, nor has any of them or, to the Company's Knowledge, any other Person for whose conduct they are or may be held to be responsible received, any written order, notice, or other
communication from (i)&nbsp;any Governmental Body or private citizen acting in the public interest, or (ii)&nbsp;the current or prior owner or operator of any Facilities, of any actual or
potential material violation by any of the Acquired Corporations, or failure by any of the Acquired Corporations to comply with, any Environmental Law, or of any actual or threatened material
obligation by an Acquired Corporation to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any of the Facilities or any other properties or assets
(whether real, personal, or mixed) in which any of the Acquired Corporations has or has had an interest, or with respect to any property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by any of the Acquired Corporations or any other Person for whose conduct any of the Acquired Corporations are or may be held legally
responsible ("</FONT><FONT SIZE=2><B><I>Acquired Corporations Hazardous Material</I></B></FONT><FONT SIZE=2>"), or from which Acquired Corporations Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received. No underground storage tanks or underground impoundments, including, without limitation, treatment or storage tanks, sumps, or water, gas
or oil wells, have been used by the Acquired Corporations, or, to the Company's Knowledge, by others, at, on or under any Facilities. To the Company's Knowledge, no asbestos or asbestos-containing
material, formaldehyde or insulating material containing urea formaldehyde, or material containing polychlorinated biphenyls, is present in, on or at any of the Facilities. The Acquired Corporations
have delivered to Parent true and complete copies of all material investigations, reports, studies, audits, tests, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-21</FONT></P>

<HR NOSHADE>
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<BR>

<P style="font-family:times;"><FONT SIZE=2>sampling
results, monitoring, evaluations or analyses possessed or initiated by the Acquired Corporations pertaining to any Hazardous Material in, on, beneath or adjacent to any of the Facilities, or
to which the Acquired Companies have sent any Hazardous Material, or concerning compliance by the Acquired Corporations, or any other person for whose conduct the Acquired Corporations are legally
responsible, with any Environmental Law. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.14</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Legal Proceedings.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.14(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;There is no pending Legal Proceeding (i)&nbsp;that has been commenced by or against any of the Acquired Corporations or that
otherwise
relates to or may affect the business of, or any of the assets owned or used by, any of the Acquired Corporations, except for such Legal Proceedings as are normally incident to the business carried on
by the Acquired Corporations and could not reasonably be expected to, individually or in the aggregate, result in a Material Adverse Effect on the Acquired Corporations, (ii)&nbsp;that challenges,
or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions, or (iii)&nbsp;against any director or officer of any of the
Acquired Corporations pursuant to Section&nbsp;8A or 20(b) of the Securities Act or Section&nbsp;21(d) or 21C of the Exchange Act. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.14(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the Knowledge of the Company, (i)&nbsp;no Legal Proceeding that if pending would be required to be disclosed under the
preceding
paragraph has been threatened, and (ii)&nbsp;no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Legal Proceeding. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.15</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Absence of Certain Changes and Events.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;From December&nbsp;28, 2007, through the
date of this Agreement, the Acquired Corporations have conducted their businesses only in the Ordinary Course of Business and there has not been any Material Adverse Effect on the Acquired
Corporations, and no event has occurred or circumstance exists that may result in a Material Adverse Effect on the Acquired Corporations, or: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any material loss, damage or destruction to, or any material interruption in the use of, any of the assets of any of the
Acquired
Corporations (whether or not covered by insurance) that has had or could reasonably be expected to have a Material Adverse Effect on the Acquired Corporations; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;any declaration, accrual, set aside or payment of any dividend or any other distribution in respect of any shares of
capital stock
of any Acquired Corporation, or (ii)&nbsp;any repurchase, redemption or other acquisition by any Acquired Corporation of any shares of capital stock or other securities; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any sale, issuance or grant, or authorization of the issuance of, (i)&nbsp;any capital stock or other security of any Acquired
Corporation
(except for Company Common Stock issued upon the valid exercise of Company Options or Company Warrants or the exercise, settlement or conversion of equity-based awards under the Company Stock Plans
issuances under the ESPP, or issuances pursuant to the Company 401(k) Plan), (ii)&nbsp;any option, warrant or right to acquire any capital stock or any other security of any Acquired Corporation
(except for equity-based awards described in </FONT><FONT SIZE=2><B>Section&nbsp;2.3</B></FONT><FONT SIZE=2>), or (iii)&nbsp;any instrument convertible into or exchangeable for any capital stock
or other security of any Acquired Corporation; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any amendment or waiver of any of the rights of any Acquired Corporation under, or acceleration of vesting under, (i)&nbsp;any
provision of
any of the Company Stock Plans or (ii)&nbsp;any provision of any Contract evidencing any Company Option or other equity-based award; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any creation of any Subsidiary of an Acquired Corporation or acquisition by any Acquired Corporation of any equity interest or
other interest
in any other Person; </FONT></P>

</UL>
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<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any change of the methods of accounting or accounting practices of any Acquired Corporation in any material respect;
</FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15(g)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any material Tax election by any Acquired Corporation; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15(h)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any commencement or settlement of any Legal Proceeding by any Acquired Corporation; or </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.15(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any agreement or commitment to take any of the actions referred to in clauses&nbsp;(a) through (h) above. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.16</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Contracts; No Defaults.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.16(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;2.16(a)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule lists as of the date hereof,
 and,
except to the extent filed in full without redaction as an exhibit to a Filed Company SEC Report, the Company has made available to Parent copies of, each Acquired Corporation Contract and other
instrument or document (including any amendment to any of the foregoing)</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>described in paragraphs&nbsp;(b)(3), (b)(4), (b)(9) or (b)(10) of Item&nbsp;601 of Regulation&nbsp;S-K of the SEC; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>with any director, officer or Affiliate of the Company; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>evidencing, governing or relating to indebtedness for borrowed money, </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>not entered into in the Ordinary Course of Business that involves expenditures or receipts in excess of $250,000; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>that in any way purports to limit the freedom of any Acquired Corporation or any of their Affiliates to engage in any line of business or
to
compete with any Person or in any geographic area or to hire or retain any Person, other than agreements with third parties for the purpose of pursuing business opportunities with a Governmental Body; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>relating to the employment of, or the performance of services by, any employee or consultant, or pursuant to which any of the Acquired
Corporations is or may become obligated to make any severance, termination or similar payment in excess of $100,000 to any current or former employee or director; or pursuant to which any of the
Acquired Corporations is or may become obligated to make any bonus or similar payment (other than payments constituting base salary) in excess of $100,000 to any current or former employee or
director; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>(A)&nbsp;relating to the acquisition, transfer, development, sharing or license of any Proprietary Rights and/or Technology relating to any
Acquired Corporation Product (except for any Contract pursuant to which (i)&nbsp;any Proprietary Rights is licensed to the Acquired Corporations under any third party software license generally
available to the public, or (ii)&nbsp;any Proprietary Rights is licensed by any of the Acquired Corporations to any Person on a non exclusive basis pursuant to an unmodified standard license
agreement, the form of which has been provided to Parent) or (B)&nbsp;of the type referred to in </FONT><FONT SIZE=2><B>Section&nbsp;2.8(c)</B></FONT><FONT SIZE=2>; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>providing for indemnification of any officer, director, employee or agent; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>(A)&nbsp;relating to the acquisition, issuance, voting, registration, sale or transfer of any securities, (B)&nbsp;providing any Person with
any preemptive right, right of participation, right of maintenance or any similar right with respect to any securities, or (C)&nbsp;providing any of the Acquired Corporations with any right of first
refusal with respect to, or right to repurchase or redeem, any securities, except for Contracts evidencing Company Options or employment Contracts entered into in the Ordinary Course of Business which
contemplate the issuance of Company Options; </FONT></P>

</UL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-23</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>incorporating or relating to any guaranty, any warranty or any indemnity or similar obligation, except for Contracts substantially
identical to
the standard forms of end user licenses previously made available by the Company to Parent; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>relating to any currency hedging; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>imposing or containing "standstill" or similar provisions; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>(A)&nbsp;to which any Governmental Body is a party or under which any Governmental Body has any rights or obligations, or
(B)&nbsp;directly or indirectly benefiting any Governmental Body (including any subcontract or other Contract between any Acquired Corporation and any contractor or subcontractor to any Governmental
Body); </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>requiring that any of the Acquired Corporations give any notice or provide any information to any Person prior to considering or accepting any
Acquisition Proposal or similar proposal, or prior to entering into any discussions, agreement, arrangement or understanding relating to any Acquisition Transaction or similar transaction; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xv)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>other than in the Ordinary Course of Business contemplating or involving the payment or delivery of cash or other consideration in an amount or
having a value in excess of $200,000 in the aggregate, or contemplating or involving the performance of services having a value in excess of $200,000 in the aggregate; and </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvi)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>any other Contract, if a breach of such Contract could reasonably be expected to have a Material Adverse Effect on the Acquired Corporations. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>Each
of the foregoing is a "</FONT><FONT SIZE=2><B><I>Company Material Contract</I></B></FONT><FONT SIZE=2>." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.16(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each Company Material Contract is valid and in full force and effect, and is enforceable in accordance with its terms subject
to the effect
of (i)&nbsp;applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to rights of creditors generally and (ii)&nbsp;rules of law and
equity governing specific performance, injunctive relief and other equitable remedies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.16(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;None of the Acquired Corporations has violated or breached, or committed any default under, any Acquired Corporation
Contract,
except for violations, breaches and defaults that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on the Acquired Corporations;
and, to the Knowledge of the Company, no other Person has violated or breached, or committed any default under, any Acquired Corporation Contract, except for violations, breaches and defaults that,
individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on the Acquired Corporations; (ii)&nbsp;to the Knowledge of the Company, no
event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will or would reasonably be expected to, (A)&nbsp;result in a violation or breach of any
of the provisions of any Acquired Corporation Contract, (B)&nbsp;give any Person the right to declare a default or exercise any remedy under any Acquired Corporation Contract, (C)&nbsp;give any
Person the right to receive or require a rebate, chargeback, penalty or change in delivery schedule under any Acquired Corporation Contract, (D)&nbsp;give any Person the right to accelerate the
maturity or performance of any Acquired Corporation Contract, (E)&nbsp;result in the disclosure, release or delivery of any Acquired Corporation Source Code, or (F)&nbsp;give any Person the right
to cancel, terminate or modify any Acquired Corporation Contract, except in each such case for defaults, acceleration rights, termination rights and other rights that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on the Acquired Corporations; and (iii)&nbsp;since December&nbsp;28, 2007, none of the Acquired
Corporations has received any notice or other communication regarding any actual or possible violation or breach of, or default under, any Acquired Corporation Contract, except in each such case for
defaults, </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-24</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>acceleration
rights, termination rights and other rights that have not had and would not reasonably be expected to have a Material Adverse Effect on the Acquired Corporations. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.17</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Insurance.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations are covered by valid and currently effective
insurance policies issued in favor of the Company that are customary for companies of similar size and financial condition and are adequate in amount to cover all currently pending or overtly
threatened claims, including without limitation any claims for breach of warranty and claims for indemnification regarding any of the Acquired Corporation's products or services. All such policies are
in full force and effect, all premiums due thereon have been paid and the Acquired Corporations have complied with the provisions of such policies. The Acquired Corporations have not been advised of
any defense to coverage in connection with any claim to coverage asserted or noticed by the Acquired Corporations under or in connection with any of their extant insurance policies. The Acquired
Corporations have not received any written notice from or on behalf of any insurance carrier issuing policies or binders relating to or covering any of the Acquired Corporations that there will be a
cancellation or non renewal of existing policies or binders, or that alteration of any equipment or any improvements to real estate occupied by or leased to or by the Acquired Corporations, purchase
of additional equipment, or material modification of any of the methods of doing business, will be required. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.18</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Labor Matters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as disclosed in the Filed Company SEC Reports,
(i)&nbsp;none of the Acquired Corporations is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization;
(ii)&nbsp;none of the Acquired Corporations is the subject of any Legal Proceeding asserting that any of the Acquired Corporations has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages or conditions of employment; (iii)&nbsp;there is no strike, work stoppage or other labor dispute involving any of the Acquired Corporations pending
or, to the Company's Knowledge, threatened;
(iv)&nbsp;no complaint, charge or Legal Proceeding by or before any Governmental Body brought by or on behalf of any employee, prospective employee, former employee, retiree, labor organization or
other representative of its employees is pending or, to the Company's Knowledge, threatened against any of the Acquired Corporations; (v)&nbsp;no material grievance is pending or, to the Company's
Knowledge, threatened against any of the Acquired Corporations; and (vi)&nbsp;none of the Acquired Corporations is a party to, or otherwise bound by, any consent decree with, or citation by, any
Governmental Body relating to employees or employment practices. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.19</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Government Contracting.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.19(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in </FONT><FONT SIZE=2><B>Part&nbsp;2.19(a)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule,
there are
(i)&nbsp;no outstanding claims against the Company, either by any Governmental Body or any prime contractor, subcontractor, vendor or other third party arising under or relating to any Government
Contract, and (ii)&nbsp;no disputes between the Company and any Governmental Body under the Contract Disputes Act or any other federal statute or between the Company and any prime contractor,
subcontractor or vendor arising under or relating to any such Government Contract. Except as set forth in </FONT><FONT SIZE=2><B>Part&nbsp;2.19(a)</B></FONT><FONT SIZE=2> of the Company Disclosure
Schedule, to the Knowledge of the Company there are no facts that could reasonably be expected to result in a claim or dispute under clause&nbsp;(i) or (ii) of the immediately preceding sentence. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.19(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company has submitted all required provisional bid labor and indirect rates through fiscal year 2008 and final indirect
rates to the
cognizant U.S. Government administrative contracting officer through fiscal year 2006. All such submissions are consistent with all government regulations cost accounting rules and regulations,
including but not limited to the Federal Acquisition Regulations. No unallowable costs were contained therein. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.19(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in </FONT><FONT SIZE=2><B>Part&nbsp;2.19(c)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule,
neither the
Company nor, to the Knowledge of the Company, any of its present employees, consultants or agents is (or during the last five years has been) suspended or debarred from doing business with </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-25</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>any
Governmental Body or is (or during such period was) the subject of a finding of non-responsibility or ineligibility for any Governmental Body. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.19(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in </FONT><FONT SIZE=2><B>Part&nbsp;2.19(d)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule, to
the
Knowledge of the Company, no statement, representation or warranty made by Company in any Government Contract, any government bid or any exhibit thereto or in any certificate, statement, list,
schedule or other document submitted or furnished to any Governmental Body in connection with any Government
Contract or government bid (i)&nbsp;contained on the date so furnished or submitted any untrue statement of material fact, or failed to state a material fact necessary to make the statements
contained therein, in light of the circumstances in which they are made, not misleading, or (ii)&nbsp;contains any untrue statement of a material fact, or fails to state a material fact necessary to
make the statements contained therein, in light of the circumstances in which they are made, not misleading, except where, in the case of both clauses&nbsp;(i) and (ii), any untrue statement or
failure to state a fact would not have a Material Adverse Effect on the Company. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.19(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company, in conducting the Business as it relates to government contracts, is in material compliance with all government
accounting
principals and governing regulations. No unidentified unallowable costs exist on the books and records of the Company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.19(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company has submitted all required labor rate proposals, as well as all final indirect rate submissions, to the cognizant
Defense
Contract Management Agency (DCMA) Administrative Contracting Officer for prior years in accordance with applicable Federal Acquisition Regulations, and there are no outstanding or unresolved matters
with respect thereto. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.19(g)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in </FONT><FONT SIZE=2><B>Part&nbsp;2.19(g)</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule:
(i)&nbsp;none of the Company's employees, consultants or agents is (or during the last five years has been) under administrative, civil or criminal investigation, indictment or request for
information by any Governmental Entity relating to the performance of his or her duties to the Company; (ii)&nbsp;there is not pending any audit or investigation of the Company, its officers,
employees or representatives nor within the last five years has there been any audit or investigation of the Company, officers, employees or representatives resulting in a material adverse finding
with respect to any alleged irregularity, misstatement or omission arising under or relating to any government contract; and (iii)&nbsp;during the last five years, the Company has not made any
voluntary disclosure to any Governmental Body with respect to any alleged irregularity, misstatement or omission arising under or relating to a government contract. Except as set forth in </FONT> <FONT SIZE=2><B>Part&nbsp;2.19(g)</B></FONT><FONT
SIZE=2> of the Company Disclosure Schedule, the Company has not had any irregularities, misstatements or omissions arising under or relating
to any government contract that has led or is expected to lead, either before or after the Effective Time, to any of the consequences set forth in clause&nbsp;(i) or (ii) of the immediately
preceding sentence or any other material damage, penalty assessment, recoupment of payment or disallowance of cost. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.20</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Interests of Officers and Directors.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the officers or directors of any of
the Acquired Corporations or any of their respective Affiliates (other than the Acquired Corporations) has any interest in any property, real or personal, tangible or intangible, used in or pertaining
to the business of the Acquired Corporations, or in any supplier, distributor or customer of the Acquired Corporations, or any other relationship, contract, agreement, arrangement or understanding
with the Acquired Corporations, except as disclosed in the Filed Company SEC Reports and except for the normal rights of a stockholder and rights under the Plans and the Company Options. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.21</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Export Control Laws; Encryption and Other Restricted Technology.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired
Corporations have complied with all U.S. export control Legal Requirements regarding any export of its products or technology, including the Export Administration Regulations
("</FONT><FONT SIZE=2><B><I>EAR</I></B></FONT><FONT SIZE=2>") maintained by the U.S. Department of Commerce and the International Traffic in Arms Regulations
("</FONT><FONT SIZE=2><B><I>ITAR</I></B></FONT><FONT SIZE=2>") maintained by the Department of State. The Acquired Corporations' business as currently conducted does not </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-26</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>require
any of the Acquired Corporations to obtain a license from the United States Departments of Commerce or State or an authorized body thereof under ITAR or EAR or other legislation regulating the
development, commercialization or export of technology. The Acquired Corporations have not received any correspondence from the export control authorities in any country, including the U.S.
Departments of Commerce or State, regarding any pre-penalty notice, notice of penalty, subpoena or request for documents, or notice of audit, investigation or inquiry by a special agent or
other export control agent or official. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.22</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Business Relationships.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the Company's Knowledge, the execution of this Agreement
and the consummation of the Merger and the other Contemplated Transactions will not materially adversely affect the relationships of the Acquired Corporations with any material customers,
distributors, licensors, designers and suppliers. None of the Acquired Corporations has received any notification that any material distributor, reseller, original equipment manufacturer, customer,
supplier, foundry or manufacturer will discontinue or materially reduce the purchase, supply or the manufacture, as the case may be, of any Acquired Corporation Products. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.23</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;International Trade Matters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company is, and at all times since
January&nbsp;1, 2002 has been, in compliance with and has not been and is not in material violation of any International Trade Law (defined below), including but not limited to, all laws and
regulations related to the import and export of commodities, software, and technology from and into the United States, and the payment of required duties and tariffs in connection with same. The
Company has no basis to expect, nor has any of them or any other person for whose conduct they are or may be held to be responsible received, any actual or threatened order, notice, or other
communication from any governmental body of any actual or potential violation or failure to comply with any International Trade Law. "</FONT><FONT SIZE=2><B><I>International Trade
Law</I></B></FONT><FONT SIZE=2>" shall mean U.S. statutes, laws and regulations applicable to international transactions, including, but not limited to, the Export Administration Act, the Export
Administration Regulations, the Foreign Corrupt Practices Act, the Arms Export Control Act, the International Traffic in Arms Regulations, the International Emergency Economic Powers Act, the Trading
with the Enemy Act, the U.S. Customs laws and regulations, the Foreign Asset Control Regulations, and any regulations or orders issued thereunder. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.24</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Rights Plan.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company does not have any shareholder rights plan or "poison pill"
in effect, including without limitation any agreement with a third party trust or fiduciary entity with respect thereto. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.25</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Opinion of Financial Advisor.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company's Board of Directors has received the
opinion of Imperial Capital&nbsp;LLC ("</FONT><FONT SIZE=2><B><I>Imperial</I></B></FONT><FONT SIZE=2>") (a copy of whose engagement letter has been provided to Parent)
dated February&nbsp;20, 2008, to the effect that, as of such date, the Exchange Ratio in the Merger is fair to the shareholders of the Company from a financial point of view. A copy of that opinion
has been delivered to Parent, for informational purposes only. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.26</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Brokers.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No broker, finder, investment banker or other Person (other than Imperial)
is entitled to any brokerage, finder's or other fee or commission in connection with the Merger and the Contemplated Transactions based upon arrangements made by or on behalf of any Acquired
Corporation. There are no Acquired Corporation Contracts between the Acquired Corporations and Imperial pursuant to which such firm would be entitled to any payment relating to the Contemplated
Transactions other than the engagement letter described in </FONT><FONT SIZE=2><B>Section&nbsp;2.25</B></FONT><FONT SIZE=2>. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.27</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Full Disclosure.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the information supplied or to be supplied by or on behalf
of the Company for inclusion or incorporation by reference in the Form&nbsp;S-4 Registration Statement will, at the time the Form&nbsp;S-4 Registration Statement is filed
with the SEC or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-27</FONT></P>

<HR NOSHADE>
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<BR>

<P style="font-family:times;"><FONT SIZE=2>be
supplied by or on behalf of the Company for inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus will, at the time the Joint Proxy Statement/Prospectus is mailed to the
shareholders of the Company or the stockholders of Parent or at the time of the Company Shareholders' Meeting or the Parent Stockholders' Meeting contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.
Notwithstanding the foregoing, no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein about Parent supplied by Parent for inclusion
or incorporation by reference in the Form&nbsp;S-4 Registration Statement or the Joint Proxy Statement/Prospectus. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.28</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Sale of Products; Performance of Services.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.28(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the Knowledge of the Company, each Acquired Corporation product, system, program, Proprietary Right or other asset designed,
developed,
manufactured, assembled, sold, installed, licensed or otherwise made available by the Company since July&nbsp;1, 2004 or by any other Acquired Corporation since the later of July&nbsp;1, 2004 or
the date of its acquisition by the Company to any Person:</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>materially conformed and complied with the terms and requirements of any applicable warranty or other Contract and with all
applicable material
Legal Requirements; and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>was free of any bug, virus, design defect or other defect or deficiency at the time it was sold or otherwise made available, other than
any
immaterial bug or similar defect that would not adversely affect in any material respect such product, system, program, Acquired Corporation Proprietary Rights or other asset (or the operation or
performance thereof). </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.28(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the Knowledge of the Company, all installation services, programming services, repair services, maintenance services, support
services,
training services, upgrade services and other services that have been performed by the Acquired Corporations were performed properly and in full conformity with the terms and requirements of all
applicable warranties and other Contracts and with all applicable material Legal Requirements, and the financial results of the performance of such services have been reflected in the financial
statements contained in the Filed Company SEC Reports in accordance with GAAP. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.28(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Since December&nbsp;31, 2006, no customer or other Person has asserted or overtly threatened to assert any claim against any of
the
Acquired Corporations (i)&nbsp;under or based upon any warranty provided by or on behalf of any of the Acquired Corporations, or (ii)&nbsp;under or based upon any other warranty relating to any
product, system, program, Proprietary Rights or other asset designed, developed, manufactured, assembled, sold, installed, repaired, licensed or otherwise made available by any of the Acquired
Corporations or any services performed by any of the Acquired Corporations. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION&nbsp;3</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;REPRESENTATIONS AND WARRANTIES OF PARENT. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
as set forth in Parent Disclosure Schedule, Parent represents and warrants to the Company as follows: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.1</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Organization and Good Standing.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and each of its Subsidiaries are corporations or other Entities duly organized, validly existing, and in good standing
(where such
concept is applicable) under the laws of their respective jurisdictions of incorporation or organization, with full corporate power or other Entity authority to conduct their respective businesses as
now being conducted, to own or use the respective properties and assets that they purport to own or use, and to perform all their </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-28</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>respective
obligations under the Parent Contracts. Parent and its Subsidiaries are duly qualified to do business as foreign corporations and are in good standing (where such concept is applicable)
under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by them, or the nature of the activities conducted by them, requires such
qualification, except where the failure to be so qualified could not reasonably be expected to, individually or in the aggregate, result in a Material Adverse Effect on Parent and its Subsidiaries. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;3.1(b)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule lists, as of the date of this
Agreement,
all of Parent's Subsidiaries and indicates as to each the type of Entity and its jurisdiction of organization. Parent has made available to the Company copies of the Organizational Documents of
Parent, as currently in effect. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent has made available to the Company copies of the charters of each committee of Parent's Board of Directors and any code of
conduct or
similar policies adopted by Parent. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.2</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Authority; No Conflict.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent has all necessary corporate power and authority to execute and deliver this Agreement and the other agreements referred
to in this
Agreement to which it is a party, to perform its obligations hereunder and thereunder and to consummate the Contemplated Transactions. Except for the requirement, under Parent's agreement with the
NASDAQ Stock Market and the NASDAQ Stock Market's rules incorporated by reference therein, to obtain the Required Parent Stockholder Vote, the execution and delivery of this Agreement by Parent and
the consummation by Parent of the Contemplated Transactions have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on the part of Parent are
necessary to authorize this Agreement or to consummate the Contemplated Transactions (other than, with respect to the Merger, the filing the Merger Agreement required by Delaware Law and California
Law). The Board of Directors of Parent (the Parent Board) has unanimously approved this Agreement and declared it to be advisable. This Agreement has been duly and validly executed and delivered by
Parent and, assuming the due execution and delivery of this Agreement by the Company, constitutes the legal, valid and binding obligation of Parent, enforceable against Parent in accordance with its
terms subject to the effect of (i)&nbsp;applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to rights of creditors generally and
(ii)&nbsp;rules of law and equity governing specific performance, injunctive relief and other equitable remedies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Neither the execution and delivery of this Agreement nor the consummation of any of the Contemplated Transactions do or will,
directly or
indirectly (with or without notice or lapse of time or both); (i)&nbsp;contravene, conflict with, or result in a violation of (A)&nbsp;any provision of the Organizational Documents of Parent or
any of its Subsidiaries, or (B)&nbsp;any resolution adopted by the Parent Board or the stockholders of Parent or any of its Subsidiaries; (ii)&nbsp;contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief (other than dissenter's rights)
under, any Legal Requirement or any order to which Parent or any of its Subsidiaries, or any of the assets owned or used by Parent or any of its Subsidiaries, may be subject; (iii)&nbsp;contravene,
conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by Parent or any of its Subsidiaries to which Parent or any of its Subsidiaries is party or by which Parent or any of its Subsidiaries or any of their respective assets are
bound; (iv)&nbsp;cause Parent or any of its Subsidiaries to become subject to, or to become liable for the payment of, any Tax; (v)&nbsp;cause any of the assets owned by Parent or any of its
Subsidiaries to be reassessed or revalued by any Governmental Body; (vi)&nbsp;contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-29</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>to
cancel, terminate, or modify, any Parent Contract; (vii)&nbsp;require a Consent from any Person; or (viii)&nbsp;result in the imposition or creation of any Encumbrance upon or with respect to
any of the assets owned or used by Parent or any of its Subsidiaries, except, in the case of clauses&nbsp;(ii), (iii), (iv), (v), (vi), (vii) and (viii), for any such conflicts, violations,
breaches, defaults or other occurrences that would not prevent or delay consummation of the Merger in any material respect, or otherwise prevent Parent or Merger Sub from performing its obligations
under this Agreement in any material respect, or would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect on Parent and its Subsidiaries. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The execution and delivery of this Agreement by Parent and Merger Sub do not, and the performance of this Agreement and the
consummation of
the Contemplated Transactions by Parent and Merger Sub will not, require any Consent of, or filing with or notification to, any Governmental Body, except (i)&nbsp;for (A)&nbsp;applicable
requirements, if any, of the Exchange Act, the Securities Act, the NASDAQ Stock Market and Blue Sky Laws, (B)&nbsp;the pre-merger notification requirements of the HSR Act,
(C)&nbsp;filing of appropriate merger documents as required by Delaware Law and California Law and (D)&nbsp;any applicable non-United States competition, antitrust and investment laws
and (ii)&nbsp;for such other Consents, filings or notifications where failure to obtain such Consents, or to make such filings or notifications, would not prevent or delay the consummation of the
Merger in any material respect, or otherwise prevent Parent and Merger Sub from performing their obligations under this Agreement in any material respect, or would not reasonably be expected to,
individually or in the aggregate, result in a Material Adverse Effect on Parent and its Subsidiaries. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement and the other agreements
referred to in this
Agreement to perform its obligations hereunder and thereunder and to consummate the Merger and the Contemplated Transactions. The execution and delivery of this Agreement by Merger Sub and the
consummation by Merger Sub of the Contemplated Transactions have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on the part of the Merger Sub are
necessary to authorize this Agreement or to consummate the Contemplated Transactions (other than, with respect to the Merger, the approval and adoption of this Agreement by Parent as the holder of a
majority of the outstanding shares of Merger Sub Common Stock and the filing of appropriate merger documents as required by Delaware Law and California Law). The Board of Directors of Merger Sub has
unanimously approved this Agreement, declared it to be advisable and resolved to recommend to Parent that it vote in favor of the adoption of this Agreement in accordance with Delaware Law. This
Agreement has been duly and validly executed and delivered by Merger Sub and constitutes the legal, valid and binding obligations of Merger Sub, enforceable against the Merger Sub in accordance with
its terms. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.3</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Capitalization.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The authorized capital stock of Parent consists of 195,000,000
shares of Parent Common Stock. As of the date hereof, (a)&nbsp;78,998,922 shares of Parent Common Stock are issued and outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable, (b)&nbsp;28,550 shares of Parent Common Stock are reserved for issuance pursuant to Parent RSU Awards not yet granted, (d)&nbsp;2,916,250 shares of Parent Common Stock are reserved
for issuance upon the exercise of outstanding Parent RSU Awards and (e)&nbsp;8,324,607 shares of Parent Common Stock reserved for issuance pursuant to Parent Stock Option grants not yet granted,
(g)&nbsp;6,133,018 shares of Parent Common Stock are reserved for issuance upon the exercise of outstanding Parent Stock Option grants and (h)&nbsp;there are 5,000,000 shares of Parent Preferred
Stock authorized, of which there are 3,646,363 undesignated shares, 63,637 designated as Series&nbsp;A shares, 90,000 designated as Series&nbsp;B shares, of which 10,000 shares are currently
issued and outstanding, and 1,200,000 designated as Series&nbsp;C shares. Except as described above, there are not any bonds, debentures, notes or other indebtedness or other securities of Parent
having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matter on which the shareholders of Parent may vote. Except as set forth in </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-30</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>the
second sentence of this </FONT><FONT SIZE=2><B>Section&nbsp;3.3</B></FONT><FONT SIZE=2>, as of the date hereof no shares of capital stock or other voting securities of Parent are issued or
reserved for issuance. Except as set forth in this </FONT><FONT SIZE=2><B>Section&nbsp;3.3</B></FONT><FONT SIZE=2>, there are no Options relating to the issued or unissued capital stock of Parent
or any of its Subsidiaries, or obligating Parent or any of its Subsidiaries to issue, grant or sell any shares of capital stock of, or other equity interests in, or securities convertible into equity
interests in, Parent or any of its Subsidiaries. Since December&nbsp;31, 2007 through the date of this Agreement, Parent has not issued any shares of its capital stock. All shares of Parent Common
Stock reserved for issuance, upon issuance on the terms and conditions of the instruments pursuant to which they are issuable, will be duly and validly issued, fully paid and nonassessable. Neither
Parent nor any of its Subsidiaries has any obligation to acquire any shares of Parent Common Stock or any capital stock of Parent's subsidiaries or make any investment in or loan to, any other Person.
Each outstanding share of capital stock of each of Parent's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable and each such share owned by Parent or one of its Subsidiaries
is free and clear of all Encumbrances of any nature whatsoever. None of the outstanding equity securities or other securities of Parent or any of its Subsidiaries was issued in violation of the
Securities Act or any other Legal Requirement. Other than pursuant to this Agreement, neither Parent nor any of its Subsidiaries owns, or has any obligation to acquire, any securities of any Person
(other than Subsidiaries of Parent) or any direct or indirect equity or ownership interest in any other business. Neither Parent nor any Subsidiary of Parent is a general partner of any general or
limited partnership. Each Parent Stock Option or other right to acquire Parent Common Stock or other equity of Parent has at all times since January&nbsp;1, 2004 been properly accounted for in
accordance with GAAP in Parent's audited financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.4</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;SEC Reports.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent has on a timely basis filed all forms, reports and documents required to be filed by it with the SEC since January&nbsp;1,
2004.
Parent has made available to the Company copies in the form filed with the SEC (including the full text of any document filed subject to a request for confidential treatment) of all of the following
that have been filed with the SEC prior to the date hereof, except to the extent available in full without redaction on the SEC's web site through EDGAR two days prior to the date of this Agreement:
(i)&nbsp;Parent's Annual Reports on Form&nbsp;10-K for each fiscal year of
Parent beginning since January&nbsp;1, 2005, (ii)&nbsp;its Quarterly Reports on Form&nbsp;10-Q for each of the first three fiscal quarters in each of the fiscal years of Parent
referred to in clause&nbsp;(i) above, (iii)&nbsp;all proxy statements relating to Parent's meetings of stockholders (whether annual or special) held, and all information statements relating to
stockholder consents, since the beginning of the first fiscal year referred to in clause&nbsp;(i) above, (iv)&nbsp;its Current Reports on Form&nbsp;8-K filed since the beginning of
the first fiscal year referred to in clause&nbsp;(i) above, (v)&nbsp;all other forms, reports, registration statements and other documents (other than preliminary materials if the corresponding
definitive materials have been provided to the Company pursuant to this </FONT><FONT SIZE=2><B>Section&nbsp;3.4</B></FONT><FONT SIZE=2>) filed by Parent with the SEC since the beginning of the
first fiscal year referred to in clause&nbsp;(i) above (the forms, reports, registration statements and other documents referred to in clauses&nbsp;(i), (ii), (iii), (iv) and (v) above, whether or
not available through EDGAR, are, collectively, the "</FONT><FONT SIZE=2><B><I>Parent SEC Reports</I></B></FONT><FONT SIZE=2>"), (vi)&nbsp;all certifications and statements required by
Rules&nbsp;13a-14 and 15d-14 under the Exchange Act and Sections&nbsp;302 and 906 of SOX, and the rules and regulations of the SEC promulgated thereunder, with respect to
any report referred to in clause&nbsp;(i) or (ii) (the "</FONT><FONT SIZE=2><B><I>Parent Certifications</I></B></FONT><FONT SIZE=2>"), and (vii)&nbsp;all comment letters received by Parent from the
Staff of the SEC since January&nbsp;1, 2004 and all responses to such comment letters by or on behalf of Parent. No Subsidiary of Parent is, or since January&nbsp;1, 2004 has been, required to
file any document with the SEC. As used in this </FONT><FONT SIZE=2><B>Section&nbsp;3.4</B></FONT><FONT SIZE=2>, the term "file" shall be broadly construed to include any manner in which a document
or information is furnished, supplied or otherwise made available to the SEC. </FONT></P>

</UL>
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<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of Parent SEC Reports (i)&nbsp;as of the date of the filing of such report, complied in all material respects with the
requirements of
the Securities Act and the Exchange Act, as the case may be, and, to the extent then applicable, SOX, including in each case, the rules and regulations thereunder, and (ii)&nbsp;as of its filing
date (or, if amended or superseded by a subsequent filing prior to the date hereof, on the date of such filing) did not contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Parent Certifications complied with Rules&nbsp;13a-14 and 15d-14 under the Exchange Act and Sections&nbsp;302
and 906 of SOX, and the rules and regulations of the SEC promulgated thereunder, and the statements contained in Parent Certifications were true and correct as of the date of the filing thereof. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its Subsidiaries have implemented and maintain disclosure controls and procedures (as defined by Rule&nbsp;13a-15 or
15d-15 under the Exchange Act), and such controls and procedures are effective to ensure that (i)&nbsp;all material information required to be disclosed by Parent in the reports that it
files under the Exchange Act is recorded, processed, summarized and reported with the time periods specified in the SEC's rules and forms, and (ii)&nbsp;all such information is accumulated and
communicated to Parent's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Parent has made
available to the Company copies of all policies, manuals and other material documents promulgating, such disclosure controls and procedures. Parent is, and since January&nbsp;1, 2004 has been, in
compliance with (i)&nbsp;the applicable listing and corporate governance rules of the NASDAQ Stock Market, and (ii)&nbsp;the applicable provisions of SOX. Parent has made available to the Company
true, correct and complete copies of all correspondence between Parent and the NASDAQ Stock Market and between Parent and the SEC since January&nbsp;1, 2004. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its Subsidiaries have implemented and maintain a system of internal control over financial reporting (as defined in
Rules&nbsp;13a-15(f) and 15d-15(f) under the Exchange Act) sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP, including, without limitation, that (i)&nbsp;transactions are executed in accordance with management's general or specific
authorizations, (ii)&nbsp;transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii)&nbsp;access to
assets is
permitted only in accordance with management's general or specific authorization, and (iv)&nbsp;the recorded accountability for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences. Since September&nbsp;29, 2007, (a)&nbsp;there have not been any changes in the internal control over financial reporting of Parent
and its Subsidiaries that have materially affected, or are reasonably likely to materially affect, their internal control over financial reporting, and (b)&nbsp;all "significant deficiencies" and
"material weaknesses" (as such terms are defined by the Public Accounting Oversight Board) have been disclosed to Parent's outside auditors and the audit committee of Parent's Board. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.5</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Financial Statements.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.5(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The financial statements and notes contained or incorporated by reference in Parent SEC Reports fairly present the financial
condition and the
results of operations, changes in stockholders' equity, and cash flow of Parent and its consolidated Subsidiaries as at the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP and Regulation&nbsp;S-X of the SEC, subject, in the case of interim financial statements, to normal recurring year-end adjustments
(the effect of which will not, individually or in the aggregate, be materially adverse) and the omission of notes to the extent permitted by Regulation&nbsp;S-X of the SEC (that, if
presented, would not differ materially from notes to the financial statements included </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2>in
Parent's Annual Report on Form&nbsp;10-K for the year ended December&nbsp;31, 2006 (the consolidated balance sheet included in such Annual Report, the
"</FONT><FONT SIZE=2><B><I>Parent Balance Sheet</I></B></FONT><FONT SIZE=2>"); the financial statements referred to in this </FONT><FONT SIZE=2><B>Section&nbsp;3.5</B></FONT><FONT SIZE=2> reflect the
consistent application of such accounting principles throughout the periods involved, except as disclosed in the notes to such financial statements. No financial statements of any Person other than
Parent and its Subsidiaries are, or since January&nbsp;1, 2004 have been, required by GAAP to be included in the consolidated financial statements of the Parent. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.5(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;3.5(b)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule lists, and Parent has made
available to
the Company copies of, the documents creating or governing all of Parent's Off-Balance Sheet Arrangements. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.6</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Absence of Certain Changes and Events.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;From September&nbsp;29, 2007 through the
date of this Agreement, Parent and its Subsidiaries have conducted their business only in the Ordinary Course of Business and there has not been any Material Adverse Effect on Parent and its
Subsidiaries, and no event has occurred or circumstance exists that may result in a Material Adverse Effect on Parent and its Subsidiaries, or: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any material loss, damage or destruction to, or any material interruption in the use of, any of the assets of Parent and its
Subsidiaries
(whether or not covered by insurance) that has had or could reasonably be expected to have a Material Adverse Effect on Parent; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;any declaration, accrual, set aside or payment of any dividend or any other distribution in respect of any shares of
capital stock
of Parent or its Subsidiaries, or (ii)&nbsp;any repurchase, redemption or other acquisition by Parent or its Subsidiaries of any shares of capital stock or other securities; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any sale, issuance or grant, or authorization of the issuance of, (i)&nbsp;any capital stock or other security of Parent (except
for Parent
Common Stock issued upon the valid exercise, settlement or conversion of each restricted stock unit award granted (or previously assumed) by Parent representing a right to receive upon a future date
or dates shares of Parent Common Stock (each a "</FONT><FONT SIZE=2><B><I>Parent RSU Award</I></B></FONT><FONT SIZE=2>") or other equity-based awards under governing share-based plan documents, including
plan documents governing options that have previously been assumed by Parent as a result of corporate acquisition transactions by the Company, as applicable (collectively, and in each case, the
"</FONT><FONT SIZE=2><B><I>Parent Stock Plans</I></B></FONT><FONT SIZE=2>"), (ii)&nbsp;any option, warrant or right to acquire any capital stock or any other security of Parent and its Subsidiaries
(except for Parent RSU Awards or other equity-based awards described in </FONT><FONT SIZE=2><B>Section&nbsp;3.3</B></FONT><FONT SIZE=2>), or (iii)&nbsp;any instrument convertible into or
exchangeable for any capital stock or other security of Parent and its Subsidiaries; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any amendment or waiver of any of the rights of Parent or any Subsidiary of Parent under, or acceleration of vesting under,
(i)&nbsp;any
provision of any of the Parent Stock Plans or (ii)&nbsp;any provision of any Contract evidencing any other equity-based award; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any amendment to any Organizational Document of Parent or any Subsidiary of Parent, any merger, consolidation, share exchange,
business
combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction involving Parent or any Subsidiary of Parent; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any change of the methods of accounting or accounting practices of Parent or any Subsidiary of Parent in any material respect;
</FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6(g)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;any agreement or commitment to take any of the actions referred to in clauses&nbsp;(a) through (f) above. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-33</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.7</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Operation of Merger Sub.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Merger Sub has been formed solely for the purpose of
engaging in the transactions contemplated hereby, has not engaged in any business activities and will have no assets, liabilities or obligations other than as contemplated by this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.8</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Property.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its Subsidiaries (i)&nbsp;have good and valid title to all
property material to the business of Parent and its Subsidiaries as reflected in the latest audited financial statements included in the Parent SEC Reports as being owned by Parent or acquired after
the date thereof (except for property sold or otherwise disposed of in the Ordinary Course of Business since the date thereof), free and clear of any Encumbrances except (A)&nbsp;the lien of
Parent's principal lender, (B)&nbsp;Permitted Encumbrances, and (C)&nbsp;such imperfections or irregularities of title or Encumbrances as do not affect the use of the properties or assets subject
thereto or affected thereby or otherwise materially impair the business operations in which such properties are used, in either case in such a manner as to have a Material Adverse Effect on Parent and
its Subsidiaries and (ii)&nbsp;are collectively the lessee of all property material to the business of Parent and its Subsidiaries which are reflected as leased in the latest audited financial
statements included in Parent SEC Reports (or on the books and records of Parent as of the date thereof) or acquired after the date thereof (except for leases that have expired by their terms) and are
in possession of the properties purported to be leased thereunder, and each such lease is valid and in full force and effect without default thereunder by the lessee or, to the Knowledge of Parent,
the lessor, other than defaults that would not have a Material Adverse Effect on Parent. For the avoidance of doubt, the representations and warranties set forth in this </FONT> <FONT SIZE=2><B>Section&nbsp;3.8</B></FONT><FONT SIZE=2> do not apply to
Proprietary Rights, which matters are specifically addressed in </FONT> <FONT SIZE=2><B>Section&nbsp;3.9</B></FONT><FONT SIZE=2>. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.9</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Proprietary Rights.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.9(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its Subsidiaries own or have a valid right to use all Proprietary Rights used or currently proposed to be used in the
business of
any of Parent and its Subsidiaries as conducted prior to or on the date of this Agreement, and all Proprietary Rights necessary or appropriate to make, use, offer for sale, sell or import the Parent
Product(s). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.9(b)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Claims.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>No Person has asserted or threatened a claim, against Parent or its Subsidiaries, nor to the Knowledge of the Parent are there any
facts which
could give rise to a claim, which would adversely affect any Parent's or its Subsidiaries' ownership rights to, or rights under, any Parent Proprietary Rights, or any Contract or other arrangement
under which Parent or its Subsidiaries claims any right, title or interest under any Parent Proprietary Rights; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>None of Parent or its Subsidiaries is subject to any proceeding or outstanding decree, order, judgment or stipulation restricting in any
manner
the use, transfer or licensing of any Parent Proprietary Rights by Parent or its Subsidiaries, the use, transfer or licensing of any Parent Products by Parent or its Subsidiaries, or which may
adversely affect the validity, use or enforceability of any Parent Proprietary Rights; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>No Person has asserted or threatened a claim against Parent or its Subsidiaries, nor to the Knowledge of the Parent are there any facts which
could give rise to a claim, that any Parent Product (or any Parent Proprietary Right embodied in any Parent Product) infringes (directly or indirectly) or misappropriates or constitutes unlawful use
of any Person's Proprietary Rights. No Person has notified Parent or its Subsidiaries that Parent requires a license to any of that Person's Proprietary Rights and neither Parent or its Subsidiaries
has received any unsolicited written offer to license (or any other notice of) any Person's Proprietary Rights. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.9(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The execution, delivery or performance of this Agreement or any ancillary agreement contemplated hereby, the consummation of the
transactions
contemplated by this Agreement or such ancillary agreements and the satisfaction of any closing condition will not contravene, conflict </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2>with
or result in any limitation on Parent, or the Parent's right, title or interest in or to the Parent Proprietary Rights. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.9(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No product liability claims have been threatened, alleged or filed against Parent or its Subsidiaries related to any Parent
Product. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.10</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;No Undisclosed Liabilities.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its Subsidiaries have no liabilities or
obligations of any nature (whether absolute, accrued, contingent, determined, determinable, choate, inchoate or otherwise), except for (i)&nbsp;liabilities or obligations reflected or reserved
against in the Parent Balance Sheet, or (ii)&nbsp;current liabilities incurred in the Ordinary Course of Business since the date of the Parent Balance Sheet that, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect on Parent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Taxes.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(a)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Timely Filing of Tax Returns.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its Subsidiaries have filed or caused
to be filed all Tax Returns that are or were required to be filed by or with respect to any of them pursuant to applicable
Legal Requirements. All Tax Returns filed by Parent and its Subsidiaries were (and as to Tax Returns not filed as of the date hereof, will be) in all material respects true, complete and correct and
filed on a timely basis. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(b)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Payment of Taxes.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its Subsidiaries have, within the time and in the
manner prescribed by law, paid (and until Closing, will pay within the time and manner required by law) all Taxes that are due and payable by the Parent and its Subsidiaries. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(c)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Withholding Taxes.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its Subsidiaries have complied (and until Closing
will comply) with all applicable laws, rules and regulations relating to the withholding of Taxes and have, within the times and in the manner prescribed by law, paid over (and until Closing will pay
over) to the proper Governmental Body all amounts required to be paid under applicable laws, rules and regulations relating to the paying over of Taxes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(d)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Audits.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the Knowledge of Parent, no Tax Return of any of the Parent or its
Subsidiaries is under audit or examination by any Governmental Body, and no notice of such an audit or examination has been received by any of the Parent or its Subsidiaries and none of the Parent or
its Subsidiaries has Knowledge of any threatened audits, investigations or claims for or relating to Taxes, and there are no matters under discussion with any Governmental Body with respect to Taxes.
No issues relating to Taxes were raised in writing by the relevant Governmental Body during any presently pending audit or examination, and no issues relating to Taxes were raised in writing by the
relevant Governmental Body in any completed audit or examination that can reasonably be expected to recur in a later taxable period. </FONT><FONT SIZE=2><B>Part&nbsp;3.11(d)</B></FONT><FONT SIZE=2>
of the Parent Disclosure Schedule lists, and the Parent has made available to Company copies of, all examiner's or auditor's reports, notices of proposed adjustments or similar commissions received by
any of the Parent or its Subsidiaries from any Governmental Body since December&nbsp;31, 2004. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(e)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Reserves.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The charges, accruals, and reserves with respect to Taxes on the
respective books of each of the Parent and its Subsidiaries are adequate (and until Closing will continue to be adequate) to pay all Taxes not yet due and payable and have been determined in
accordance with generally accepted United States accounting principles. No differences exist between the amounts of the book basis and the tax basis of assets (net of liabilities) that are not
accounted for on any accrual on the books of the Parent or its Subsidiaries for federal income tax purposes. There exists no proposed assessment of Taxes against any of the Parent or its Subsidiaries. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(f)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Liens.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No Encumbrance for Taxes exists with respect to any assets or
properties of any of the Parent or its Subsidiaries, nor will any such encumbrances exist at Closing except for statutory liens for Taxes not yet due. </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(g)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Sharing
Agreements.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;3.11(g)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule lists, and Parent has made available to Company
copies of, any Tax sharing agreement, Tax allocation agreement, Tax indemnity obligation or similar written or unwritten agreement, arrangement, understanding or practice with respect to Taxes
(including any advance pricing agreement, closing agreement or other agreement relating to Taxes with any Governmental Body) to which any of the Parent or its Subsidiaries is a party or by which any
of the Parent or its Subsidiaries is bound. No such agreements shall be modified or terminated prior to Closing without the consent of Company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(h)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Extensions of Time for Filing Tax Returns.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Parent or its
Subsidiaries has requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(i)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Waiver of Statutes of Limitations.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Parent or its Subsidiaries has
executed any outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(j)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Powers of Attorney.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No power of attorney currently in force has been granted by
any of the Parent or its Subsidiaries concerning any Taxes or Tax Return. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(k)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Rulings.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Parent or its Subsidiaries has received or been the
subject of a Tax Ruling or a request for Tax Ruling. None of the Parent or its Subsidiaries has entered into a Closing Agreement with any Governmental Authority that would have a continuing effect
after the Closing Date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(l)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Availability of Tax
Returns.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;3.11(l)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule lists, and Parent has made available, and will
continue to make available, to Company complete and accurate copies of all Tax Returns, and any amendments thereto, filed by or on behalf of, or which include, any of the Parent and its Subsidiaries,
for all taxable periods ending after December&nbsp;31, 2004 and on or prior to the Closing Date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(m)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Opinions of
Counsel.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;3.11(m)</B></FONT><FONT SIZE=2> of the Parent or its Subsidiaries Disclosure Schedule lists, and Parent has provided
to Company true and complete copies of all memoranda and opinions of counsel, whether inside or outside counsel, and all memoranda and opinions of accountants or other tax advisors, which have been
received by any of the Parent or its Subsidiaries with respect to Taxes. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(n)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;481 Adjustments.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Parent or its Subsidiaries is
required to include in income any adjustment pursuant to Internal Revenue Code Section&nbsp;481 by reason of a voluntary change in accounting method initiated by any of the Parent or its
Subsidiaries, and the Internal Revenue Service has not proposed any such change in accounting method. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(o)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Net Operating Loss Carryovers.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The amount of each Parent and its Subsidiaries'
net operating losses, and the dates on which they arose, are set forth in </FONT><FONT SIZE=2><B>Part&nbsp;3.11(o)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(p)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Credit Carryovers.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The amount of tax credit carryover for each of Parent and
its Subsidiaries, and the nature of those tax credits and years in which they arose, are set forth in </FONT><FONT SIZE=2><B>Part&nbsp;3.11(p)</B></FONT><FONT SIZE=2> of the Parent Disclosure
Schedule. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(q)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;338 Election.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No election under Section&nbsp;338 of the Code
has been made by or with respect to any of the Parent or its Subsidiaries or any of their respective assets or properties. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(r)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Intercompany Transactions.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Parent or its Subsidiaries has engaged in
any transactions with Affiliates which would require the recognition of income by any of the Parent or its Subsidiaries with respect to such transaction for any period ending on or after the Closing
Date. </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(s)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;162(m).</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The disallowance of a deduction under
Section&nbsp;162(m) of the Code for employee remuneration will not apply to any amount paid or payable by any of the Parent or its Subsidiaries under any program, arrangement or understanding
currently in effect. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(t)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Qualification as a Reorganization.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Neither Parent nor any of its Subsidiaries
has taken any action, nor to the Parent's Knowledge is there any fact or circumstance, that could reasonably be expected to prevent the Merger from qualifying as a reorganization within the meaning of
Section&nbsp;368(a) of the Code. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(u)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Deferred Revenue.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Parent or its Subsidiaries has any material
taxable income that will be reportable in a taxable period beginning after the Closing that is attributable to a transaction that occurred prior to the Closing. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(v)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Shelters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Neither the Parent nor any of its Subsidiaries has participated in
any transaction that is either a "listed transaction" or that the Parent believes in good faith is a "reportable transaction" or a "transaction of interest" (all as defined in Treas.
Reg.&nbsp;&sect;&nbsp;1.6011-4). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(w)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Deferred Compensation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Parent or its Subsidiaries is a party to any
"nonqualified deferred compensation plan" subject to Section&nbsp;409A of the Code that would subject any Person to tax pursuant to Section&nbsp;409A of the Code based upon a good faith
interpretation of all applicable regulations, notices and regulatory guidance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(x)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Transfer Pricing.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All material related party transactions involving the Parent
or its Subsidiaries is in compliance with applicable U.S. and foreign transfer pricing principles and is supported by a study prepared in compliance with transfer pricing documentation requirements
and, to the extent applicable, Section&nbsp;482 of the Code and the Treasury Regulations promulgated thereunder, as well as any comparable provisions of state, local, or foreign law, to the extent
applicable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(y)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Joint Venture.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Parent or its Subsidiaries has ever been a party to
any joint venture, partnership or other agreement that could be treated as a partnership for Tax purposes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(z)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;USRPHC.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the Parent or its Subsidiaries has ever been a "United States
Real Property Holding Corporation" within the meaning of Section&nbsp;897(c)(2) of the Code. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(aa)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;FIN&nbsp;48.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;3.11(aa)</B></FONT><FONT SIZE=2>
of the Parent Disclosure Schedule lists all open or uncertain tax positions (as defined in Financial Accounting Standards Board Interpretation No.&nbsp;48) taken by the Parent, if any. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.11(bb)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Taxable Presence.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Neither Parent nor any Subsidiary of Parent has a permanent
establishment in any country other than its country of organization or is subject to Tax in a jurisdiction outside its country of organization. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.12</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Employee Benefits.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent has complied, and is now in compliance, in all material respects with all provisions of ERISA, the Code and all laws and
regulations
applicable to all of Parent's employee benefit plans, programs, policies, practices, and other arrangements providing benefits to any current or former employee, officer or director of Parent or
beneficiary or dependent thereof, whether or not written, and whether covering one person or more than one person sponsored or maintained by Parent, to which Parent and any of its Subsidiaries
contributes or is obligated to contribute, or with respect to which Parent has or may have any liability (each, a "</FONT><FONT SIZE=2><B><I>Parent Plan</I></B></FONT><FONT SIZE=2>"), and each Parent Plan
has been maintained, funded, and administered in accordance with its terms. There is not now, nor do any circumstances exist that could give rise to, any requirement for the posting of security with
respect to a Parent Plan or the imposition of any Encumbrance on the </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-37</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2>assets
of Parent under ERISA or the Code. No prohibited transaction has occurred with respect to any Parent Plan. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;There are no pending or threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations
which have been
asserted or instituted against any Parent Plan, any fiduciaries thereof with respect to their duties to any Parent Plan or the assets of any of the trusts under any Parent Plan which could reasonably
be expected to result in any liability of Parent or its Subsidiaries to any Person including the Pension Benefit Guaranty Corporation, the Department of Treasury, or the Department of Labor. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;3.12(c)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule includes a complete list of
all
employee benefit plans, programs, policies, practices, and other arrangements providing benefits to any current or former employee, officer or director of Parent or its Subsidiaries, or beneficiary or
dependent thereof, whether or not written, and whether covering one person or more than one person, including the Benefit Plans sponsored or maintained by Parent, to which Parent contributes or is
obligated to contribute, or with respect to which Parent has or may have any liability ("</FONT><FONT SIZE=2><B><I>Parent Plans</I></B></FONT><FONT SIZE=2>"). Without limiting the generality of the
foregoing, the term "Parent Plans" includes all employee welfare benefit plans within the meaning of Section&nbsp;3(1) of ERISA, all employee pension benefit plans within the meaning of
Section&nbsp;3(2) of ERISA, and all other employee benefit, bonus, incentive, deferred compensation, stock purchase, stock option, severance (or restriction on termination in the absence of a notice
period), change of control and fringe benefit plans, programs or agreements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;With respect to each Parent Plan, Parent has made available to the Company a true, correct and complete copy of: (i)&nbsp;each
writing
constituting a part of such Plan, including without limitation all plan documents, benefit schedules, trust agreements, and insurance contracts and other funding vehicles, and a written description of
any unwritten Plan; (ii)&nbsp;the three most recently filed Annual Reports (Form&nbsp;5500 Series) and accompanying schedules, if any, and audit reports; (iii)&nbsp;the current summary plan
description and any material modifications thereto, if any; (iv)&nbsp;the most recent annual financial report, if any; (v)&nbsp;the most recent actuarial report, if any; (vi)&nbsp;the most
recent advisory, opinion, and/or determination letter from the IRS, as applicable; and (vii)&nbsp;all discrimination tests for the three most recent plan years. Except as specifically provided in
the foregoing documents made available to Parent, there are no
amendments to any Plan or any new Plan that have been adopted or approved nor has the Company undertaken to make any such amendments or adopt or approve any new Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;3.12(e)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule identifies each Plan that is
intended
to be a "qualified plan" within the meaning of Section&nbsp;401(a) of the Code ("</FONT><FONT SIZE=2><B><I>Qualified Plans</I></B></FONT><FONT SIZE=2>"). Each Qualified Plan is so qualified, and the
Internal Revenue Service has issued a currently applicable favorable determination letter with respect to each Qualified Plan that has not been revoked, or the Plan is a prototype plan which may rely
on a currently applicable opinion letter issued with respect to the Plan, and, to the Knowledge of Parent, there are no existing circumstances nor any events that have occurred that could adversely
affect the qualified status of any Qualified Plan or the related trust. No act or omission has occurred with respect to any Qualified Plan which could increase the cost of any such plan or result in
the imposition of any liability, lien, penalty, or tax under ERISA or the Code. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All contributions required to be made to any Plan by applicable law or regulation or by any plan document or other contractual
undertaking,
and all premiums due or payable with respect to insurance policies funding any Plan, for any period through the date hereof have been timely made or paid in full or, to the extent not required to be
made or paid on or before the date hereof, have been fully reflected on the financial statements contained in the Company SEC Reports. </FONT></P>

</UL>
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<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(g)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Neither Parent nor any ERISA Affiliate maintains, contributes to (or has ever maintained, contributed to or been required to
contribute to),
or has any liability or potential liability under (or with respect to) any (a)&nbsp;plan or arrangement which is subject to (i)&nbsp;the minimum funding requirements of Code Section&nbsp;412,
(ii)&nbsp;Part&nbsp;3 of Title&nbsp;I of ERISA, or (iii)&nbsp;Title&nbsp;IV of ERISA, (b)&nbsp;"multiemployer plan" (as defined in Section&nbsp;3(37) of ERISA), (c)&nbsp;multiple
employer plan, including any multiple employer welfare arrangement (as defined in Section&nbsp;3(40) of ERISA), (d)&nbsp;voluntary employees' beneficiary association (within the meaning of Code
Section&nbsp;501(c)(9)), (e)&nbsp;welfare benefit fund (within the meaning of Code Section&nbsp;419), (f)&nbsp;nonqualified deferred compensation plan as described in Code Section&nbsp;409A,
or (g)&nbsp;self-funded group health plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(h)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All liabilities in connection with the termination of any employee pension benefit plan that was sponsored, maintained or
contributed to by
Parent or any of its Subsidiaries at any time within the past three years have been fully satisfied. Each Plan can be amended, terminated or otherwise discontinued at any time in accordance with its
terms without liability on the part of Parent or any ERISA Affiliate. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To Parent's Knowledge, there does not now exist, nor do any circumstances exist that could result in, any Controlled Group
Liability that
could be a liability of Parent following the Closing. Without limiting the generality of the foregoing, neither Parent nor any ERISA Affiliate of Parent has engaged in any transaction described in
Section&nbsp;4069 or Section&nbsp;4204 of ERISA. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(j)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent has no liability for life, health, medical or other welfare benefits to former employees or beneficiaries or dependents
thereof,
except for health continuation coverage as required by Section&nbsp;4980B of the Code or Part&nbsp;6 of Title&nbsp;I of ERISA and at no expense to Parent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(k)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All Plans covering foreign employees of Parent comply with applicable local law and are fully funded and/or book reserved to
the extent
applicable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(l)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No labor organization or group of employees of the Parent or its Subsidiaries has made a pending demand for recognition or
certification, and
there are no representation or certification proceedings or petitions seeking a representation proceeding or any other labor relations tribunal or authority. The Parent and its Subsidiaries have
complied with the Worker Adjustment and Retraining Notification Act. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(m)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;3.12(m)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule&nbsp;contains an accurate
and
complete list as of the date of this Agreement of all loans and advances made by Parent to any employee, director, consultant or independent contract, other than routine travel and expense advances
made to employees in the Ordinary Course of Business. Parent has not, since July&nbsp;30, 2002, extended or maintained credit, arranged for the extension of credit, or renewed an extension of
credit, in the form of a personal loan to or for any director or executive officer of Parent. </FONT><FONT SIZE=2><B>Part&nbsp;3.12(m)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule
identifies any extension of credit maintained by Parent to which the second sentence of Section&nbsp;13(k)(1) of the Exchange Act applies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(n)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Parent and its Subsidiaries have complied, and are presently in material compliance with all Legal Requirements relating to
employment,
equal opportunity, nondiscrimination, immigration, wages, hours, benefits, collectively bargaining, the payment of social security and similar taxes, income tax withholding, occupational safety and
health, and/or privacy rights of employees. During the three-year period prior to the date of this Agreement, neither the Parent nor its Subsidiaries have been a party to any action in
which the Parent or its Subsidiaries was, or is, alleged to have violated any Legal Requirement relating to employment, equal opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes, occupational safety and health, and/or privacy rights of employees. </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12(o)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as described on </FONT><FONT SIZE=2><B>Part&nbsp;3.12(o)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule, there
are no
retired employees, officers, managers or directors of any of Parent or its Subsidiaries, or their dependents, receiving benefits or scheduled to receive benefits from any of Parent or its Subsidiaries
in the future. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.13</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Compliance with Legal Requirements; Governmental Authorizations.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its
Subsidiaries are, and at all times since January&nbsp;1, 2004 have been, in material compliance with each Legal Requirement that is or was applicable to any of them or to the conduct or operation of
their business or the ownership or use of any of their assets; no event has occurred or circumstance exists that (with or without notice or lapse of time or both) (A)&nbsp;may constitute or result
in a material violation by any of Parent or its Subsidiaries of, or a substantial failure on the part of any of Parent or its Subsidiaries to comply with, any Legal Requirement, or (B)&nbsp;may give
rise to any obligation on the part of any Parent or its Subsidiaries to undertake, or to bear all or any portion of the cost of, any substantial remedial action of any nature; and none of Parent or
its Subsidiaries has received, at any time since January&nbsp;1, 2004, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding
(A)&nbsp;any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement, or (B)&nbsp;any actual, alleged, possible, or potential obligation on the part
of any of Parent or its Subsidiaries to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. </FONT><FONT SIZE=2><B>Part&nbsp;3.13</B></FONT><FONT SIZE=2> of
the Parent Disclosure Schedule lists, and Parent has made available to Parent copies of, all reports made by any attorney to Parent's chief legal officer, chief executive officer, Company Board (or
committee thereof) or other representative pursuant to 17 CFR Part&nbsp;205, and all responses thereto. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.14</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Environmental Matters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of Parent and its Subsidiaries is, and at all times has
been, in substantial compliance with, and has not been and is not in material violation of or subject to any material liability under, any Environmental Law. None of Parent or its Subsidiaries has any
basis to expect, nor has any of them or, to Parent's Knowledge, any other Person for whose conduct they are or may be held to be responsible received, any written order, notice, or other communication
from (i)&nbsp;any Governmental Body or private citizen acting in the public interest, or (ii)&nbsp;the current or prior owner or operator of any Facilities, of any actual or potential material
violation by any of Parent or its Subsidiaries, or failure by any of Parent or its Subsidiaries to comply with, any Environmental Law, or of any actual or threatened material obligation by Parent or
its Subsidiaries to undertake or bear the cost of any Environmental, Health, and Safety Liabilities with respect to any of the Facilities or any other properties or assets (whether real, personal, or
mixed) in which any of Parent or its Subsidiaries has or has had an interest, or with respect to any property or Facility at or to which Hazardous Materials were generated, manufactured, refined,
transferred, imported, used, or processed by any of Parent and its Subsidiaries or any other Person for whose conduct any of Parent and its Subsidiaries are or may be held legally responsible
("</FONT><FONT SIZE=2><B><I>Parent Hazardous Material</I></B></FONT><FONT SIZE=2>"), or from which Parent Hazardous Materials have been transported, treated, stored, handled, transferred, disposed,
recycled, or received. No underground storage tanks or underground impoundments, including, without limitation, treatment or storage tanks, sumps, or water, gas or oil wells, have been used by any of
the Parent and its Subsidiaries, or, to the Parent's Knowledge, by others, at, on or under any facilities. To the Parent's Knowledge, no asbestos or asbestos-containing material, formaldehyde or
insulating material containing
urea formaldehyde, or material containing polychlorinated biphenyls, is present in, on or at any of the Parent's facilities. The Parent has delivered to the Acquired Corporations true and complete
copies of all material investigations, reports, studies, audits, tests, sampling results, monitoring, evaluations or analyses possessed or initiated by any of the Parent and its Subsidiaries
pertaining to any Hazardous Material in, on, beneath or adjacent to any of the Parent's facilities, or to which the Parent and its Subsidiaries have sent any Hazardous Material, or concerning
compliance by the Parent and its Subsidiaries, or any other person for whose conduct the Parent and its Subsidiaries are legally responsible, with any Environmental Law. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-40</FONT></P>

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 </FONT> <FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>3.15</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Legal Proceedings.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.15(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;There is no pending Legal Proceeding (i)&nbsp;that has been commenced by or against Parent or any of its Subsidiaries or that
otherwise
relates to or may affect the business of, or any of the assets owned or used by, Parent or any of its Subsidiaries, except for such Legal Proceedings as are normally incident to the business carried
on by Parent and its Subsidiaries and could not reasonably be expected to, individually or in the aggregate, result in a Material Adverse Effect on Parent and its Subsidiaries, (ii)&nbsp;that
challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions, or (iii)&nbsp;against any director or officer of
Parent or any of its Subsidiaries pursuant to Section&nbsp;8A or 20(b) of the Securities Act or Section&nbsp;21(d) or 21C of the Exchange Act. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.15(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the Knowledge of Parent, (i)&nbsp;no Legal Proceeding that, if pending, would be required to be disclosed under the preceding
paragraph
has been threatened, and (ii)&nbsp;no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Legal Proceeding. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.16</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Real Property; Equipment; Leasehold.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All material items of equipment and other
tangible assets owned by or leased to Parent are adequate for the uses to which they are being put, are in good and safe condition and repair (ordinary wear and tear excepted) and are adequate for the
conduct of the business of Parent in the manner in which such business is currently being conducted. Parent does not own any material real property or any material interest in real property. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.17</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Contracts; No Defaults.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.17(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>Part&nbsp;3.17(a)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule lists as of the date hereof,
and,
except to the extent filed in full without redaction as an exhibit to a Parent SEC Report, Parent has made available to the Company copies of, each Parent Contract and other instrument or document
(including any amendment to any of the foregoing)</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>described in paragraphs&nbsp;(b)(3), (b)(4), (b)(9) or (b)(10) of Item&nbsp;601 of Regulation&nbsp;S-K of the SEC; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>with any director, officer or Affiliate of Parent; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>evidencing, governing or relating to indebtedness for borrowed money, </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>not entered into in the Ordinary Course of Business that involves expenditures or receipts in excess of $250,000; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>that in any way purports to limit the freedom of Parent or any of its Affiliates to engage in any line of business or to compete with any
Person
or in any geographic area or to hire or retain any Person; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>relating to the employment of, or the performance of services by, any employee or consultant, or pursuant to which Parent or any Subsidiary of
Parent is or may become obligated to make any severance, termination or similar payment in excess of $100,000 to any current or former employee or director; or pursuant to which Parent or any
Subsidiary of Parent is or may become obligated to make any bonus or similar payment (other than payments constituting base salary) in excess of $100,000 to any current or former employee or director; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>relating to the acquisition, transfer, development, sharing or license of any Proprietary Rights and/or Technology (except for any Contract
pursuant to which (i)&nbsp;any Proprietary Rights are licensed to Parent under any third party software license generally available to the public, or (ii)&nbsp;any Proprietary Rights are licensed
by Parent to any Person on </FONT></P>

</UL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-41</FONT></P>

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<UL>
<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>a
non exclusive basis pursuant to an unmodified standard license agreement, the form of which has been provided to Parent); </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>providing for indemnification of any officer, director, employee or agent; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>(A)&nbsp;relating to the acquisition, issuance, voting, registration, sale or transfer of any securities, (B)&nbsp;providing any Person with
any preemptive right, right of participation, right of maintenance or any similar right with respect to any securities, or (C)&nbsp;providing Parent or any Subsidiary of Parent with any right of
first refusal with respect to, or right to repurchase or redeem, any securities, except for
Contracts evidencing options or employment Contracts entered into in the Ordinary Course of Business which contemplate the issuance of Options; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>incorporating or relating to any guaranty, any warranty or any indemnity or similar obligation, except for Contracts substantially
identical to
the standard forms of end user licenses previously made available by Parent to the Company; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>relating to any currency hedging; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>imposing or containing "standstill" or similar provisions; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>(A)&nbsp;to which any Governmental Body is a party or under which any Governmental Body has any rights or obligations, or
(B)&nbsp;directly or indirectly benefiting any Governmental Body (including any subcontract or other Contract between Parent and any contractor or subcontractor to any Governmental Body); </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>requiring that Parent give any notice or provide any information to any Person prior to considering or accepting any Acquisition Proposal or
similar proposal, or prior to entering into any discussions, agreement, arrangement or understanding relating to any Acquisition Transaction or similar transaction; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xv)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>contemplating or involving the payment or delivery of cash or other consideration in an amount or having a value in excess of $200,000 in the
aggregate, or contemplating or involving the performance of services having a value in excess of $200,000 in the aggregate; and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvi)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>any other Contract, if a breach of such Contract could reasonably be expected to have a Material Adverse Effect on Parent. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>Each
of the foregoing is a "</FONT><FONT SIZE=2><B><I>Parent Material Contract</I></B></FONT><FONT SIZE=2>." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.17(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each Parent Material Contract is valid and in full force and effect, and is enforceable in accordance with its terms, subject
to the effect
of (i)&nbsp;applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to rights of creditors generally and (ii)&nbsp;rules of law and
equity governing specific performance, injunctive relief and other equitable remedies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.17(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Neither Parent nor any Subsidiary of Parent has violated or breached, or committed any default under, any Contract to
which it is
a party, except for violations, breaches and defaults that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on Parent and its
Subsidiaries; and, to the Knowledge of Parent, no other Person has violated or breached, or committed any default under, any such Contract, except for violations, breaches and defaults that,
individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on Parent and its Subsidiaries; (ii)&nbsp;to the Knowledge of Parent, no event
has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will or would reasonably be expected to, (A)&nbsp;result in a violation or breach of any of the
provisions of any such Contract, (B)&nbsp;give any Person the right to declare a default or exercise any remedy under any such Contract, (C)&nbsp;give any </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2>Person
the right to receive or require a rebate, chargeback, penalty or change in delivery schedule under any such Contract, (D)&nbsp;give any Person the right to accelerate the maturity or
performance of any such Contract, or (E)&nbsp;give any Person the right to cancel, terminate or modify any such Contract, except in each such case for defaults, acceleration rights, termination
rights and other rights that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on Parent and its Subsidiaries; and
(iii)&nbsp;since September&nbsp;29, 2007, neither Parent nor any Subsidiary of Parent has received any notice or other communication regarding any actual or possible violation or breach of, or
default under, any such Contract, except in each such case for defaults, acceleration rights, termination rights and other rights that have not had and would not reasonably be expected to have a
Material Adverse Effect on Parent and its Subsidiaries. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.18</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Insurance.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its Subsidiaries are covered by valid and currently effective
insurance policies issued in favor of Parent and its Subsidiaries are that are customary for companies of similar size and financial condition and are adequate in amount to cover all currently pending
or overtly threatened claims, including without limitation any claims for breach of warranty and claims for indemnification regarding any of the Acquired Corporation's products or services. All such
policies are in full force and effect, all premiums due thereon have been paid and Parent and its Subsidiaries have complied with the provisions of such policies. Parent and its Subsidiaries have not
been advised of any defense to coverage in connection with any claim to coverage asserted or noticed by Parent or any of its Subsidiaries under or in connection with any of its extant insurance
policies. Parent has not received any written notice from or on behalf of any insurance carrier issuing policies or binders relating to or covering that there will be a cancellation or non renewal of
existing policies or binders, or that alteration of any equipment or any improvements to real estate occupied by or leased to or by Parent, purchase of additional equipment, or material modification
of any of the methods of doing business, will be required. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.19</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Labor Matters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as disclosed in the Parent SEC Reports, (i)&nbsp;neither
Parent nor any Subsidiary of Parent is a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization;
(ii)&nbsp;neither Parent nor any Subsidiary of Parent is the subject of any Legal Proceeding asserting that it has committed an unfair labor practice or seeking to compel it to bargain with any
labor organization as to wages or conditions of employment; (iii)&nbsp;there is no strike, work stoppage or other labor dispute involving Parent or any of its Subsidiaries pending or, to Parent's
Knowledge, threatened; (iv)&nbsp;no complaint, charge or Legal Proceeding by or
before any Governmental Body brought by or on behalf of any employee, prospective employee, former employee, retiree, labor organization or other representative of its employees is pending or, to
Parent's Knowledge, threatened against Parent or any of its Subsidiaries; (v)&nbsp;no material grievance is pending or, to Parent's Knowledge, threatened against Parent or any of its Subsidiaries;
and (vi)&nbsp;neither Parent nor any Subsidiary of Parent is a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Body relating to employees or employment
practices. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.20</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Government Contracting.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.20(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in </FONT><FONT SIZE=2><B>Part&nbsp;3.20(a)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule,
there are
(i)&nbsp;no outstanding claims against Parent, either by any Governmental Body or any prime contractor, subcontractor, vendor or other third party arising under or relating to any Government
Contract, and (ii)&nbsp;no disputes between Parent and any Governmental Body under the Contract Disputes Act or any other federal statute or between the Company and any prime contractor,
subcontractor or vendor arising under or relating to any such Government Contract. Except as set forth in </FONT><FONT SIZE=2><B>Part&nbsp;3.20(a)</B></FONT><FONT SIZE=2> of the Parent Disclosure
Schedule, to the Knowledge of Parent there are no facts that could reasonably be expected to result in a claim or dispute under clause&nbsp;(i) or (ii) of the immediately preceding sentence. </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.20(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent has submitted all required provisional bid labor and indirect rates through fiscal year 2008 and final indirect rates to
the cognizant
U.S. Government administrative contracting officer through fiscal year 2006. All such submissions are consistent with all government regulations cost accounting rules and regulations, including but
not limited to the Federal Acquisition Regulations. No unallowable costs were contained therein. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.20(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in </FONT><FONT SIZE=2><B>Part&nbsp;3.20(c)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule,
neither Parent
nor, to the Knowledge of Parent, any of its present employees, consultants or agents is (or during the last five years has been) suspended or debarred from doing business with any Governmental Body or
is (or during such period was) the subject of a finding of non-responsibility or ineligibility for any Governmental Body. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.20(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in </FONT><FONT SIZE=2><B>Part&nbsp;3.20(d)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule, to
the
Knowledge of Parent, no statement, representation or warranty made by Parent in any Government Contract, any government bid or any exhibit thereto or in any certificate, statement, list, schedule or
other document submitted or furnished to any Governmental Body in connection with any Government Contract or
government bid (i)&nbsp;contained on the date so furnished or submitted any untrue statement of material fact, or failed to state a material fact necessary to make the statements contained therein,
in light of the circumstances in which they are made, not misleading, or (ii)&nbsp;contains any untrue statement of a material fact, or fails to state a material fact necessary to make the
statements contained therein, in light of the circumstances in which they are made, not misleading, except where, in the case of both clauses&nbsp;(i) and (ii), any untrue statement or failure to
state a fact would not have a Material Adverse Effect on Parent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.20(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent, in conducting its business as it relates to government contracts, is in material compliance with all government
accounting principals
and governing regulations. No unidentified unallowable costs exist on the books and records of Parent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.20(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent has submitted all required labor rate proposals, as well as all final indirect rate submissions, to the cognizant
Defense Contract
Management Agency (DCMA) Administrative Contracting Officer for prior years in accordance with applicable Federal Acquisition Regulations, and there are no outstanding or unresolved matters with
respect thereto. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.20(g)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in </FONT><FONT SIZE=2><B>Part&nbsp;3.20(g)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule:
(i)&nbsp;none
of Parent's employees, consultants or agents is (or during the last five years has been) under administrative, civil or criminal investigation, indictment or request for information by any
Governmental Entity relating to the performance of his or her duties to Parent; (ii)&nbsp;there is not pending any audit or investigation of Parent, its officers, employees or representatives nor
within the last five years has there been any audit or investigation of Parent, officers, employees or representatives resulting in a material adverse finding with respect to any alleged irregularity,
misstatement or omission arising under or relating to any government contract; and (iii)&nbsp;during the last five years, Parent has not made any voluntary disclosure to any Governmental Body with
respect to any alleged irregularity, misstatement or omission arising under or relating to a government contract. Except as set forth in </FONT> <FONT SIZE=2><B>Part&nbsp;3.20(g)</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule, Parent has
not had any irregularities, misstatements or omissions arising under or relating to
any government contract that has led or is expected to lead, either before or after the Effective Time, to any of the consequences set forth in clause&nbsp;(i) or (ii) of the immediately preceding
sentence or any other material damage, penalty assessment, recoupment of payment or disallowance of cost. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.21</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Interests of Officers and Directors.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the officers or directors of Parent or
any of its Subsidiaries has any interest in any property, real or personal, tangible or intangible, used in or pertaining to the business of Parent or any of its Subsidiaries, or in any supplier,
distributor or customer of the Parent, or any other relationship, contract, agreement, arrangement or understanding </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-44</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>with
Parent, except as disclosed in the Parent SEC Reports and except for the normal rights of a stockholder and rights under the employee benefit plans of Parent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.22</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Export Control Laws; Encryption and Other Restricted Technology.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its
Subsidiaries have complied with all U.S. export control Legal Requirements regarding any export of its products or technology, including the Export Administration Regulations
("</FONT><FONT SIZE=2><B><I>EAR</I></B></FONT><FONT SIZE=2>") maintained by the U.S. Department of Commerce and the International Traffic in Arms Regulations
("</FONT><FONT SIZE=2><B><I>ITAR</I></B></FONT><FONT SIZE=2>") maintained by the Department of State. The business of Parent and its Subsidiaries as currently conducted does not require any of them to
obtain a license from the United States Departments of Commerce or State or an authorized body thereof under ITAR or EAR or other legislation regulating the development, commercialization or export of
technology. Neither Parent nor any Subsidiary of Parent has received any correspondence from the export control authorities in any country, including the U.S. Departments of Commerce or State,
regarding any pre-penalty notice, notice of penalty, subpoena or request for documents, or notice of audit, investigation or inquiry by a special agent or other export control agent or
official. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.23</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;International Trade Matters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and its Subsidiaries is, and at all times since
January&nbsp;1, 2002 has been, in compliance with and have not been and is not in material violation of any International Trade Law, including but not limited to, all laws and regulations related to
the import and export of commodities, software, and technology from and into the United States, and the payment of required duties and tariffs in connection with same. Parent and its Subsidiaries have
no basis to expect, nor has any of them or any other person for whose conduct they are or may be held to be responsible received, any actual or threatened order, notice, or other communication from
any governmental body of any actual or potential violation or failure to comply with any International Trade Law. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.24</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Brokers.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No broker, finder, investment banker or other Person (other than Wachovia
Capital Markets,&nbsp;LLC) (a copy of whose engagement letter has been provided to the Company) is entitled to any brokerage, finder's or other fee or commission in connection with the Merger and
the Contemplated Transactions based upon arrangements made by or on behalf of Parent. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.25</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Full Disclosure.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the information supplied or to be supplied by or on behalf
of Parent for inclusion or incorporation by reference in the Form&nbsp;S-4 Registration Statement will, at the time the Form&nbsp;S-4 Registration Statement is filed with
the SEC or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under which they are made, not misleading. None of the information supplied or to be supplied by or on behalf of Parent for
inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus will, at the time the Joint Proxy Statement/Prospectus is mailed to the shareholders of the Company or the stockholders
of Parent or at the time of the Company Shareholders' Meeting or the Parent Stockholders' Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. Notwithstanding the foregoing, no representation or
warranty is made by Parent with respect to statements made or incorporated by reference therein about the Company supplied by the Company for inclusion or incorporation by reference in the
Form&nbsp;S-4 Registration Statement or the Joint Proxy Statement/Prospectus. </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.26</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Sale of Products; Performance of Services.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.26(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the Knowledge of Parent, each product, system, program, Proprietary Right or other asset designed, developed, manufactured,
assembled,
sold, installed, licensed or otherwise made available by Parent or any of its Subsidiaries to any Person since January&nbsp;1, 2004:</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>materially conformed and complied with the terms and requirements of any applicable warranty or other Contract and with all
applicable material
Legal Requirements; and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>was free of any bug, virus, design defect or other defect or deficiency at the time it was sold or otherwise made available, other than
any
immaterial bug or similar defect that would not adversely affect in any material respect such product, system, program, Proprietary Right or other asset (or the operation or performance thereof). </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.26(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the Knowledge of Parent, all installation services, programming services, repair services, maintenance services, support
services,
training services, upgrade services and other services that have been performed by Parent or any Subsidiary of Parent were performed properly and in full conformity with the terms and requirements of
all applicable warranties and other Contracts and with all applicable material Legal Requirements, and the financial results of the performance of such services have been reflected in the financial
statements contained in the Parent SEC Reports, in accordance with GAAP. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.26(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Since December&nbsp;31, 2006, no customer or other Person has asserted or overtly threatened to assert any claim against Parent
or any
Subsidiary of Parent (i)&nbsp;under or based upon any warranty provided by or on behalf of Parent any Subsidiary of Parent, or (ii)&nbsp;under or based upon any other warranty relating to any
product, system, program, Proprietary Rights or other asset designed, developed, manufactured, assembled, sold, installed, repaired, licensed or otherwise made available by Parent or any Subsidiary of
Parent or any services performed by Parent or any Subsidiary of Parent. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION&nbsp;4</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;CONDUCT OF BUSINESS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>4.1</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Covenants of the Company.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as consented to in writing by Parent, which consent
shall not be unreasonably withheld, or as set forth in </FONT><FONT SIZE=2><B>Section&nbsp;4.1</B></FONT><FONT SIZE=2> of the Company Disclosure Schedule or as otherwise expressly permitted by or
provided for in this Agreement, from and after the date of this Agreement until the earlier of the termination of this Agreement in accordance with its terms or the Effective Time, each of the
Acquired Corporations shall carry on its business in the Ordinary Course of Business, pay its debts and Taxes and perform its other material obligations when due (subject to good faith disputes over
such debts, Taxes or material obligations), comply in all material respects with all applicable Legal Requirements, and use commercially reasonable efforts in a manner not less diligent than past
practices to maintain and preserve its business organization, assets and properties, keep available the services of its present officers and key employees and preserve its advantageous business
relationships with customers, strategic partners, suppliers, distributors and others having business dealings with it to the end that its goodwill and ongoing business shall not be materially impaired
between the date of this Agreement and the Effective Time. Without limiting the generality of the foregoing, except as listed on Schedule&nbsp;4.1 of the Company Disclosure Schedule or as otherwise
permitted by or provided for in this Agreement, from and after the date of this Agreement until the earlier of the termination of this Agreement in accordance with its terms or the Effective Time,
none of the Acquired Corporations shall directly or indirectly, do any of the following without the prior written consent of Parent, which consent shall not be unreasonably withheld: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(A)&nbsp;declare, set aside or pay any dividends on, or make any other distributions (whether in cash, securities or other
property) in
respect of, any of its capital stock (other than dividends and distributions by a direct or indirect wholly owned Subsidiary of the Company to its </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2>parent);
(B)&nbsp;split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its
capital stock or any of its other securities; or (C)&nbsp;purchase, redeem or otherwise acquire any shares of its capital stock or any other of its securities or any rights, warrants or options to
acquire any such shares or other securities, except for reacquisition or repurchase upon forfeiture of unvested restricted stock pursuant to the terms of any applicable restricted stock purchase or
grant agreement; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;except as permitted by </FONT><FONT SIZE=2><B>Section&nbsp;4.1(m)</B></FONT><FONT SIZE=2>, issue, deliver, sell, grant, pledge
or otherwise
dispose of or encumber any shares of its capital stock, any other voting securities or any securities convertible into or exercisable or exchangeable for, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible, exercisable or exchangeable securities (other than upon the exercise, settlement or conversion of Company Options or other equity-based
awards or rights under the Company Stock Plans or issued pursuant to the ESPP, the Company Warrants, the Company 401(k) Plan or the convertible debt of the Company, in each case as outstanding or
existing on the date of this Agreement in accordance with their terms; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;amend its Organizational Documents, except for amendments required by any Legal Requirement or the rules and regulations of the
SEC or the
American Stock Exchange, or that are expressly required by this Agreement; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;acquire (A)&nbsp;by merging or consolidating with, or by purchasing all or a substantial portion of the assets or any stock of,
or by any
other manner, any business or any corporation, partnership, joint venture, limited liability company, association or other business organization or division thereof or (B)&nbsp;any assets that are
material, in the aggregate, to the Acquired Corporations, taken as a whole, except purchases of inventory, components or, subject to Section&nbsp;4.1(i) below, property, plant or equipment
(including engineering development equipment) in the Ordinary Course of Business; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;sell, lease, license, pledge, or otherwise dispose of or encumber any properties or assets of the Acquired Corporations, except
for the sale
of inventory in the Ordinary Course of Business and transactions related thereto; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;adopt or implement any shareholder rights plan; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(g)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;except for agreements permitted by </FONT><FONT SIZE=2><B>Section&nbsp;5.1</B></FONT><FONT SIZE=2>, enter into an agreement with
respect to
any merger, consolidation, liquidation or business combination, or any acquisition or disposition of all or substantially all of the assets or securities of the Acquired Corporations; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(h)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(A)&nbsp;except with respect to its existing revolving line of credit and term loan, incur or suffer to exist any indebtedness
for borrowed
money other than such indebtedness which existed as of December&nbsp;28, 2007 as reflected on the Company Balance Sheet or guarantee any such indebtedness of another Person, (B)&nbsp;issue, sell
or amend any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its Subsidiaries, guarantee any debt securities of another Person, enter into any
agreement to maintain any financial statement condition of another Person or enter into any arrangement having the economic effect of any of the foregoing, (C)&nbsp;make any loans, advances (other
than routine advances to employees of the Company and its Subsidiaries in the Ordinary Course of Business) or capital contributions to, or investment in, any other Person, other than the Company or
any of its direct or indirect wholly owned Subsidiaries, or (D)&nbsp;other than in the Ordinary Course of Business, enter into any hedging agreement or other financial agreement or arrangement,
intended to protect the Company or its Subsidiaries against fluctuations in commodities prices or exchange rates; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;make any capital expenditures or other expenditures for the acquisition of property, plant or equipment, or any rights to any of
the
foregoing, in excess of $250,000 for the Acquired Corporations, taken as a whole, other than in the Ordinary Course of Business; </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(j)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;make any changes in accounting methods, principles or practices, except as may be required by a change in GAAP or Legal
Requirements or,
except as so required, change any assumption underlying, or method of calculating, any bad debt, contingency or other reserve; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(k)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;pay, discharge, settle or satisfy any claims, liabilities or obligations (whether absolute, accrued, asserted or unasserted,
contingent or
otherwise) in excess of $250,000 in the aggregate, other than payments, settlements, or satisfactions made in the Ordinary Course of Business or in accordance with their terms as in effect on the date
of this Agreement, of claims, liabilities or obligations reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company
included in the Company SEC Reports filed prior to the date of this Agreement (to the extent so reflected or reserved against) or incurred since the date of such financial statements in the Ordinary
Course of Business; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(l)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;waive any material benefits of, release or eliminate any rights under or otherwise modify in any material adverse respect, fail
to enforce, or
consent to any matter with respect to which its consent is required under, any confidentiality, standstill or similar agreements to which any of the Acquired Corporations is a party, except as
provided in </FONT><FONT SIZE=2><B>Section&nbsp;5.1</B></FONT><FONT SIZE=2>; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(m)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;modify, amend or terminate any Company Material Contracts (except for modifications, amendments or terminations in the Ordinary
Course of
Business of a Company Material Contract referenced in </FONT><FONT SIZE=2><B>Section&nbsp;2.16(a)(xiii)</B></FONT><FONT SIZE=2>), or knowingly waive, release or assign any material rights or claims
(including any write off or other compromise of any accounts receivable of any of the Acquired Corporations), except in the Ordinary Course of Business; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(n)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(A)&nbsp;enter into any Company Material Contract or agreement except a Company Material Contract referenced in </FONT> <FONT
SIZE=2><B>Section&nbsp;2.16(a)(xiii)</B></FONT><FONT SIZE=2> in the Ordinary Course of Business or (B)license any material Proprietary Rights and/or Technology to or from any third
party other than in the Ordinary Course of Business; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(o)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;except in the Ordinary Course of Business or as required to comply with Legal Requirements or agreements or pursuant to plans or
arrangements
existing on the date hereof, (A)&nbsp;take any action with respect to, adopt, enter into, terminate or amend any employment, severance, retirement, retention, incentive or similar agreement,
arrangement or benefit plan for the benefit or welfare of any current or former director, officer, employee or consultant or any collective bargaining agreement (provided, however, that the Company
may hire employees or independent contractors (i)&nbsp;for the sole purpose of replacing employees who have terminated their employment, provided that the hired employees must be hired on terms and
conditions, including compensation, which are not materially greater than the terms and conditions on which the employees being replaced were retained, (ii)&nbsp;with respect to any open
requisitions for employment existing on the date hereof or (iii)&nbsp;who are temporary employees or independent contractors hired in the Ordinary Course of Business terminable at will with no more
than 20 business days notice without severance or ongoing benefit obligations), (B)&nbsp;except as may be approved by the Company Board in connection with the transactions described in this
Agreement, increase in any respect the compensation or fringe benefits of, or pay any bonus to, any director, officer, employee or consultant, (other than increases not in excess of ten percent (10%)
of base salary granted to non-officer employees, (C)&nbsp;amend or accelerate the payment, right to payment or vesting of any compensation or benefits, including any outstanding Company
Options or other equity-based awards, except pursuant to their terms or as otherwise contemplated in this Agreement or as approved by the Company Board in connection with the transactions described in
this Agreement, (D)&nbsp;pay any material benefit not provided for as of the date of this Agreement under any benefit plan, (E)&nbsp;grant any awards under any bonus, incentive, performance or
other compensation plan or arrangement or benefit plan, including the grant of stock options, stock appreciation rights, stock based or stock related awards, performance units or restricted stock, or
the removal of existing </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2>restrictions
in any benefit plans or agreements or awards made thereunder (other than any such removal caused by this Agreement or the Contemplated Transactions pursuant to the terms of a benefit
plan, agreement or award), or (F)&nbsp;take any action other than in the Ordinary Course of Business to fund or in any other way secure the payment of compensation or benefits under any employee
plan, agreement, contract or arrangement or benefit plan; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(p)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;make or rescind any Tax election, settle or compromise any Tax Liability or amend any Tax return; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(q)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;initiate any litigation against any third party, or compromise or settle any material litigation or arbitration proceeding, for
an amount in
excess of $250,000; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(r)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;open or close any facility or office; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(s)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;fail to maintain insurance at levels substantially comparable to levels existing as of the date of this Agreement; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(t)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;except with respect to any amounts disputed in good faith by the Company, fail to pay when due accounts payable and other
obligations of the
Acquired Corporations in the Ordinary Course of Business; or </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1(u)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;authorize any of, or commit or agree, in writing or otherwise, to take any of, the foregoing actions or any action that would
materially
impair, delay, or prevent the satisfaction of any conditions in </FONT><FONT SIZE=2><B>Section&nbsp;6</B></FONT><FONT SIZE=2> hereof other than as specifically provided for in </FONT> <FONT SIZE=2><B>Section&nbsp;4.1</B></FONT><FONT SIZE=2> or
</FONT><FONT SIZE=2><B>Section&nbsp;5.1</B></FONT><FONT SIZE=2>. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>4.2</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Covenants of Parent.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;From the date hereof until the Effective Time, unless the
Company shall otherwise consent in writing, which consent shall not be unreasonably withheld, or except as listed on </FONT><FONT SIZE=2><B>Schedule&nbsp;4.2</B></FONT><FONT SIZE=2> of the Parent
Disclosure Schedule or as otherwise expressly permitted by or provided for in this Agreement, Parent shall, and shall cause each of its Subsidiaries to, conduct its business in the Ordinary Course of
Business, pay its debts and Taxes and perform its other material obligations when due (subject to good faith disputes given such debts, Taxes or material obligations), comply with all applicable
material Legal Requirements, and use commercially reasonable efforts to preserve intact its business organization, assets and properties, and goodwill and relationships with third parties, and to keep
available the services of its current officers and key employees to the end that its goodwill and ongoing business shall not be materially impaired between the date of this Agreement and the Effective
Time. In addition to and without limiting the generality of the foregoing, except as listed on </FONT><FONT SIZE=2><B>Schedule&nbsp;4.2</B></FONT><FONT SIZE=2> of the Parent Disclosure Schedule or
as otherwise expressly permitted by or provided for in this Agreement, from the date hereof until the Effective Time, without the prior written consent of the Company, which consent shall not be
unreasonably withheld: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent shall not adopt or propose any material change in its Organizational Documents except for such amendments (A)
&nbsp;required by any
Legal Requirement or the rules and regulations of the SEC or the NASDAQ or (B)&nbsp;that do not have a Material Adverse Effect on Parent and would not materially restrict the operations of Parent;
and Parent shall not permit its Subsidiaries to adopt or propose any material change in their Organizational Documents except for such amendments that do not have a Material Adverse Effect on Parent
and would not materially restrict the operation of any business thereof; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent shall not, and shall not permit its Subsidiaries to, change any method of accounting or accounting principles or practices
by Parent or
any Subsidiary, except for any such change required by any Legal Requirement or by a change in any Legal Requirement or GAAP, or, except as so required, change any assumption underlying, or method of
calculating, any bad debt, contingency or other reserve; </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent shall not, and shall not permit any of its Subsidiaries to, fail to (A)&nbsp;timely file or furnish to or with the SEC
all reports,
schedules, forms, statements and other documents required to filed or furnished (except those filings by Affiliates of Parent required under Section&nbsp;16(a) of the Exchange Act which do not have
a Material Adverse Effect on Parent), or (B)&nbsp;comply in all material respects with the requirements of SOX applicable to it; and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent shall not, and shall not permit any of its Subsidiaries to, acquire (A)&nbsp;by merging or consolidating with, or by
purchasing all
or a substantial portion of the assets or any stock of, or by any other manner, any business or any corporation, partnership, joint venture, limited liability company, association or other business
organization or division thereof or (B)&nbsp;any assets that are material, in the aggregate, to Parent, except purchases of inventory, components or property, plant or equipment (including
engineering development equipment) in the Ordinary Course of Business; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent shall not, and shall not permit any of its Subsidiaries to, sell, lease, pledge, or otherwise dispose of or encumber any
properties or
assets of Parent or its Subsidiaries, except for the sale of inventory in the Ordinary Course of Business and transactions related thereto; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent shall not, and shall not permit any of its Subsidiaries to, enter into an agreement with respect to any merger,
consolidation,
liquidation or business combination, or any acquisition or disposition of all or substantially all of the assets or securities of Parent or any of its Subsidiaries; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2(g)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent shall not, and shall not permit any of its Subsidiaries, to agree or commit to do any of the foregoing or any action that
would
materially impair, delay, or prevent the satisfaction of any conditions in Section&nbsp;6 other than as specifically provided for in Section&nbsp;4.2. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>4.3</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Confidentiality.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The parties acknowledge that Parent and Company have previously
executed a confidentiality agreement dated as of August&nbsp;24, 2007 (the "</FONT><FONT SIZE=2><B><I>Confidentiality Agreement</I></B></FONT><FONT SIZE=2>"), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms, except as expressly modified herein. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION&nbsp;5</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;ADDITIONAL AGREEMENTS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.1</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;No Solicitation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.1(a)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;No Solicitation or Negotiation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;From the date of this Agreement until the
Effective Time, except as set forth in this </FONT><FONT SIZE=2><B>Section&nbsp;5.1</B></FONT><FONT SIZE=2>, none of the Acquired Corporations shall, nor shall any of their directors, officers,
investment bankers, attorneys, accountants or other advisors or representatives (such directors, officers, investment bankers, attorneys, accountants, other advisors and representatives, collectively,
"</FONT><FONT SIZE=2><B><I>Representatives</I></B></FONT><FONT SIZE=2>"), directly or indirectly:</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>solicit, initiate, or knowingly or intentionally encourage or facilitate, any inquiries, offers or proposals that constitute, or
could
reasonably be expected to lead to, any Acquisition Proposal (including, without limitation, amending or granting any waiver or release under any standstill or similar agreement with respect to any
Company Common Stock, except as expressly permitted by this Section); or </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>enter into, continue or otherwise participate in any discussions or negotiations regarding, furnish to any Person any non-public
information with respect to, assist or participate in any effort or attempt by any Person with respect to, or otherwise knowingly or intentionally cooperate in any way with, any Acquisition Proposal
(provided, however, that providing notice of the restrictions set forth in this </FONT><FONT SIZE=2><B>Section&nbsp;5.1</B></FONT><FONT SIZE=2> to a third party in response to any such inquiry,
request or Acquisition Proposal shall not, in and of itself, be deemed a breach of this Section). </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
the foregoing, prior to the time that the Required Company Shareholder Vote has been obtained (the "</FONT><FONT SIZE=2><B><I>Company Specified
Time</I></B></FONT><FONT SIZE=2>"), the Company may, to the extent required by the fiduciary obligations of the Company Board, as determined in good faith by the Company Board after consultation with
outside counsel, in response to an unsolicited, bona fide written Acquisition Proposal made or received after the date of this Agreement that the Company Board determines in good faith after
consultation with outside counsel and its financial advisor is reasonably likely to lead to a "</FONT><FONT SIZE=2><B><I>Superior Proposal</I></B></FONT><FONT SIZE=2>," in each case that did not result from
a breach by the Company of, or actions by its Representatives inconsistent with, this Section, and subject to compliance with </FONT><FONT SIZE=2><B>Section&nbsp;5.1(c)</B></FONT><FONT SIZE=2>,
(x)&nbsp;furnish non-public information with respect to the Company to the Person making such Acquisition Proposal and its Representatives, and (y)&nbsp;participate in discussions or
negotiations with such Person and its Representatives regarding such Acquisition Proposal, if, in the case of either clause&nbsp;(x) or (y), prior to taking such action the Company enters into a
customary confidentiality agreement not less restrictive of the other party than the Confidentiality Agreement. Without limiting the foregoing, it is agreed that any violation of the restrictions set
forth in this </FONT><FONT SIZE=2><B>Section&nbsp;5.1(a)</B></FONT><FONT SIZE=2> by any Representative of the
Company or any of its Subsidiaries, whether or not such Person is purported to act on behalf of the Company or otherwise, shall be deemed to be a breach of this </FONT> <FONT SIZE=2><B>Section&nbsp;5.1(a)</B></FONT><FONT SIZE=2> by the Company.
</FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No Change in Recommendation or Alternative Acquisition Agreement. Neither the Company Board nor any committee thereof
shall:</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>except as set forth in this Section, withdraw, qualify or modify, or publicly propose to withdraw, qualify or modify, in a manner
adverse to
Parent or the Merger Sub, the approval or recommendation by the Company Board or any such committee of the adoption of this Agreement (a "</FONT><FONT SIZE=2><B><I>Company Adverse Recommendation
Change</I></B></FONT><FONT SIZE=2>"); </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>adopt, approve or recommend, or publicly propose to adopt, approve or recommend, any Acquisition Proposal; or </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>authorize, cause or permit any of the Acquired Corporations to enter into any letter of intent, memorandum of understanding, agreement in
principle, acquisition agreement, merger agreement or similar agreement (an "</FONT><FONT SIZE=2><B><I>Alternative Acquisition Agreement</I></B></FONT><FONT SIZE=2>") constituting or relating to any
Acquisition Proposal (other than a confidentiality agreement referred to in </FONT><FONT SIZE=2><B>Section&nbsp;5.1(a)</B></FONT><FONT SIZE=2> entered into in the circumstances referred to in </FONT> <FONT SIZE=2><B>Section&nbsp;5.1(a)
</B></FONT><FONT SIZE=2>). </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
the foregoing, at any time prior to the Company Specified Time and subject to </FONT><FONT SIZE=2><B>Section&nbsp;5.1(c)</B></FONT><FONT SIZE=2>, the Company Board
may, in response to an Acquisition Proposal that the Company Board determines in good faith (after consultation with its outside counsel and its financial advisor) constitutes a Superior Proposal and
that was unsolicited and made after the date hereof and that did not otherwise result from a breach of this </FONT><FONT SIZE=2><B>Section&nbsp;5.1</B></FONT><FONT SIZE=2>, make an Adverse
Recommendation Change if the Company Board has concluded in good faith, after consultation with its outside counsel, that, in light of such Superior Proposal, the failure of the Company Board to
effect a Company Adverse Recommendation Change would result in a breach of its fiduciary duties under applicable Legal Requirements; </FONT><FONT SIZE=2><I>provided</I></FONT><FONT SIZE=2>, </FONT> <FONT SIZE=2><I>however</I></FONT><FONT SIZE=2>,
that the Company shall not be entitled to exercise its right to make a Company Adverse Recommendation Change pursuant to this sentence unless
the Company has: (A)&nbsp;provided to Parent five business days' prior written notice (such notice, a "</FONT><FONT SIZE=2><B><I>Notice of Superior Proposal</I></B></FONT><FONT SIZE=2>"), which notice
shall not be deemed to be a Company Adverse Recommendation Change, advising Parent that the Company Board intends to take such action and specifying the reasons therefor, including the then current
material terms and conditions of any Superior Proposal that is the basis of the proposed action by the Company Board and the identity of the Person making the proposal (it being understood and agreed
that any material amendment to any term of any such Superior Proposal shall require a new Notice of Superior Proposal and a new three business day period), (B)&nbsp;during such five business day
period </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-51</FONT></P>

<HR NOSHADE>
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<UL>

<P style="font-family:times;"><FONT SIZE=2>(or
three business day period, in the case of an amendment) if requested by Parent, the Company engaged in good faith negotiations with Parent to amend this Agreement in such a manner that any
Acquisition Proposal which was determined to constitute a Superior Proposal no longer is a Superior Proposal and (C)&nbsp;at the end of such period such Acquisition Proposal has not been withdrawn
and continues to constitute a Superior Proposal (taking into account any changes to the terms of this Agreement proposed by Parent following a Notice of Superior Proposal, as a result of the
negotiations required by clause&nbsp;(B) or otherwise). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nothing
in this </FONT><FONT SIZE=2><B>Section&nbsp;5.1</B></FONT><FONT SIZE=2> shall be deemed to (A)&nbsp;impermissibly circumscribe the ability of the Company Board to fulfill
its fiduciary duty; (B)&nbsp;create an inference of Parent's consent to the Company's taking any action described in clauses&nbsp;(ii) or (iii) of the first sentence of this </FONT> <FONT SIZE=2><B>Section&nbsp;5.1(b)</B></FONT><FONT SIZE=2>, or
(C)&nbsp;except upon a termination of this Agreement pursuant to </FONT> <FONT SIZE=2><B>Section&nbsp;7.1(i)</B></FONT><FONT SIZE=2>, limit the Company's obligation to call, give notice of, convene and hold the Shareholders' Meeting, regardless of
whether the
Company Board has effected a Company Adverse Recommendation Change. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.1(c)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Notices to Parent; Additional Negotiations.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company shall promptly (within
24&nbsp;hours) advise Parent in writing, upon the Company receiving any Acquisition Proposal or any request for nonpublic information in connection with any Acquisition Proposal,, the material terms
and conditions of any such Acquisition Proposal and the identity of the Person making any such Acquisition Proposal. The Company shall not provide any information to or participate in discussions or
negotiations with the Person making any Acquisition Proposal until after the Company has first notified Parent of such Acquisition Proposal as required by the preceding sentence. The Company shall
keep Parent reasonably informed in all material respects of the status of any such Acquisition Proposal and shall (i)&nbsp;promptly (within 24&nbsp;hours) notify Parent orally and in writing if it
has begun to furnish information to, or to participate in discussions or negotiations with, a Person making any such Acquisition Proposal and shall promptly (within 24&nbsp;hours) advise Parent in
writing of any material change in the terms of any such Acquisition Proposal, (ii)&nbsp;provide to Parent as soon as practicable after receipt or delivery thereof any proposed transaction documents
received from or on behalf of any third party relating to any
Acquisition Proposal and (iii)&nbsp;if Parent shall make a counterproposal (including, without limitation, following delivery of a written notice to Parent pursuant to </FONT> <FONT SIZE=2><B>Section&nbsp;5.1(b)</B></FONT><FONT SIZE=2>), consider and
cause its financial and legal advisors to consider in good faith the terms of such counterproposal.
Contemporaneously with providing any non-public information to a third party in connection with any such Acquisition Proposal, the Company shall furnish a copy of such information to
Parent (to the extent not already previously provided). None of the Acquired Corporations shall enter into any confidentiality agreement with any Person subsequent to the date hereof which prohibits
the Company from providing such information to Parent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain Permitted Disclosure.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Nothing contained in this </FONT><FONT SIZE=2><B>Section&nbsp;5.1</B></FONT><FONT SIZE=2>, in </FONT>
<FONT SIZE=2><B>Section&nbsp;5.5</B></FONT><FONT SIZE=2> or otherwise contained in this Agreement shall be deemed to prohibit the Company from taking and disclosing to its shareholders a
position with respect to a tender offer contemplated by Rule&nbsp;14d-9 or Rule&nbsp;14e-2(a) promulgated under the Exchange Act or from making any required disclosure to
the Company's shareholders if, in the good faith judgment of the Company Board, after consultation with outside counsel, such action would be required under applicable Legal Requirements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.1(d)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Cessation of Ongoing Discussions.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Acquired Corporations shall, and shall
cause their Representatives to, cease immediately all discussions and negotiations regarding any proposal that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-52</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.2</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Joint Proxy Statement/Prospectus; Registration Statement.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;As promptly as practicable after the execution of this Agreement, Parent and the Company shall jointly prepare and file with the
SEC the Joint
Proxy Statement/Prospectus and the Form&nbsp;S-4 Registration Statement. Each of Parent and the Company shall provide promptly to the other such information concerning its business
affairs and financial statements as, in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion in the Joint Proxy Statement/Prospectus and the
Form&nbsp;S-4 Registration Statement, or in any amendments or supplements thereto, shall cause its counsel to cooperate with the other party's counsel in the preparation of the Joint
Proxy Statement/Prospectus and the Form&nbsp;S-4 Registration Statement and shall request the cooperation of such party's auditors in the preparation of the Joint Proxy
Statement/Prospectus and the Form&nbsp;S-4 Registration Statement. Each of Parent and the Company shall respond to any comments of the SEC and shall use all commercially reasonable
efforts to have the Form&nbsp;S-4 Registration Statement declared effective under the Securities Act as promptly as practicable after such filings, and each of Parent and the Company
will provide the other with a reasonable opportunity to review and comment (which comments will be considered by the other party in good faith) on any amendment or supplement on the Joint Proxy
Statement/Prospectus or the Form&nbsp;S-4 Registration
Statement prior to the filing thereof with the SEC. The Company and Parent shall cause the Joint Proxy Statement/Prospectus to be mailed to their respective stockholders at the earliest practicable
time after the Form&nbsp;S-4 Registration Statement is declared effective under the Securities Act. Each of Parent and the Company shall notify the other promptly upon the receipt of any
comments from the SEC or its staff or any other government officials and of any request by the SEC or its staff or any other government officials for amendments or supplements to the
Form&nbsp;S-4 Registration Statement, the Joint Proxy Statement/Prospectus or any filing pursuant to </FONT><FONT SIZE=2><B>Section&nbsp;5.2</B></FONT><FONT SIZE=2> or for additional
information and shall supply the other with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials,
on the other hand, with respect to the Form&nbsp;S-4 Registration Statement, the Joint Proxy Statement/Prospectus, the Merger or any filing pursuant to </FONT> <FONT SIZE=2><B>Section&nbsp;5.2(b)</B></FONT><FONT SIZE=2>. Each of Parent and the
Company shall use all commercially reasonable efforts to cause all documents that it is responsible for
filing with the SEC or other regulatory authorities under this </FONT><FONT SIZE=2><B>Section&nbsp;5.2</B></FONT><FONT SIZE=2> to comply in all material respects with all Legal Requirements. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If, at any time prior to the Company Specified Time or the Parent Specified Time, any information is discovered or any event
occurs with
respect to Parent or any of the Acquired Corporations, or any change occurs with respect to the other information included in the Form&nbsp;S-4 Registration Statement or the Joint Proxy
Statement/Prospectus which is required to be described in an amendment of, or a supplement to, the Form&nbsp;S-4 Registration Statement or the Joint Proxy Statement/Prospectus so that
such document does not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were
made, not misleading, then (i)&nbsp;the party learning of such information shall notify the other parties promptly of such event, and Parent and the Company shall promptly file with the SEC any
necessary amendment or supplement to the Form&nbsp;S-4 Registration Statement or the Joint Proxy Statement/Prospectus, respectively, (ii)&nbsp;Parent shall use its reasonable best
efforts to have such amendment or supplement cleared for mailing as soon as practicable, and, Parent and the Company shall, as required by Legal Requirements, disseminate the information contained in
such amendment or supplement to holders of Company Common Stock; provided that no amendment or supplement will be filed and no such information shall be otherwise disseminated without prior
consultation between Parent and the Company and providing Parent and the Company with a reasonable opportunity to review and comment on such amendment or supplement. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-53</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and the Company shall promptly make all necessary filings with respect to the Merger under the Securities Act, the
Exchange Act,
applicable Blue Sky Laws and the rules and regulations thereunder. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.3</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;NASDAQ Quotation; AMEX Quotation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent agrees to use commercially reasonable
efforts to continue the quotation of Parent Common Stock on the NASDAQ Stock Market during the term of
this Agreement. Company agrees to use commercially reasonable efforts to continue the quotation of Company Common Stock on the American Stock Exchange during the term of this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.4</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Access to Information.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of Parent and the Company shall afford to each other's
officers, employees, accountants, counsel, financial advisors, and other representatives, reasonable access (subject to Legal Requirements regarding the sharing of such information), during normal
business hours, and upon reasonable prior notice, during the period from the date hereof through the Effective Time or the termination of this Agreement, to its properties, books, contracts,
commitments, personnel and records in a manner commensurate with due diligence conducted by any party prior to the date hereof. Any investigation conducted pursuant to the access contemplated by this </FONT> <FONT
SIZE=2><B>Section&nbsp;5.4</B></FONT><FONT SIZE=2> shall be conducted in a manner that does not unreasonably interfere with the conduct of the business of the parties or their
respective Subsidiaries, as the case may be, or create a risk of damage or destruction to any property or assets of the parties or their respective Subsidiaries. During such period, the Company and
Parent shall furnish or make available promptly to each other (except as otherwise available on EDGAR) (a)&nbsp;a copy of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of federal or state securities laws and (b)&nbsp;all other information concerning its business, properties, assets and personnel as the
other may reasonably request. Parent and the Company, as the case may be, will hold any such information which is nonpublic in confidence in accordance with the Confidentiality Agreement. No
information or knowledge obtained in any investigation pursuant to this </FONT><FONT SIZE=2><B>Section&nbsp;5.4</B></FONT><FONT SIZE=2> or otherwise shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the obligations of the parties to consummate the Merger. Notwithstanding the foregoing, Parent and the Company may restrict
or otherwise prohibit access to any documents or information to the extent that (i)&nbsp;access to such documents or information would risk of waiver of any attorney-client privilege, work product
doctrine or other applicable privilege applicable to such documents or information or (ii)&nbsp;access to a contract to which any of the Acquired Corporations or Parent and its Subsidiaries is a
party or otherwise bound would violate or cause a default under, or give a third party the right terminate or accelerate the rights under, such contract. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.5</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Stockholders' Meeting.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company, acting through the Company Board, shall take all actions in accordance with Legal Requirements, the Organizational
Documents of
the Company and the rules of The American Stock Exchange to promptly and duly call, give notice of, convene and hold as promptly as practicable, and in any event within 45&nbsp;days after the
declaration of effectiveness of the Form&nbsp;S-4 Registration Statement, the Company Shareholders' Meeting for the purpose of considering and voting upon the Company Voting Proposal.
Subject to </FONT><FONT SIZE=2><B>Section&nbsp;5.1(b),</B></FONT><FONT SIZE=2> to the fullest extent permitted by applicable Legal Requirements, (i)&nbsp;the Company Board shall recommend
adoption of this Agreement by the shareholders of the Company (the "</FONT><FONT SIZE=2><B><I>Company Voting Proposal</I></B></FONT><FONT SIZE=2>") and include such recommendation in the Joint Proxy
Statement/Prospectus, (ii)&nbsp;neither the Company Board nor any committee thereof shall effect a Company Adverse Recommendation Change and (iii)&nbsp;the Company shall use its reasonable best
efforts to solicit from its shareholders proxies in favor of the Company Voting Proposal and shall take all other action necessary or advisable to secure the Required Company Shareholder Vote. Without
limiting the generality of the foregoing, (i)&nbsp;the Company agrees that its obligation to duly call, give notice of, convene and hold a meeting of the holders of Company Common Stock, as required
by this Section, shall not be affected by the withdrawal, amendment or modification of the recommendation by the </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-54</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>Company
Board or committee thereof and (ii)&nbsp;the Company agrees that its obligations pursuant to this Section shall not be affected by the commencement, public proposal, public disclosure or
communication to the Company of any Acquisition Proposal. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent, acting through Parent's Board, shall take all actions in accordance with Legal Requirements, the Organizational
Documents of Parent
and the rules of The NASDAQ Stock Market to promptly and duly call, give notice of, convene and hold as promptly as practicable, and in any event within 45&nbsp;days after the declaration of
effectiveness of the Form&nbsp;S-4 Registration Statement, the Parent Stockholders' Meeting for the purpose of considering and voting upon the issuance of Parent Common Stock in the
Merger (the "</FONT><FONT SIZE=2><B><I>Parent Voting Proposal</I></B></FONT><FONT SIZE=2>"). The Parent Board shall recommend approval of the Parent Voting Proposal by the stockholders of Parent and include
such recommendation in the Joint Proxy Statement/Prospectus; neither the Parent Board nor any committee thereof shall withdraw, qualify or modify, or publicly propose to withdraw, qualify or modify in
any manner adverse to the Company the recommendation of the Parent Board that the Parent's stockholders vote in favor of the Parent Voting Proposal (a "</FONT><FONT SIZE=2><B><I>Parent Adverse
Recommendation Change</I></B></FONT><FONT SIZE=2>"); and Parent shall use its reasonable best efforts to solicit from its stockholders proxies in favor of the Parent Voting Proposal and shall take all
other action necessary or advisable to secure the Required Parent Stockholder Vote. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Without limiting the generality of the foregoing, Parent agrees that its obligation to duly call, give notice of, convene and
hold a meeting
of the holders of Parent Common Stock, as required by this Section, shall not be affected by a Parent Adverse Recommendation Change. Nothing contained in this </FONT> <FONT SIZE=2><B>Section&nbsp;5.5</B></FONT><FONT SIZE=2> or otherwise contained in
this Agreement shall be deemed to prohibit Parent from taking and disclosing to its stockholders a position
with respect to a tender offer contemplated by Rule&nbsp;14d-9 or Rule&nbsp;14e-2(a) promulgated under the Exchange Act or from making any required disclosure to Parent's
stockholders if, in the good faith judgment of the Parent Board, after consultation with outside counsel, such action is required under applicable Legal Requirements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Unless otherwise mutually agreed upon by the parties, the respective record dates and meeting dates for the Company Shareholders
Meeting and
for the Parent Shareholders Meeting shall be the same. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except to the extent required by Legal Requirements, the Company shall not (i)&nbsp;change the date specified in the Joint Proxy
Statement/Prospectus for the Company Shareholders' Meeting or (ii)&nbsp;postpone, delay or adjourn the Company Shareholders' Meeting, except, in each case, after consultation with Parent,
(A)&nbsp;to the extent necessary to ensure that any amendment or supplement to the Joint Proxy Statement/Prospectus required by applicable Legal Requirements is provided to the shareholders of the
Company sufficiently in advance of the Company Shareholders' Meeting or (B)&nbsp;if there are an insufficient number of shares of Company Common Stock represented in person or by proxy at the
Company Shareholders' Meeting to constitute a quorum or to adopt this Agreement, in which case the Company may adjourn the Company Shareholders' Meeting and use its reasonable best efforts to obtain a
quorum and/or the Required Company Shareholder Vote as promptly as practicable in the prevailing circumstances. Except to the extent required by Legal Requirements, Parent shall not (i)&nbsp;change
the date specified in the Joint Proxy Statement/Prospectus for the Parent Stockholders' Meeting or (ii)&nbsp;postpone, delay or adjourn the Parent Stockholders' Meeting, except, in each case, after
consultation with the Company, (A)&nbsp;to the extent necessary to ensure that any amendment or supplement to the Joint Proxy Statement/Prospectus required by applicable Legal Requirements is
provided to the stockholders of Parent sufficiently in advance of the Parent Stockholders' Meeting or (B)&nbsp;if there are an insufficient number of shares of Parent Common Stock represented in
person or by proxy at the Parent Stockholders' Meeting to constitute a quorum, in which case Parent may adjourn the Parent Stockholders' Meeting and use its reasonable best efforts to obtain </FONT></P>

</UL>
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<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>a
quorum and/or the Required Parent Stockholder Vote as promptly as practicable in the prevailing circumstances. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.6</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Legal Conditions to the Merger.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Subject to the terms hereof, including </FONT><FONT SIZE=2><B>Section&nbsp;5.6(b)</B></FONT><FONT SIZE=2>, the Company and the
Parent shall
each use all commercially reasonable efforts to (i)&nbsp;take, or cause to be taken, all actions, and do, or cause to be done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective the transactions contemplated hereby as promptly as practicable, (ii)&nbsp;as promptly as practicable, obtain from any Governmental
Body or any other third party any consents, licenses, permits, waivers, approvals, authorizations, or orders required to be obtained or made by the Acquired Corporations or Parent in connection with
the authorization, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, (iii)&nbsp;as promptly as practicable, make all necessary filings, and
thereafter make any other required submissions, with respect to this Agreement and the Merger required under (A)&nbsp;the Securities Act, the Exchange Act and any other applicable federal or state
securities laws, (B)&nbsp;the HSR Act, any foreign antitrust laws or
regulations, and any related governmental request thereunder, and (C)&nbsp;any other Legal Requirements, and (iv)&nbsp;execute or deliver any additional instruments reasonably necessary to
consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. The Company and the Parent shall cooperate with each other in connection with the making of all
such filings (subject to Legal Requirements regarding the sharing of information), including providing copies of all such documents to the non-filing party and its advisors prior to filing
and, if requested, accepting all reasonable additions, deletions or changes suggested in connection therewith. The Company and the Parent shall each use all commercially reasonable efforts (subject to
Legal Requirements regarding the sharing of information) to furnish to each other all information required for any application or other filing to be made pursuant to the rules and regulations of any
applicable law (including all information required to be included in the Joint Proxy Statement/Prospectus and the Form&nbsp;S-4 Registration Statement) in connection with the
transactions contemplated by this Agreement. For the avoidance of doubt, Parent and the Company agree that nothing contained in this </FONT><FONT SIZE=2><B>Section&nbsp;5.6</B></FONT><FONT SIZE=2>
shall modify or affect their respective rights and responsibilities under </FONT><FONT SIZE=2><B>Section&nbsp;5.6(b)</B></FONT><FONT SIZE=2>. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Subject to the terms hereof, Parent and the Company agree, and shall cause each of their respective Subsidiaries, to cooperate
and to use all
commercially reasonable efforts to obtain any government clearances, approvals, actions, or non-actions required for Closing under the HSR Act, the Sherman Act, as amended, the Clayton
Act, as amended, the Federal Trade Commission Act, as amended, and any other federal, state or foreign law, regulation or decree designed to prohibit, restrict or regulate actions for the purpose or
effect of monopolization or restraint of trade and/or competition (collectively, "</FONT><FONT SIZE=2><B><I>Antitrust Laws</I></B></FONT><FONT SIZE=2>"), to respond to any government requests for
information under any Antitrust Law, and to contest and resist any action, including any legislative, administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or permanent) (an "</FONT><FONT SIZE=2><B><I>Antitrust Order</I></B></FONT><FONT SIZE=2>") that restricts, prevents or prohibits, or
threatens to restrict, prevent, or prohibit, the consummation of the Merger or any other transactions contemplated by this Agreement under any Antitrust Law. The parties hereto will consult and
cooperate with one another, and consider in good faith the views of one another, in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made
or submitted by or on behalf of any party hereto in connection with proceedings under or relating to any Antitrust Law. Parent shall be entitled to direct any proceedings or negotiations with any
Governmental Body relating to any of the foregoing, provided that it shall afford the Company a reasonable opportunity to participate therein. In furtherance and not in limitation of the foregoing,
Company shall (i)&nbsp;keep Parent </FONT></P>

</UL>
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<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>informed
of any communication received from, or given to, the United States Federal Trade Commission, the United States Department of Justice, or any other United States or foreign Governmental Body
and of any communication received from or given to any Person (other than the employees, agents, attorneys, representatives, advisors, consultants, or Affiliates of Company) in connection with any
proceeding by a private party, in each case regarding any of the transactions contemplated hereby; and (ii)&nbsp;permit Parent to review in advance any communication given by Company to, and consult
with Parent in advance of any meeting or conference with, the United States Federal Trade Commission, the United States Department of Justice, or any other United States or foreign Governmental Body
or, in connection with any proceeding by a private party, with any other Person (other than the employees, agents, attorneys, representatives, advisors, consultants, or Affiliates of Company) and, to
the extent permitted by the United States Federal Trade Commission, the United States Department of Justice, or any other United States or foreign Governmental Body or other Person, give Parent the
opportunity to attend and participate in such meetings and conferences. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding anything in this Agreement to the contrary, neither Parent nor any of its Affiliates shall be under any
obligation to make
proposals, execute or carry out agreements or submit to orders providing for the sale, license or other disposition or holding separate (through the establishment of a trust or otherwise) of any
assets of Parent or any of its Affiliates or the Company or any of its Affiliates or the holding separate of the shares of Company Common Stock (or shares of stock of the Surviving Corporation) or
imposing or seeking to impose any material limitation on the ability of Parent or any of its Affiliates to conduct their business or own such assets or to acquire, hold or exercise full rights of
ownership of the shares of Company Common Stock (or shares of stock of the Surviving Corporation). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;At the request of Parent, the Acquired Corporations shall agree to hold separate (including by trust or otherwise) or to divest
any of their
respective businesses, Subsidiaries or assets, or to take or agree to take any action with respect to, or agree to any limitation on, any of their respective businesses, Subsidiaries or assets,
provided that any such action is conditioned upon the consummation of the Merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of Parent and the Acquired Corporations shall give any notices to third parties, and use all commercially reasonable
efforts to obtain
any third party consents related to or required in connection with the Merger that are (A)&nbsp;necessary to consummate the transactions contemplated hereby, (B)&nbsp;disclosed or required to be
disclosed in the Company Disclosure Schedule or Parent Disclosure Schedule, as the case may be, or (C)&nbsp;required to prevent the occurrence of an event that could reasonably be expected to have a
Material Adverse Effect on the Company or Parent, as the case may be, prior to or after the Effective Time. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.7</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Public Disclosure.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and the Company shall consult with each other before
issuing any press release or otherwise making any public statement with respect to the Merger or any of the other transactions contemplated by this Agreement. In addition each of Parent and the
Company shall not, and shall not permit any of its Representatives to, make any disclosure regarding the Merger or any of the other transactions contemplated by this Agreement unless (a)&nbsp;the
other party shall have approved such disclosure or (b)&nbsp;such party shall have been advised in writing by its outside legal counsel that such disclosure is required by applicable law. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.8</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;368(a) Reorganization.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and Company shall each use all
commercially reasonable efforts to cause the Merger to be treated as a reorganization within the meaning of Section&nbsp;368(a) of the Code. The parties hereto hereby adopt this Agreement as a plan
of reorganization. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-57</FONT></P>

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 </FONT> <FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>5.9</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;NASDAQ Stock Market Listing.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent shall, if required by the rules of The
NASDAQ
Stock Market, file with The NASDAQ Stock Market a Notification Form for Listing Additional Shares with respect to the shares of Parent Common Stock issuable in connection with the Merger. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.10</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Shareholder Litigation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Until the earlier of the termination of this Agreement in
accordance with its terms or the Effective Time, the Company shall give Parent the opportunity to participate in the defense or settlement of any shareholder litigation against the Company or the
Company Board relating to this Agreement or any of the transactions contemplated by this Agreement, and shall not settle any such litigation without Parent's prior written consent, which will not be
unreasonably withheld or delayed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.11</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Indemnification.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.11(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;From and after the Effective Time, Parent shall, to the fullest extent permitted by law, cause the Surviving Corporation, for a
period of six
years from the Effective Time, to honor all of the Company's obligations to indemnify and hold harmless each present and former director and officer of any of the Acquired Corporations (the
"</FONT><FONT SIZE=2><B><I>Indemnified Parties</I></B></FONT><FONT SIZE=2>"), against any costs or expenses (including attorneys' fees), judgments, fines, losses, claims, damages, liabilities or amounts
paid in settlement incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the extent that such obligations to indemnify and hold harmless exist
at the Effective Time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.11(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For a period of six years after the Effective Time, Parent shall cause the Surviving Corporation to maintain (to the extent
available in the
market) in effect a directors' and officers' liability insurance policy covering those Persons who are currently covered by the Company's directors' and officers' liability insurance policy (a
complete and accurate copy of which has been delivered or made available to Parent prior to the date of this Agreement) with coverage in amount and scope at least as favorable to such Persons as the
Company's existing coverage; provided, that in no event shall Parent or the Surviving Corporation be required to expend in excess of 200% of the annual premium currently paid by the Company for such
coverage. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.11(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If Parent or the Surviving Corporation or any of its successors or assigns shall (i)&nbsp;consolidate with or merge into any
other Person
and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii)&nbsp;transfer all or substantially all of its properties and assets to any Person, then,
and in each such case, proper provisions shall be made so that the successors and assigns of Parent or the Surviving Corporation, as the case may be, shall assume all of the obligations of Parent and
the Surviving Corporation set forth in this </FONT><FONT SIZE=2><B>Section&nbsp;5.11</B></FONT><FONT SIZE=2>. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.11(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The provisions of this Section are intended to be in addition to the rights otherwise available to the current officers and
directors of the
Company by law, charter, statute, by-law or agreement, and shall operate for the benefit of, and shall be enforceable by, each of the Indemnified Parties, their heirs and their
representatives. Parent shall guarantee the obligations of the Surviving Corporation with respect to any and all amounts payable under this Section. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.12</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Employee Matters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;With respect to the employees of the Acquired Corporations who
remain employed after the Effective Time by the Acquired Corporations for a period of at least 180&nbsp;days following the Effective Time (the "</FONT><FONT SIZE=2><B><I>Continuing
Employees</I></B></FONT><FONT SIZE=2>"), and to the extent permitted under the terms of Parent's applicable benefit plans, Parent shall treat and cause its applicable benefit plans to treat the service of
the Continuing Employees with the Acquired Corporations prior to the Effective Time as service rendered to Parent or any Affiliate of Parent for purposes of eligibility to participate and vesting,
including applicability of minimum waiting periods for participation. Parent shall use commercially reasonable efforts to provide that no such Continuing Employee, or any of his or her eligible
dependents, who, at the Effective Time, are participating in the Acquired Company's group </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-58</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>health
plan shall be excluded from Parent's group health plan, or limited in coverage thereunder, by reason of any waiting period restriction or pre-existing condition limitation.
Notwithstanding the foregoing, (a)&nbsp;any Continuing Employees who were employed with the Acquired Corporations for at least four years prior to the Effective Time will continue to accrue vacation
time at the applicable rate under the Acquired Corporations vacation policy, and (b)&nbsp;Parent shall not be required to provide any coverage, benefits or credit inconsistent with the terms of any
Parent benefit plans or which would duplicate benefits provided through the Acquired Corporations' Benefit Plans. Furthermore, nothing contained in this Section shall require or imply that the
employment of the employees of the Acquired Corporations who are employed at the Effective Time will continue for any particular period of time following the Effective Time. This Section is not
intended, and shall not be deemed, to confer any rights or remedies upon any Person other than the parties to this Agreement and their respective successors and permitted assigns, to create any
agreement of employment with any Person or to otherwise create any third-party beneficiary hereunder, or to be interpreted as an amendment to any plan of Parent or any Affiliate of Parent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.13</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Employee Benefit Plan&#151;401(k) Plan.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If requested in writing by Parent,
the Company shall take all action necessary to terminate, or cause to terminate, effective as of the end of the last full payroll period prior to the Closing Date, any Company Benefit Plan that is a
401(k) plan. If Parent provides such a request to the Company, Parent shall receive from the Company evidence that the Company's 401(k) plan has been terminated pursuant to resolutions of its Board of
Directors (the form
and substance of which resolutions shall be subject to review and approval of Parent), effective as of the day referred to above. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.14</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Notification of Certain Matters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent shall give prompt notice to the Company,
and the Company shall give prompt notice to Parent, of the occurrence, or failure to occur, of any event, which occurrence or failure to occur causes, or would be reasonably likely to cause
(a)&nbsp;(i)&nbsp;any representation or warranty of such party contained in this Agreement that is qualified as to materiality or that makes reference to a Material Adverse Effect to be untrue or
inaccurate in any respect or (ii)&nbsp;any other representation or warranty of such party contained in this Agreement to be untrue or inaccurate in any material respect, in each case at any time
from and after the date of this Agreement until the Effective Time, or (b)&nbsp;any material failure of Parent and the Merger Sub or the Company, as the case may be, or of any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. Notwithstanding the above, the delivery of any
notice pursuant to this Section will not limit or otherwise affect the remedies available hereunder to the party receiving such notice or the conditions to such party's obligation to consummate the
Merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.15</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Exemption from Liability Under Section&nbsp;16(b).</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.15(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors of the Company, or a committee thereof consisting of non-employee directors (as such term is defined for
purposes of Rule&nbsp;16b-3 under the Exchange Act), shall adopt a resolution in advance of the Effective Time providing that the receipt by the Company Insiders (as defined below) of
Parent Common Stock Awards, as applicable, in exchange for shares of Company Common Stock or Outstanding Company Options pursuant to the transactions contemplated hereby is intended to be exempt
pursuant to Rule&nbsp;16b-3 under the Exchange Act. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.15(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors of Parent, or a committee thereof consisting of non-employee directors (as such term is defined for
purposes of Rule&nbsp;16b-3 under the Exchange Act), shall adopt a resolution in advance of the Effective Time providing that the receipt by Parent Insiders (as defined below) of Parent
Common Stock in exchange for shares of Company Common Stock pursuant to the transactions contemplated hereby and to the extent such securities are listed in the Section&nbsp;16 Information, is
intended to be exempt pursuant to Rule&nbsp;16b-3 under the Exchange Act. </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.15(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this Agreement, "</FONT><FONT SIZE=2><B><I>Section&nbsp;16 Information</I></B></FONT><FONT SIZE=2>" means
information regarding
the Company Insiders and the number of shares of Company Common Stock or Outstanding Company Options deemed to be beneficially owned by each such Company Insider and expected to be exchanged for
Parent Common Stock in connection with the Merger, which shall be provided by the Company to Parent within 10 business days after the date of this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.15(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this Agreement, "</FONT><FONT SIZE=2><B><I>Company Insiders</I></B></FONT><FONT SIZE=2>" mean those officers
and directors of the
Company who are subject to the reporting requirements of Section&nbsp;16(a) of the Exchange Act with respect to Company equity securities, as listed in the Section&nbsp;16 Information, and
"</FONT><FONT SIZE=2><B><I>Parent Insiders</I></B></FONT><FONT SIZE=2>" mean those Company Insiders, if any, who after the consummation of the Merger will be subject to the reporting requirements of
Section&nbsp;16(a) of the Exchange Act with respect to Parent equity securities. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.16</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax Matters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.16(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;From the date of this Agreement until the Effective Time, each of Parent and its Subsidiaries and the Acquired Corporations,
consistent with
past practice, shall (i)&nbsp;duly and timely file all Tax Returns and other documents required by it to be filed with federal, state and local Tax authorities the failure to file of which could
have a material negative impact, financial or otherwise, subject to extensions permitted by law and properly granted by the appropriate authority, provided that each such party notifies all other
parties hereto that it is availing itself of such extensions, and (ii)&nbsp;pay all Taxes shown due on such Tax Returns. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.16(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each party shall reasonably cooperate in the preparation, execution, and filing of all returns, questionnaires, applications,
or other
documents regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees and any similar taxes
which become payable in connection with the transactions contemplated by this Agreement. From the date hereof through the Effective Time, the Acquired Corporations shall use reasonable efforts to
provide Parent with any other Tax information reasonably requested by Parent. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.17</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Obligations of Merger Sub.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent shall take all action necessary to cause Merger
Sub and the Surviving Corporation to perform their respective obligations under this Agreement and to consummate the transactions contemplated hereby upon the terms and subject to the conditions set
forth in this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION&nbsp;6</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;CONDITIONS TO MERGER. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Conditions to Each Party's Obligation To Effect the Merger.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The respective
obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction on or prior to the Closing Date of the following conditions: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1(a)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Shareholder Approval.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company Voting Proposal shall have been approved at the
Company Shareholders' Meeting by the Required Company Shareholder Vote and the Parent Voting Proposal shall have been approved at the Parent Stockholders' Meeting by the applicable Required Parent
Stockholder Vote. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1(b)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;HSR Act and other Antitrust Laws.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been terminated, and all other necessary approvals under applicable Antitrust Laws shall have been obtained. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1(c)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Governmental Approvals.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Other than the filing of the Agreement of Merger, all
authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Body in connection with the Merger and the
consummation of the other transactions contemplated by this Agreement, shall have been filed, </FONT></P>

</UL>
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<P style="font-family:times;"><FONT SIZE=2>been
obtained or occurred on terms and conditions which may not reasonably be expected to have a Material Adverse Effect on the Company or Parent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1(d)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Registration Statement; Joint Proxy Statement/Prospectus.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
Form&nbsp;S-4 Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Form&nbsp;S-4 Registration
Statement shall have been issued and no proceeding for that purpose, and no similar proceeding with respect to the Joint Proxy Statement/Prospectus, shall have been initiated or threatened in writing
by the SEC or its staff and not concluded or withdrawn. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1(e)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;No Injunctions.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No Governmental Body of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any order, executive order, stay, decree, judgment or injunction (preliminary or permanent) or statute, rule or regulation which is in effect and
which has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger or the other transactions contemplated by this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1(f)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Tax-Free Reorganization.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of Company and Parent shall have
received a written opinion from its respective counsel, dated as of the Closing Date, to the effect that, for U.S. federal income tax purposes, the Merger will constitute a reorganization within the
meaning of Section&nbsp;368 of the Code. If the respective counsel to Parent or Company does not render such opinion, this condition will nonetheless be deemed satisfied with respect to such party
if counsel to the other party renders
such opinion to such party. Parent, Merger Sub and the Company shall each execute and deliver to such counsel tax representation letters requested by such counsel, and upon which such counsel can
rely, in connection with such written opinions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1(g)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Third Party Consents.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All consents or approvals required to be obtained in
connection with the Merger and the other transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1(h)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;No Litigation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;There shall not be pending any legal proceeding:
(i)&nbsp;challenging or seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by this Agreement; (ii)&nbsp;relating to the Merger and seeking
to obtain from Parent or any of the Acquired Corporations, any damages or other relief that would be material to any party to this Agreement; (iii)&nbsp;seeking to prohibit or limit in any material
respect to Parent's ability to vote, receive dividends with respect to or otherwise exercise ownership rights with respect to any of the Company's capital stock; or (iv)&nbsp;which would affect
adversely the right of Parent or Company to own the assets or operate the business of Company. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Additional Conditions to Obligations of Parent and the Merger Sub.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The obligations
of Parent and the Merger Sub to effect the Merger shall be subject to the satisfaction on or prior to the Closing Date of each of the following additional conditions, any of which may be waived, in
writing, exclusively by Parent and the Merger Sub: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2(a)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Representations and Warranties.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The representations and warranties of the Company
set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on the Closing Date, except (i)&nbsp;to the extent such
representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date, (ii)&nbsp;the
representations and warranties of the Company set forth in </FONT><FONT SIZE=2><B>Section&nbsp;2.3</B></FONT><FONT SIZE=2> shall be true and correct in all material respects and (iii)&nbsp;as to
all representations and warranties of the Company other than those set forth in </FONT><FONT SIZE=2><B>Section&nbsp;2.3</B></FONT><FONT SIZE=2>, where the failure to be true and correct (without
regard to any materiality qualifications contained therein), individually or in the aggregate, has not had, and would not be reasonably likely to have, a Material Adverse Effect on the Acquired
Corporations as a whole and Parent shall have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to such effect. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-61</FONT></P>

<HR NOSHADE>
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<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2(b)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Performance of Obligations of the Acquired Corporations.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company shall have
performed in all material respects all obligations required to be performed by it under this Agreement on or prior to the Closing Date; and Parent shall have received a certificate signed on behalf of
the Company by the chief executive officer and the chief financial officer of the Company to such effect. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2(c)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Employment Agreements.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of the employees identified on </FONT> <FONT SIZE=2><B>Schedule&nbsp;6.2(c)</B></FONT><FONT SIZE=2> hereto
as "</FONT><FONT SIZE=2><B><I>Key Employees</I></B></FONT><FONT SIZE=2>" shall have entered into employment agreements with
Parent and/or the Surviving Corporation pursuant to their execution of an offer letter on Parent's standard form substantially in the form attached as </FONT> <FONT SIZE=2><B>Exhibit&nbsp;G</B></FONT><FONT SIZE=2> hereto, immediately prior to the
Effective Time which employment agreements shall be effective immediately after the Effective Time. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2(d)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;No Restraints.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;There shall not be instituted or pending any action or proceeding
by any Governmental Body (i)&nbsp;seeking to restrain, prohibit, make illegal or otherwise interfere with the ownership or operation by the Parent or any of its Subsidiaries of all or any material
portion of the business of the Acquired Corporations or of the Parent or any of its Subsidiaries or to compel the Parent or any of its Subsidiaries to dispose of or hold separate all or any material
portion of the business or assets of the Acquired Corporations or of the Parent or any of its Subsidiaries, (ii)&nbsp;seeking to impose limitations on the ability of the Parent or any of its
Subsidiaries effectively to exercise full rights of ownership of the shares of Company Common Stock (or shares of stock of the Surviving Corporation) including the right to vote any such shares on any
matters properly presented to shareholders or (iii)&nbsp;seeking to require divestiture by the Parent or any of its Subsidiaries of any such shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2(e)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Material Adverse Change.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;There shall not have occurred any change in the
financial condition, properties, assets (including intangible assets), liabilities, business, operations, results of operations or prospects of the Acquired Corporations, that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on the Acquired Corporations. For purposes of illustration and clarity, and without intending to impose any limitation, each
of the following shall be deemed to be an event which could reasonably be expected to have a Material Adverse Effect on the Acquired Corporations: an indictment of an Acquired Corporation or any
current officer or director of an Acquired Corporation with regard to matters involving an Acquired Corporation as could result in any of the Acquired Corporations being barred from government
contracting, or the cancellation or termination of a Company Material Contract to which a U.S. federal governmental agency or state governmental agency in a party and which represents 10% or greater
of the Acquired Corporations' annual revenue forecasted for calendar year 2008 (other than as a consequence of an expiration of a Material Contract in accordance with its terms). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2(f)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Resignation Letters.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Company shall have delivered to Parent written resignations
of all officers and directors of the Company effective as of the Effective Time. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.3</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Additional Conditions to Obligations of the Company.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The obligation of the Company
to effect the Merger shall be subject to the satisfaction on or prior to the Closing Date of each of the following additional conditions, any of which may be waived, in writing, exclusively by the
Company: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.3(a)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Representations and Warranties.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The representations and warranties of Parent and
the Merger Sub set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as if made on the Closing Date, except (i)&nbsp;to the extent such
representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date, and (ii)&nbsp;where the
failure to be true and correct (without regard to any materiality or Material Adverse Effect qualifications contained therein), individually or in the aggregate, has not had, and would not be
reasonably likely to have, a Material Adverse Effect on Parent and the Company shall have received a </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-62</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2>certificate
signed on behalf of Parent by the chief executive officer or the chief financial officer of Parent to such effect. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.3(b)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Performance of Obligations of Parent and the Merger Sub.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Parent and Merger Sub
shall have performed in all material respects all obligations required to be performed by them under this Agreement on or prior to the Closing Date; and the Company shall have received a certificate
signed on behalf of Parent by the chief executive officer or the chief financial officer of Parent to such effect. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.3(c)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;No Material Adverse Change.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;There shall not have occurred any change in the
financial condition, properties, assets (including intangible assets), liabilities, business, operations, results of operations or prospects of Parent and its Subsidiaries that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on Parent. For purposes of illustration and clarity, and without intending to impose any limitation, each of the following
shall be deemed to be an event which could reasonably be expected to have a Material Adverse Effect on Parent: an indictment of Parent or any Subsidiary of Parent or any current officer or director of
Parent or any Subsidiary of Parent with regard to matters involving Parent or one of its Subsidiaries as could result in the Parent being barred from government contracting, or the cancellation or
termination of a Parent Material Contract to which a U.S. federal governmental agency or state governmental agency is a party and which represents 10% or greater of Parent's annual revenue forecasted
for calendar year 2008 (other than as a consequence of an expiration of a Material Contract in accordance with its terms). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.3(d)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;NASDAQ.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The shares of Parent Common Stock to be issued in the Merger and the
transactions contemplated hereby shall have been authorized for listing on the NASDAQ Stock Market, subject to official notice of issuance. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION&nbsp;7</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;TERMINATION AND AMENDMENT. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.1</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Termination.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement may be terminated at any time prior to the Effective
Time (with respect to </FONT><FONT SIZE=2><B>Sections&nbsp;7.1(b)</B></FONT><FONT SIZE=2> through </FONT><FONT SIZE=2><B>7.1(i)</B></FONT><FONT SIZE=2>, by written notice by the terminating party
to the other party), whether before or, subject to the terms hereof, after the approval of the Company Voting Proposal by the shareholders of the Company or the sole shareholder of the Merger Sub: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;by mutual written consent of Parent and the Company; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;by either Parent or Company if the Merger shall not have been consummated by the six-month anniversary of the date of this
Agreement (such date, as it may be extended in accordance with this </FONT><FONT SIZE=2><B>Section&nbsp;7.1(b)</B></FONT><FONT SIZE=2>, the "</FONT><FONT SIZE=2><B><I>Outside
Date</I></B></FONT><FONT SIZE=2>"), which date may be extended (i)&nbsp;for a three-month period upon written notice of either Parent or the Company to the other party on or prior to the
six-month anniversary of the date of this Agreement and (ii)&nbsp;for an additional three-month period upon written notice of either Parent or the Company to the other party on or prior
to the expiration of the three-month period described in clause&nbsp;(i) above, provided (x)&nbsp;all waiting periods (and any extensions thereof) applicable to the consummation of the Merger
under the HSR Act shall not have expired or been terminated or any other approval under applicable Antitrust Laws as set forth in </FONT><FONT SIZE=2><B>Section&nbsp;6.1(b)</B></FONT><FONT SIZE=2>
shall not have been obtained, in each case on or prior to the Outside Date and (y)&nbsp;all other conditions to the closing of the Merger set forth in </FONT> <FONT SIZE=2><B>Section&nbsp;6</B></FONT><FONT SIZE=2> shall have been satisfied, other
than those that by their nature can be satisfied only at closing; provided that the right to terminate
this Agreement under this </FONT><FONT SIZE=2><B>Section&nbsp;7.1(b)</B></FONT><FONT SIZE=2> shall not be available to any party whose material breach of this Agreement has been a principal cause
of, or resulted in the failure of, the Merger to occur on or before the Outside Date); </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;by either Parent or the Company if a Governmental Body of competent jurisdiction shall have enacted a Legal Requirement or
issued a
nonappealable final order, decree, regulation or ruling or taken any other nonappealable final action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the
Merger; </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-63</FONT></P>

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 </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;by either Parent or the Company if, at the Company Shareholders' Meeting (including any adjournment or postponement thereof
permitted by this
Agreement) at which a vote on the Voting Proposal is taken, the Required Company Shareholder Vote in favor of the Voting Proposal shall not have been obtained (provided that the right to terminate
this Agreement under this </FONT><FONT SIZE=2><B>Section&nbsp;7.1(d)</B></FONT><FONT SIZE=2> shall not be available to any party seeking termination if, at such time, such party is in material
breach of its obligations under this Agreement); </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1(e)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;by either Parent or the Company if (i)&nbsp;the Parent Stockholders' Meeting (including any adjournments and postponements
thereof) shall
have been held and completed and Parent's stockholders shall have voted on the Parent Voting Proposal, and (ii)&nbsp;the Parent Voting Proposal shall not have been approved at such meeting (and
shall not have been approved at any adjournment or postponement thereof) by the Required Parent Stockholder Vote (provided that the right to terminate this Agreement under this </FONT> <FONT SIZE=2><B>Section&nbsp;7.1(e)</B></FONT><FONT SIZE=2> shall
not be available to any party seeking termination if, at such time, such party is in material breach of its obligations
under this Agreement); </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1(f)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;by Parent, if: (i)&nbsp;the Company Board (or any committee thereof) shall have failed to recommend approval of the Company
Voting Proposal
in the Joint Proxy Statement/Prospectus, or shall have made a Company Adverse Recommendation Change; (ii)&nbsp;the Company Board or any committee thereof shall have approved or recommended to the
shareholders of the Company an Acquisition Proposal (other than the Merger); (iii)&nbsp;the Company shall have entered into any Alternative Acquisition Agreement relating to any Acquisition
Proposal; (iv)&nbsp;the Company Board (or any committee thereof) shall have failed to reconfirm its recommendation of the Company Voting Proposal within ten business days after Parent requests in
writing that the Company Board (or any committee thereof) do so, provided such request may only be made in the event the Company has received an Acquisition Proposal or any amendment to an Acquisition
Proposal; or (v)&nbsp;the Company shall have willfully breached its obligations under </FONT><FONT SIZE=2><B>Section&nbsp;5.1</B></FONT><FONT SIZE=2> or </FONT> <FONT SIZE=2><B>Section&nbsp;5.5(a)</B></FONT><FONT SIZE=2>. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1(g)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;by Parent, following a breach of or failure to perform any representation, warranty, covenant or agreement on the part of the
Company set
forth in this Agreement, which breach or failure to perform (i)&nbsp;would cause the conditions set forth in </FONT><FONT SIZE=2><B>Section&nbsp;6.2(a)</B></FONT><FONT SIZE=2> or </FONT> <FONT SIZE=2><B>6.2(b)</B></FONT><FONT SIZE=2> not to be
satisfied, and (ii)&nbsp;if curable, shall not have been cured prior to the earlier of 30&nbsp;days following receipt by the
Company of written notice from Parent of such breach or failure to perform or the Outside Date; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1(h)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;by the Company, if there has been a breach of or failure to perform any representation, warranty, covenant or agreement on the
part of Parent
or the Merger Sub set forth in this Agreement, which breach or failure to perform (i)&nbsp;would cause the conditions set forth in </FONT> <FONT SIZE=2><B>Section&nbsp;6.2(a)</B></FONT><FONT SIZE=2> or </FONT><FONT SIZE=2><B>Section&nbsp;6.2(b)
</B></FONT><FONT SIZE=2> not to be satisfied, and (ii)&nbsp;if curable, shall
not have been cured prior to the earlier of 30&nbsp;days following receipt by Parent of written notice from the Company of such breach or failure to perform from the Company or the Outside Date; or </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1(i)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;by the Company, if the Company Board (or any committee thereof) shall have made a Company Adverse Recommendation Change in
response to a
Superior Proposal in accordance with the terms and conditions of </FONT><FONT SIZE=2><B>Section&nbsp;5.1(b)</B></FONT><FONT SIZE=2> the Company shall have paid Parent the Termination Fee
concurrently with the Company's termination of this Agreement, and following the termination of this Agreement, the Company enters into a definitive acquisition agreement with respect to the Superior
Proposal which was the subject of such Company Adverse Recommendation Change. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.2</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Effect of Termination.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In the event of termination of this Agreement as provided in </FONT> <FONT
SIZE=2><B>Section&nbsp;7.1</B></FONT><FONT SIZE=2>, this Agreement shall immediately become void and there shall be no liability or obligation on the part of Parent, the Company, the
Merger Sub or their respective officers, directors, stockholders, stockholders or Affiliates; provided that (i)&nbsp;any such termination shall not relieve any </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-64</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>party
from liability for any willful breach of this Agreement, fraud or knowing misrepresentation and (ii)&nbsp;the provisions of </FONT><FONT SIZE=2><B>Section&nbsp;4.3</B></FONT><FONT SIZE=2>
(Confidentiality), </FONT><FONT SIZE=2><B>Section&nbsp;7.3</B></FONT><FONT SIZE=2> (Effect of Termination), </FONT><FONT SIZE=2><B>Section&nbsp;7.3</B></FONT><FONT SIZE=2> (Fees and Expenses)
and </FONT><FONT SIZE=2><B>Section&nbsp;8</B></FONT><FONT SIZE=2> (Miscellaneous Provisions) (to the extent applicable to such surviving sections) of this Agreement and the Confidentiality
Agreements shall remain in full force and effect and survive any termination of this Agreement. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.3</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Fees and Expenses.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as set forth in this Section, all fees and expenses incurred in connection with this Agreement and the transactions
contemplated hereby
shall be paid by the party incurring such fees and expenses, whether or not the Merger is consummated; provided however, that the Company and Parent shall share equally (i)&nbsp;the filing fee of
Parent's pre-merger notification report under the HSR Act and all fees and expenses incurred by Parent or the Company in seeking approvals under all other applicable Antitrust Laws, and
(ii)&nbsp;all fees and expenses, other than accountants' and attorneys' fees, incurred with respect to the printing, filing and mailing of the Joint Proxy Statement/Prospectus (including any related
preliminary materials) and the Form&nbsp;S-4 Registration Statement and any amendments or supplements thereto. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company shall pay Parent a termination fee equal to $2,394,000 (the "</FONT><FONT SIZE=2><B><I>Termination
Fee</I></B></FONT><FONT SIZE=2>") in
the event of the termination of this Agreement:</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>by Parent pursuant to Section&nbsp;7.1(f); or </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>by the Company pursuant to Section&nbsp;7.1(i). </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Any fee due under this </FONT><FONT SIZE=2><B>Section&nbsp;7.3(b)(i)</B></FONT><FONT SIZE=2> shall be paid by wire transfer of
same-day funds concurrently with the Company's termination of this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3(d)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The parties acknowledge that the agreements contained in this </FONT><FONT SIZE=2><B>Section&nbsp;7.3</B></FONT><FONT SIZE=2>
are an
integral part of the transactions contemplated by this Agreement, and that, without these agreements, the parties would not enter into this Agreement. If the Company fails to promptly pay to Parent
any fee due hereunder, the Company shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken
to collect payment, together with interest on the amount of any unpaid fee at the publicly announced prime rate of Bank of America, N.A. plus 2.0% per annum, compounded quarterly, from the date such
fee was required to be paid. Payment of the fees described in this </FONT><FONT SIZE=2><B>Section&nbsp;7.3</B></FONT><FONT SIZE=2> shall not be in lieu of damages incurred in the event of a breach
of this Agreement described in clause&nbsp;(i) of </FONT><FONT SIZE=2><B>Section&nbsp;7.2</B></FONT><FONT SIZE=2>. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SECTION&nbsp;8</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;MISCELLANEOUS PROVISIONS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.1</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Amendment.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement may be amended at any time prior to the Effective Time by
the parties hereto, by action taken or authorized by their respective boards of directors, whether before or after adoption of this Agreement by the shareholders of the Company or Merger Sub;
provided, however, that after any such shareholder approval of this Agreement, no amendment shall be made to this Agreement that by law requires further approval or authorization by the shareholders
of the Company or Merger Sub without such further approval or authorization. This Agreement may not be amended, except by an instrument in writing signed by or on behalf of each of the parties hereto. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.2</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Remedies Cumulative; Waiver.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither any failure nor any delay
by any party in
exercising any right, power or privilege under this Agreement or any of the documents referred to in this Agreement will operate as a waiver of such right, power or privilege and no single or partial
exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum
extent permitted by Legal </FONT></P>

</UL>
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<UL>

<P style="font-family:times;"><FONT SIZE=2>Requirements,
(i)&nbsp;no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (ii)&nbsp;no notice to or demand on one party will be
deemed to be a waiver of any obligation of that party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the
documents referred to in this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;At any time prior to the Effective Time, Parent (with respect to the Company) and the Company (with respect to Parent and Merger
Sub), may, to
the extent legally allowed, (i)&nbsp;extend the time for the performance of any of the obligations or other acts of such party to this Agreement, (ii)&nbsp;waive any inaccuracies in the
representation and warranties contained in this Agreement or any document delivered pursuant to this Agreement and (iii)&nbsp;waive compliance with any covenants, obligations or conditions contained
in this Agreement. Any agreement on the part of a party to this Agreement to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.3</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;No Survival.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;None of the representations and warranties, or any covenant to be
performed prior to the Effective Time, contained in this Agreement shall survive the Effective Time and only the covenants that by their terms survive the Effective Time and this </FONT> <FONT SIZE=2><B>Section&nbsp;8</B></FONT><FONT SIZE=2> shall
survive the Effective Time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.4</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Entire Agreement.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement and the documents and instruments and other
agreements among the parties hereto as contemplated by or referred to herein, including the Company Disclosure Schedule and Parent Disclosure Schedule and the Confidentiality Agreement constitute the
entire agreement among the parties to this Agreement and supersede all prior agreements and understandings, both written and oral, among or between any of the parties with respect to the subject
matter hereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.5</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Execution of Agreement; Counterparts; Electronic Signatures.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.5(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall
constitute one and
the same instrument, and shall become effective when
counterparts have been signed by each of the parties and delivered to the other parties; it being understood that all parties need not sign the same counterpart. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.5(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The exchange of copies of this Agreement and of signature pages by facsimile transmission (whether directly from one facsimile
device to
another by means of a dial-up connection or whether mediated by the World Wide Web), by electronic mail via "portable document format" (".pdf"), or by any other electronic means intended
to preserve the original graphic and pictorial appearance of a document, or by a combination of such means, shall constitute effective execution and delivery of this Agreement as to the parties and
may be used in lieu of an original Agreement for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to be their original signatures for all purposes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.5(c)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding the Electronic Signatures in Global and National Commerce Act (15 U.S.C. Sec.&nbsp;7001 </FONT><FONT
SIZE=2><I>et
seq</I></FONT><FONT SIZE=2>.), the Uniform Electronic Transactions Act, or any other Legal Requirement relating to or enabling the creation, execution, delivery, or recordation of any contract or
signature by electronic means, and notwithstanding any course of conduct engaged in by the parties, no party shall be deemed to have executed this Agreement or any other document contemplated by this
Agreement (including any amendment or other change thereto) unless and until such party shall have executed this Agreement or such document on paper by a handwritten original signature or any other
symbol executed or adopted by a party with current intention to authenticate this Agreement or such other document contemplated. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-66</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_lu42501_1_67"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.6</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Governing Law.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law thereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.7</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Consent to Jurisdiction; Venue.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In any action or proceeding between any of the
parties arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, each of the parties: (a)&nbsp;irrevocably and unconditionally consents and submits to
the exclusive jurisdiction and venue of the Court of Chancery of the State of Delaware; and (b)&nbsp;agrees that all claims in respect of such action or proceeding may be heard and determined
exclusively in the Court of Chancery of the State of Delaware. Each of the parties hereto agrees that a final judgment in any such action or proceeding and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect the right of any party to this Agreement to serve process in any other manner permitted by Legal
Requirements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.8</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;WAIVER OF JURY TRIAL.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;EACH OF THE PARTIES IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BETWEEN THE PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.9</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Disclosure Schedules.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.9(a)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Company Disclosure Schedule and Parent Disclosure Schedule shall be arranged in separate Parts corresponding to the numbered
and lettered
sections contained in </FONT><FONT SIZE=2><B>Section&nbsp;2</B></FONT><FONT SIZE=2> and </FONT><FONT SIZE=2><B>Section&nbsp;3</B></FONT><FONT SIZE=2> respectively. Unless otherwise provided in
the respective Disclosure Schedule, the information disclosed in any numbered or lettered "</FONT><FONT SIZE=2><B><I>Part</I></B></FONT><FONT SIZE=2>" shall be deemed to relate to and to qualify only the
particular representation or warranty set forth in the corresponding numbered or lettered section in </FONT><FONT SIZE=2><B>Section&nbsp;2</B></FONT><FONT SIZE=2> or </FONT> <FONT SIZE=2><B>Section&nbsp;3</B></FONT><FONT SIZE=2>, as the case may be,
and shall not be deemed to relate to or to qualify any other representation or warranty. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.9(b)</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If there is any inconsistency between the statements in this Agreement and those in the Company Disclosure Statement or Parent
Disclosure
Schedule (other than an exception set forth as such in the Company Disclosure Schedule or Parent Disclosure Schedule), the statements in this Agreement will control. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.10</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Attorneys' Fees.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In any action at law or suit in equity to enforce this Agreement
or the rights of any of the parties hereunder and except as provided in </FONT><FONT SIZE=2><B>Section&nbsp;7.3</B></FONT><FONT SIZE=2>, the prevailing party in such action or suit shall be
entitled to receive a reasonable sum for its attorneys' fees and all other reasonable costs and expenses incurred in such action or suit. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.11</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Assignments and Successors.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their respective successors and assigns; provided, however, that neither this Agreement nor any of the Company's rights
hereunder may be assigned by the Company without the prior written consent of Parent. Any attempted assignment of this Agreement or of any such rights by the Company without such consent shall be void
and of no effect. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.12</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;No Third Party Rights.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Nothing in this Agreement, express or implied, is intended
to or shall confer upon any Person (other than the parties hereto) any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement; provided, however, that after the
Effective Time, the Indemnified Persons shall be third party beneficiaries of, and entitled to enforce, </FONT><FONT SIZE=2><B>Section&nbsp;5.11  </B></FONT><FONT SIZE=2><B><I>"Indemnification.</I></B></FONT><FONT SIZE=2>" </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.13</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Notices.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All notices, Consents, waivers and other communications required or
permitted by this Agreement shall be in writing and shall be deemed given to a party when (a)&nbsp;delivered to the appropriate address by hand or by nationally recognized overnight courier service
(costs prepaid); or (b)&nbsp;sent by facsimile or e-mail with confirmation of transmission by the transmitting equipment </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-67</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<BR>

<P style="font-family:times;"><FONT SIZE=2>confirmed
with a copy delivered as provided in clause&nbsp;(a), in each case to the following addresses or facsimile numbers and marked to the attention of the person (by name or title) designated
below (or to such other address, facsimile number, e-mail address or person as a party may designate by notice to the other parties): </FONT></P>

<UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>Company
(before the Closing):<BR>
SYS<BR>
5050 Murphy Canyon Road, Suite&nbsp;200<BR>
San Diego, CA 92123<BR>
Attention: Chief Executive Officer<BR>
Fax no.: (858)&nbsp;715-5510 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>with
a copy to:<BR>
Luce, Forward, Hamilton&nbsp;&amp; Scripps&nbsp;LLP<BR>
11988 El&nbsp;Camino Real, Suite&nbsp;200<BR>
San Diego, CA 92130<BR>
Attention: Otto Sorensen<BR>
Fax no.: (619)&nbsp;232-8311 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Parent
and Merger Sub:<BR>
Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.<BR>
4810 Eastgate Mall<BR>
San Diego, CA 92121<BR>
Attention: President<BR>
Fax no.: (858)&nbsp;812-7303 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>with
a copy to:<BR>
DLA Piper US&nbsp;LLP<BR>
4365 Executive Drive, Suite&nbsp;1100<BR>
San Diego, CA 92121<BR>
Attention: Marty Lorenzo<BR>
Fax no.: (858)&nbsp;638-6674 </FONT></P>

</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.14</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Construction; Usage.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.14(a)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Interpretation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In this Agreement, unless a clear contrary intention
appears:</FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>the singular number includes the plural number and vice versa; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are not
prohibited
by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>reference to any gender includes each other gender; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time
to time in accordance with the terms thereof; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>reference to any Legal Requirement means such Legal Requirement as amended, modified, codified, replaced or reenacted, in whole or in
part, and
in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any Legal Requirement means that provision of such Legal
Requirement from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; </FONT></P>

</UL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-68</FONT></P>

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<UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>"hereunder," "hereof," "hereto," and words of similar import shall be deemed references to this Agreement as a whole and not to any particular
Article, Section or other provision hereof; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>"including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term;
</FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>"or" is used in the inclusive sense of "and/or;" </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>with respect to the determination of any period of time, "from" means "from and including" and "to" means "to but excluding;" </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>references to documents, instruments or agreements shall be deemed to refer as well to all addenda, exhibits, schedules or amendments
thereto;
and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;&nbsp;</B></FONT><FONT SIZE=2>any dollar thresholds set forth herein shall not be used as a benchmark for determination of what is or is not "material" or a
"</FONT><FONT SIZE=2><B><I>Material Adverse Effect</I></B></FONT><FONT SIZE=2>" under this Agreement. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.14(b)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Legal Representation of the Parties.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement was negotiated by the
parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring this Agreement to be construed or interpreted against any party shall not apply to
any construction or interpretation hereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.14(c)</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Headings.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The headings contained in this Agreement are for convenience of
reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.15</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Enforcement of Agreement.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise expressly provided herein, any and
all remedies herein expressly conferred upon a party hereunder shall be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law on such party, and the exercise of any
one remedy shall not preclude the exercise of any other. The parties acknowledge and agree that each other party hereunder would be irreparably damaged if any of the provisions of this Agreement are
not performed in accordance with their specific terms and that any breach of this Agreement by a party hereunder could not be adequately compensated in all cases by monetary damages alone.
Accordingly, in addition to any other right or remedy to which a party hereunder may be entitled, at law or in equity, it shall be entitled to enforce any provision of this Agreement by a decree of
specific performance and temporary, preliminary and permanent injunctive relief to prevent breaches or threatened breaches of any of the provisions of this Agreement, without posting any bond or other
undertaking. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.16</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Severability.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If any provision of this Agreement is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or unenforceable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.17</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;Time of Essence.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;With regard to all dates and time periods set forth or referred to
in this Agreement, time is of the essence. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>[REMAINDER
OF PAGE LEFT BLANK&#151;SIGNATURE PAGE FOLLOWS] </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-69</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>IN WITNESS WHEREOF</B></FONT><FONT SIZE=2>, the parties have caused this Agreement to be executed as of the date first above written. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>ERIC M. DEMARCO</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>Name:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2>Eric M. DeMarco</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>Title:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><I>Chief Executive Officer, President</I></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><BR><FONT SIZE=2><B>WHITE SHADOW,&nbsp;INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>CHRIS CAULSON</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>Name:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2>Chris Caulson</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>Title:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><I>Chief Executive Officer</I></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><BR><FONT SIZE=2><B>SYS</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>CLIFTON L. COOKE,&nbsp;JR.</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>Name:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2>Clifton L. Cooke,&nbsp;Jr.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>Title:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2><I>Chief Executive Officer</I></FONT></TD>
</TR>
</TABLE>
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 </FONT> <FONT SIZE=2><B>EXHIBIT&nbsp;A  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> CERTAIN DEFINITIONS  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of the Agreement (including this </FONT><FONT SIZE=2><B><I>Exhibit&nbsp;A</I></B></FONT><FONT SIZE=2>): </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Acquired Corporation</I></B></FONT><FONT SIZE=2>" means the Company or any of its Subsidiaries, and the "</FONT><FONT SIZE=2><B><I>Acquired
Corporations</I></B></FONT><FONT SIZE=2>" means the Company and all of its Subsidiaries. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Acquired Corporation Contract</I></B></FONT><FONT SIZE=2>" shall mean any Contract: (a)&nbsp;to which any of the Acquired Corporations is a party; (b)&nbsp;by
which any of the Acquired Corporations or any asset of any of the Acquired Corporations is or may become bound or under which any of the Acquired Corporations has, or may become subject to, any
obligation; or (c)&nbsp;under which any of the Acquired Corporations has or may acquire any right or interest. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Acquired Corporation Product(s)</I></B></FONT><FONT SIZE=2>" means: (i)&nbsp;the Vigilys product(s); (ii)&nbsp;the Logic Innovations digital broadcast products;
(iii)&nbsp;the cVideo Marathon product(s); (iv)&nbsp;the NeuralStar Network Management product(s); and (v)&nbsp;the DopplerVUE Network Management product(s). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Acquired Corporation Proprietary Rights</I></B></FONT><FONT SIZE=2>" shall mean any Proprietary Rights which are owned by or licensed to any of the Acquired
Corporations and which relate to any Acquired Corporation Product. For purposes of the foregoing, the phrase "which relate to" shall mean absent the ownership of or a license to such Proprietary
Right, the using, making, selling, offering for sale, importing, reproducing, modifying or distributing an Acquired Corporation Product would infringe or misappropriate such Proprietary Right. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Acquired Corporation Source Code</I></B></FONT><FONT SIZE=2>" shall mean any source code, or any portion, aspect or segment of any source code that forms part of or
is included in any Acquired Corporation Product. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Acquired Corporation Technology</I></B></FONT><FONT SIZE=2>" means all Technology owned by any Acquired Corporation or used in any Acquired Corporation Product or
which is necessary or required for the development, manufacturing or use of any Acquired Corporation Product. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Acquired Corporations Hazardous Material</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.13. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Acquisition Proposal</I></B></FONT><FONT SIZE=2>" shall mean any proposal or offer, whether in one transaction or a series of related transactions, for (i)&nbsp;a
merger, consolidation, dissolution, tender offer, exchange offer, recapitalization, share exchange, business combination or other similar transaction involving any of the Acquired Corporations, in
which a Person or "group" (as defined in the Exchange Act and the rules promulgated thereunder) of Persons directly or indirectly acquires beneficial or record ownership of securities representing
more than 20% of the outstanding securities of any class of voting securities of any of the Acquired Corporations; (ii)&nbsp;the issuance by any of the Acquired Corporations of over 20% of its
equity securities (other than pursuant to any underwritten or broadly distributed offering), (iii)&nbsp;the acquisition (including, without limitation, through any license or lease, other than
nonexclusive licenses in the Ordinary Course of Business) in any manner, directly or indirectly, of assets that constitute or account for over 20% of the consolidated net revenues, net income or
assets of any of the Acquired Corporations, (iv)&nbsp;any tender offer or exchange offer in which any Person or "group" (as such term is defined under Section&nbsp;13(d) under the Exchange Act)
shall acquire beneficial ownership (as such term is defined in Rule&nbsp;13d-3 under the Exchange Act), or the right to acquire beneficial ownership, of 20% or more of the outstanding
shares of Company Common Stock, (v)&nbsp;any recapitalization, restructuring, liquidation, dissolution or other similar type of transaction with respect to the Acquired Corporations in which a
Person or "group" (as defined in the Exchange Act and the rules promulgated thereunder) of Persons directly or indirectly shall acquire beneficial ownership of 20% or more of the outstanding
securities of any class of voting securities of any of the Acquired Corporations; or (vi)&nbsp;any transaction which is similar in form, substance or purpose to any of the foregoing transactions; in
each case other than the transactions contemplated by this Agreement. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-i-1</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Acquisition Transaction</I></B></FONT><FONT SIZE=2>" shall mean any transaction or series of transactions involving an Acquisition Proposal. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Affiliate</I></B></FONT><FONT SIZE=2>" shall mean a Person under the control of, controlling, or under common contact with another Person. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Agreement</I></B></FONT><FONT SIZE=2>" shall mean the Agreement and Plan of Merger and Reorganization to which this Exhibit&nbsp;A is attached, as it may be
amended from time to time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Alternative Acquisition Agreement</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.1(b)(iii). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Antitrust Laws</I></B></FONT><FONT SIZE=2>" shall mean the HSR Act and any other antitrust, unfair competition, merger or acquisition notification, or merger or
acquisition control Legal Requirements under any applicable jurisdictions, whether federal, state, local or foreign. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Antitrust Order</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.6(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Benefit Plans</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.11(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Blue Sky Laws</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.2(c). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>California Secretary of State</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;0. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Closing</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;0. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Closing Agreement</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.10(k). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Closing Date</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;0. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Code</I></B></FONT><FONT SIZE=2>" has the meaning set forth in the third paragraph of the Recitals. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company</I></B></FONT><FONT SIZE=2>" has the meaning set forth in the first paragraph of this Agreement. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Adverse Recommendation Change</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.1(b)(i). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Balance Sheet</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.5(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Board</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.1(c). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Certifications</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.4(a). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Common Stock</I></B></FONT><FONT SIZE=2>" shall mean the Common Stock, $0.001 par value per share, of the Company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Disclosure Schedule</I></B></FONT><FONT SIZE=2>" shall mean the disclosure schedule that has been prepared by the Company in accordance with the requirements
of Section&nbsp;8.9 and that has been delivered by the Company to Parent on the date of this Agreement and signed by the President of the Company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Insiders</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.15(d). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Material Contract</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.16(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Option</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;1.8(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company SEC Reports</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.4(a). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Shareholders' Meeting</I></B></FONT><FONT SIZE=2>" shall mean a meeting of the holders of Company Common Stock to vote on the adoption of this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Specified Time</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.1(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Stock Certificate</I></B></FONT><FONT SIZE=2>" shall have the meaning set forth in Section&nbsp;1.6. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Stock Plans</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;1.8(c). </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-i-2</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Voting Proposal</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.5(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Voting Undertakings</I></B></FONT><FONT SIZE=2>" has the meaning set for in the fourth paragraph&nbsp;under Recitals. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Warrants</I></B></FONT><FONT SIZE=2>" shall mean those certain warrants to purchase Company Common Stock issued by the Company pursuant to a Securities
Purchase Agreement dated as of May&nbsp;27, 2005 and otherwise as referenced in the Company Disclosure Schedule. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Confidentiality Agreement</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;4.3. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Consent</I></B></FONT><FONT SIZE=2>" shall mean any approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Contemplated Transactions</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.2(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Continuing Employees</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.12. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Contract</I></B></FONT><FONT SIZE=2>" shall mean any written, oral or other agreement, contract, subcontract, lease, understanding, instrument, note, option,
warranty, purchase order, license, sublicense, insurance policy, benefit plan or legally binding commitment or undertaking of any nature. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Controlled Group Liability</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.11(b). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Copyrights</I></B></FONT><FONT SIZE=2>" shall mean all copyrights, copyrightable works, semiconductor topography and mask work rights, and applications for
registration thereof, including all rights of authorship, use, publication, reproduction, distribution, performance transformation, moral rights and rights of ownership of copyrightable works,
semiconductor topography works and mask works, and all rights to register and obtain renewals and extensions of registrations, together with all other interests accruing by reason of international
copyright, semiconductor topography and mask work conventions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>DGCL</I></B></FONT><FONT SIZE=2>" shall mean the Delaware General Corporation Law. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>EAR</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.21. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>EDGAR</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.4(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Effective Time</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;0. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Encumbrance</I></B></FONT><FONT SIZE=2>" shall mean any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, equitable interest, title retention or title reversion agreement, preemptive right, community property interest or restriction of any nature, whether
accrued, absolute, contingent or otherwise (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of
any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Entity</I></B></FONT><FONT SIZE=2>" shall mean any corporation (including any non-profit corporation), general partnership, limited partnership, limited
liability partnership, joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise,
association, organization or entity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Environmental, Health, and Safety Liabilities</I></B></FONT><FONT SIZE=2>" shall refer to any cost, damages, expense, liability, obligation, or other responsibility
arising from or under Environmental Law or Occupational Safety and Health Law and consisting of or relating to: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;any
environmental, health, or safety matters or conditions (including on-site or off-site contamination, occupational safety and health, and
regulation of chemical substances or products); </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-i-3</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;fines,
penalties, judgments, awards, settlements, legal or administrative Legal Proceedings, damages, losses, claims, demands and response, investigative, remedial, or
inspection costs and expenses arising under Environmental Law or Occupational Safety and Health Law; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;financial
responsibility under Environmental Law or Occupational Safety and Health Law for cleanup costs or corrective action, including any investigation, cleanup,
removal, containment, or other remediation or response actions ("</FONT><FONT SIZE=2><B><I>Cleanup</I></B></FONT><FONT SIZE=2>") required by applicable Environmental Law or Occupational Safety and Health
Law (whether or not such Cleanup has been required or requested by any Governmental Body or any other Person) and for any natural resource damages; or </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;any
other compliance, corrective, investigative, or remedial measures required under Environmental Law or Occupational Safety and Health Law. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Environmental Law</I></B></FONT><FONT SIZE=2>" shall refer to any Legal Requirement that requires or relates to: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;advising
appropriate authorities, employees, and the public of intended or actual releases of pollutants or hazardous substances or materials, violations of discharge
limits, or other prohibitions and of the commencements of activities, such as resource extraction or construction, that could have significant impact on the Environment; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;preventing
or reducing to acceptable levels the release of pollutants or hazardous substances or materials into the Environment; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;reducing
the quantities, preventing the release, or minimizing the hazardous characteristics of wastes that are generated; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;assuring
that products are designed, formulated, packaged, and used so that they do not present unreasonable risks to human health or the Environment when used or
disposed of; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;protecting
resources, species, or ecological amenities; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;reducing
to acceptable levels the risks inherent in the transportation of hazardous substances, pollutants, oil, or other potentially harmful substances; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;cleaning
up pollutants that have been released, preventing the threat of release, or paying the costs of such clean up or prevention; or </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;making
responsible parties pay private parties, or groups of them, for damages done to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries done to public assets. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>ERISA</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.11(b). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>ERISA Affiliate</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.11(b). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>ESPP</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;1.8(b). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Exchange Act</I></B></FONT><FONT SIZE=2>" shall mean the Securities Exchange Act of 1934, as amended. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Exchange Agent</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;1.7(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Exchange Fund</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;1.7(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Exchange Ratio</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;1.5(a)(iv). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Facilities</I></B></FONT><FONT SIZE=2>" shall mean any real property, leaseholds, or other interests currently or formerly owned or operated by any Acquired
Corporation and any buildings, plants, structures, or equipment (including motor vehicles, tank cars, and rolling stock) currently or formerly owned or operated by any Acquired Corporation. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-i-4</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=444,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=855981,FOLIO='A-i-4',FILE='DISK112:[08ZAT1.08ZAT42501]LW42501A.;3',USER='RCHENEY',CD=';8-APR-2008;08:09' -->
<A NAME="page_lw42501_1_5"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Filed Company SEC Reports</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.4(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Final Purchase Date</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;1.8(b). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Form&nbsp;S-4 Registration Statement</I></B></FONT><FONT SIZE=2>" shall mean the registration statement on Form&nbsp;S-4 to be filed with
the SEC by Parent in connection with issuance of Parent Common Stock in the Merger, as said registration statement may be amended prior to the time it is declared effective by the SEC. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>GAAP</I></B></FONT><FONT SIZE=2>" shall mean generally accepted accounting principles for financial reporting in the United States, applied on a basis consistent
with the basis on which the financial statements referred to in Section&nbsp;2.5 and 3.5 were prepared. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Governmental Authorization</I></B></FONT><FONT SIZE=2>" shall mean any: (a)&nbsp;permit, license, certificate, franchise, permission, variance, clearance,
registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or
(b)&nbsp;right under any Contract with any Governmental Body. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Governmental Body</I></B></FONT><FONT SIZE=2>" shall mean any: (a)&nbsp;nation, state, commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b)&nbsp;federal, state, local, municipal, foreign or other government; or (c)&nbsp;governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality, official, organization, unit, body or Entity and any court or other tribunal). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Government Contract</I></B></FONT><FONT SIZE=2>" means any contract to which the Company and any Governmental Body is a party, and any active contracts pursuant to
which the Company acts as a vendor or a subcontractor for a party having a contract with a Governmental Body A task, purchase or delivery order under a Government Contract shall not constitute a
separate Government Contract for purposes of this definition, but shall be part of the Government Contract to which it relates. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Hazardous Materials</I></B></FONT><FONT SIZE=2>" shall mean any waste or other substance that is listed, defined, designated, or classified as, or otherwise
determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including
petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>HSR Act</I></B></FONT><FONT SIZE=2>" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Imperial</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.22. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Indemnification</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;8.12. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Indemnified Parties</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.11(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>International Trade Law</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.23. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Issued Patents</I></B></FONT><FONT SIZE=2>" shall mean all issued patents, reissued or reexamined patents, revivals of patents, utility models, certificates of
invention, registrations of patents and extensions thereof, regardless of country or formal name, issued by the United States Patent and Trademark Office and any other applicable Governmental Body. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>ITAR</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.21. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Joint Proxy Statement/Prospectus</I></B></FONT><FONT SIZE=2>" shall mean the joint proxy statement/prospectus to be sent to the Company's stockholders in connection
with the Company Shareholders' Meeting and to the Parent's stockholders in connection with the Parent Stockholders' Meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Key Employees</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;6.2(c). </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-i-5</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=445,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=304762,FOLIO='A-i-5',FILE='DISK112:[08ZAT1.08ZAT42501]LW42501A.;3',USER='RCHENEY',CD=';8-APR-2008;08:09' -->
<A NAME="page_lw42501_1_6"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Knowledge</I></B></FONT><FONT SIZE=2>"&#151;an individual will be deemed to have "</FONT><FONT SIZE=2><B><I>Knowledge</I></B></FONT><FONT SIZE=2>" of a particular
fact or other matter if (a)&nbsp;such individual is actually aware of such fact or other matter; (b)&nbsp;such individual should reasonably be aware of such fact or matter; or (c)&nbsp;a prudent
individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonable investigation concerning the existence of such fact or other
matter. The Company and Parent, respectively, will be deemed to have "</FONT><FONT SIZE=2><B><I>Knowledge</I></B></FONT><FONT SIZE=2>" of a particular fact or other matter if any executive officer (as such
term is defined under the rules promulgated by the SEC) of the Company or Parent, respectively, has, or at any time had, Knowledge of such fact or other matter. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Legal Proceeding</I></B></FONT><FONT SIZE=2>" shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other
Governmental Body or any arbitrator or arbitration panel. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Legal Requirement</I></B></FONT><FONT SIZE=2>" shall mean any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any
Governmental Body (or under the authority of the NASDAQ Stock Market or the American Stock Exchange). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Material Adverse Effect</I></B></FONT><FONT SIZE=2>" shall refer to the following: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
event, violation, inaccuracy, circumstance or development will be deemed to have a "</FONT><FONT SIZE=2><B><I>Material Adverse Effect</I></B></FONT><FONT SIZE=2>" on the Acquired
Corporations if such event, violation, inaccuracy, circumstance or development had or would reasonably be likely to have a material adverse effect on (i)&nbsp;the business, condition,
capitalization, assets, liabilities, operations or financial performance of the Acquired Corporations taken as a whole, (ii)&nbsp;the ability of the Company to consummate the Merger or any of the
other transactions contemplated by the Agreement or to perform any of its obligations under the Agreement, or (iii)&nbsp;Parent's ability to operate the business of the Acquired Corporations after
the Closing, except to the extent that an such event, violation, inaccuracy, circumstance or development results directly and proximately from: (A)&nbsp;changes in economic conditions in any country
in which the Acquired Corporations operate, except to the extent that the same disproportionately impact the Acquired Corporations as compared to other similarly situated companies; (B)&nbsp;changes
to the conditions affecting the industries in which the Acquired Corporations operate, except to the extent that the same disproportionately impact the Acquired Corporations as compared to other
companies in the industries in which the Acquired Corporations operate; (C)&nbsp;changes that are primarily attributable to the announcement of this Agreement; (D)&nbsp;changes in the market price
or trading volume of the Company Common Stock (provided that the underlying causes of such changes shall not be excluded); (E)&nbsp;changes in Legal Requirements or GAAP, except to the extent that
the same disproportionately impact any of the Acquired Corporations as compared to other companies affected by the change in Legal Requirements or GAAP. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
event, violation, inaccuracy, circumstance or development will be deemed to have a "</FONT><FONT SIZE=2><B><I>Material Adverse Effect</I></B></FONT><FONT SIZE=2>" on Parent if such event,
violation, inaccuracy, circumstance or development had or would reasonably be likely to have a material adverse effect on (i)&nbsp;the business, condition, capitalization, assets, liabilities,
operations or financial performance of Parent and its Subsidiaries taken as a whole, (ii)&nbsp;the ability of Parent to consummate the Merger or any of the other transactions contemplated by the
Agreement or to perform any of its obligations under the Agreement, or (iii)&nbsp;Parent's ability to operate the Acquired Corporations after the Closing, except to the extent that an such event,
violation, inaccuracy, circumstance or development results directly and proximately from: (A)&nbsp;changes in economic conditions in any country in which Parent or its Subsidiaries operates, except
to the extent that the same </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-i-6</FONT></P>

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<A NAME="page_lw42501_1_7"> </A>
<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>disproportionately
impact Parent and its Subsidiaries, taken as a whole, as compared to other similarly situated companies; (B)&nbsp;changes to the conditions affecting the industries in which
Parent or its Subsidiaries operate, except to the extent that the same disproportionately impact Parent and its Subsidiaries, taken as a whole, as compared to other companies in the industries in
which Parent and its Subsidiaries operate; (C)&nbsp;changes that are primarily attributable to, the announcement of this Agreement; (D)&nbsp;changes in the market price or trading volume of Parent
Common Stock (provided that the underlying causes of such changes shall not be excluded); (E)&nbsp;changes in Legal Requirements or GAAP, except to the extent that the same disproportionately impact
Parent and its Subsidiaries, taken as a whole, as compared to other companies affected by the change in Legal Requirements or GAAP. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Material Contract</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.16. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Merger</I></B></FONT><FONT SIZE=2>" shall have the meaning set forth in the first Recital of this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Merger Agreement</I></B></FONT><FONT SIZE=2>" shall have the meaning set forth in Section&nbsp;1.1. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Merger Sub</I></B></FONT><FONT SIZE=2>" shall have the meaning set forth in the first paragraph of this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Notice of Superior Proposal</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.1(b). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Occupational Safety and Health Law</I></B></FONT><FONT SIZE=2>" shall mean any Legal Requirement designed to provide safe and healthful working conditions and to
reduce occupational safety and health hazards, and any program, whether governmental or private (including those promulgated or sponsored by industry associations and insurance companies), designed to
provide safe and healthful working conditions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Off-Balance Sheet Arrangement</I></B></FONT><FONT SIZE=2>" means with respect to any Person, any securitization transaction to which that Person or its
Subsidiaries is party and any other transaction, agreement or other contractual arrangement to which an entity unconsolidated with that Person is a party, under which that Person or its Subsidiaries,
whether or not a party to the arrangement, has, or in the future may have: (a)&nbsp;any obligation under a direct or indirect guarantee or similar arrangement; (b)&nbsp;a retained or contingent
interest in assets transferred to an unconsolidated entity or similar arrangement; (c)&nbsp;derivatives to the extent that the fair value thereof is not fully reflected as a liability or asset in
the financial statements; or (d)&nbsp;any obligation or liability, including a contingent obligation or liability, to the extent that it is not fully reflected in the financial statements (excluding
the footnotes thereto) (for this purpose, obligations or liabilities that are not fully reflected in the financial statements (excluding the footnotes thereto) include, without limitation: obligations
that are not classified as a liability according to generally accepted accounting principles; contingent liabilities as to which, as of the date of the financial statements, it is not probable that a
loss has been incurred or, if probable, is not reasonably estimable; or liabilities as to which the amount recognized in the financial statements is less than the reasonably possible maximum exposure
to loss under the obligation as of the date of the financial statements, but exclude contingent liabilities arising out of litigation, arbitration or regulatory actions (not otherwise related to
off-balance sheet arrangements)). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Options</I></B></FONT><FONT SIZE=2>" shall mean any options, stock appreciation rights, warrants or other rights, Contracts, arrangements or commitments of any
character for the issuance of equity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Ordinary Course of Business</I></B></FONT><FONT SIZE=2>" shall mean the Ordinary Course of Business consistent with past custom and practice (including with respect
to frequency and amount). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Organizational Documents</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.1(b). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Outside Date</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;7.1(b). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Outstanding Company Option</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;1.8(a). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent</I></B></FONT><FONT SIZE=2>" shall have the meaning set forth in the first paragraph of this Agreement. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-i-7</FONT></P>

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<A NAME="page_lw42501_1_8"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Adverse Recommendation Change</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.5(b) </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Balance Sheet</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;3.5. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Board</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;3.2(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Certifications</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;3.4. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Common Stock</I></B></FONT><FONT SIZE=2>" shall mean the Common Stock, $.01 par value per share, of Parent. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Contract</I></B></FONT><FONT SIZE=2>" means any Contract: (a)&nbsp;to which Parent or any of its Subsidiaries is a party; (b)&nbsp;by which Parent or any
of its Subsidiaries or any of their assets is or may be bound or under which Parent or any of its Subsidiaries has or may become subject to any obligation; or (c)&nbsp;under which Parent or any of
its Subsidiaries has or may acquire any right or interest. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Disclosure Schedule</I></B></FONT><FONT SIZE=2>" shall mean the disclosure schedule that has been prepared by Parent in accordance with the requirements of
Section&nbsp;3 and that has been delivered by Parent to the Company on the date of this Agreement and signed by the President of Parent. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Hazardous Material</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;3.14. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Insiders</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.15(d). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Material Contract</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;3.17(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Plan</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;3.12(a). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Product(s)</I></B></FONT><FONT SIZE=2>" means each and all of the products developed or distributed by Parent and its Subsidiaries (including without
limitation all software products), whether currently being distributed, currently under development, or otherwise anticipated to be distributed under any product "road map" of Parent and its
Subsidiaries. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Proprietary Rights</I></B></FONT><FONT SIZE=2>" shall mean any Proprietary Rights owned by or licensed to any of the Parent Corporations or otherwise used in
the business of any Parent Corporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent RSU Award</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;3.6(c). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent SEC Reports</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;3.4. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Specified Time</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.5(b). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Stock Options</I></B></FONT><FONT SIZE=2>" shall mean options to purchase shares of Parent Common Stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Stock Plans</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;3.6(c). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Stockholders' Meeting</I></B></FONT><FONT SIZE=2>" shall mean a meeting of the holders of Parent Common Stock to vote on the Parent Voting Proposal. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Voting Proposal</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.5(b). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Voting Undertakings</I></B></FONT><FONT SIZE=2>" has the meaning set forth in the fifth paragraph in Recitals. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Part</I></B></FONT><FONT SIZE=2>" shall mean a part or section of the Company Disclosure Schedule or Parent Disclosure Schedule. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Patents</I></B></FONT><FONT SIZE=2>" shall mean the Issued Patents and the Patent Applications. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Patent Applications</I></B></FONT><FONT SIZE=2>" shall mean all published and unpublished nonprovisional and provisional patent applications, reexamination
proceedings, invention disclosures and records of invention, applications for certificates of invention and priority rights, in any country and regardless of formal name, including without limitation,
substitutions, continuations, continuations-in-part, divisions, renewals, revivals, reissues, re-examinations and extensions thereof. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-i-8</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Permitted Encumbrances</I></B></FONT><FONT SIZE=2>" means: (a)&nbsp;statutory liens for Taxes that are not yet due and payable; (b)&nbsp;statutory liens to
secure obligations to landlords, lessors or renters under leases or rental agreements; (c)&nbsp;deposits or pledges made in connection with, or to secure payment of, workers' compensation,
unemployment insurance or similar programs mandated by Legal Requirements; (d)&nbsp;statutory liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor,
materials or supplies and other like liens; or (e)&nbsp;Encumbrances imposed on the underlying fee interest in leased property. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Person</I></B></FONT><FONT SIZE=2>" shall mean any individual, Entity or Governmental Body. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Plans</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.11(c). </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Proprietary Rights</I></B></FONT><FONT SIZE=2>" shall mean any: (a)(i)&nbsp;Issued Patents, (ii)&nbsp;Patent Applications, (iii)&nbsp;Trademarks, fictitious
business names, domain names, and domain name registrations, (iv)&nbsp;Copyrights, (v)&nbsp;Trade Secrets, (vi)&nbsp;protections or rights under neighboring rights law, industrial design rights
law, semiconductor chip or mask work protection law, moral rights law, database protection law, unfair competition law, publicity rights law, privacy rights law, licenses and other conveyances, and
all other intellectual properties and rights (whether or not appropriate steps have been taken to protect, under applicable law, such other intangible assets, properties or rights);
(b)&nbsp;renewals, extensions and restorations of any of the foregoing, now or hereafter in force and effect, whether worldwide or in individual countries or regions, or (c)&nbsp;any right to use
or exploit any of the foregoing. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Qualified Plans</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.11(e). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Registered Copyrights</I></B></FONT><FONT SIZE=2>" shall mean all Copyrights for which registrations have been obtained or applications for registration have been
filed in the United States Copyright Office and any other applicable Governmental Body, including mask work and/or semiconductor topography registrations. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Registered Trademarks</I></B></FONT><FONT SIZE=2>" means all Trademarks for which registrations have been obtained or applications for registration have been filed
in the United States Patent and Trademark Office and any applicable Governmental Body. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Representatives</I></B></FONT><FONT SIZE=2>" shall mean officers, directors, employees, agents, attorneys, accountants, advisors and representatives. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Required Company Shareholder Vote</I></B></FONT><FONT SIZE=2>" shall mean the affirmative vote to adopt this Agreement by the holders of a majority of the shares of
Company Common Stock outstanding and entitled to vote at the Company Shareholders' Meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Required Parent Stockholder Vote</I></B></FONT><FONT SIZE=2>" shall mean the vote to approve the issuance of Parent Common Stock in the Merger by the holders of a
majority of the shares of Parent Common Stock present (in person or by proxy) at the Parent Stockholders' Meeting and constituting a quorum for the purpose of voting on such approval. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>SEC</I></B></FONT><FONT SIZE=2>" shall mean the United States Securities and Exchange Commission. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Secretary of State</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;0. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Section&nbsp;16 Information</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.15(c). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Securities Act</I></B></FONT><FONT SIZE=2>" shall mean the Securities Act of 1933, as amended. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>SOX</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.4(a). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"</B></FONT><FONT SIZE=2><B><I>Subsidiary</I></B></FONT><FONT SIZE=2>"&#151;an Entity shall be deemed to be a
"</FONT><FONT SIZE=2><B><I>Subsidiary</I></B></FONT><FONT SIZE=2>" of another Person if such Person directly or indirectly owns, beneficially or of record, (a)&nbsp;an amount of voting securities or other
interests in such Entity that is sufficient to enable such Person to elect at least a majority of the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-i-9</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>members
of such Entity's board of directors or other governing body, or (b)&nbsp;at least 50% of the outstanding equity or financial interests of such Entity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Superior Proposal</I></B></FONT><FONT SIZE=2>" shall mean any unsolicited, bona fide written Acquisition Proposal (on its most recently amended or modified terms, if
amended or modified), made by a third party on terms which the Company Board determines in its good faith judgment to be more favorable from a financial point of view to the holders of Company Common
Stock than the transactions contemplated by this
Agreement, after receiving advice from its financial advisor and taking into account all the terms and conditions of such proposal and this Agreement (including any proposal by Parent to amend the
terms of this Agreement), the likelihood of consummation and all financial, regulatory, legal and other factors; provided, however, that for purposes of this definition, the references to "20%" in the
definition of "Acquisition Proposal" shall be deemed to be references to "50%." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Surviving Corporation</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;1.1. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Tax</I></B></FONT><FONT SIZE=2>" shall mean any tax (including any income tax, franchise tax, capital gains tax, gross receipts tax, value-added tax, surtax, excise
tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including any customs duty), deficiency
or fee, and any related charge or amount (including any fine, penalty or interest), imposed, assessed or collected by or under the authority of any Governmental Body. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Tax Return</I></B></FONT><FONT SIZE=2>" shall mean any return (including any information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the
determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Tax Ruling</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.10(k). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Technology</I></B></FONT><FONT SIZE=2>" means all manufacturing and operating specifications, data processes, process technology, plans, drawings, blueprints,
formulae, designs, algorithms, data, databases, data collections and compilations, models, methodologies, theories, ideas, techniques, discoveries, disclosures, inventions, improvements, logic, code,
work of authorship and any other tangible or intangible form of technology, information or know-how. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Termination Fee</I></B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;7.3(b). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Trade Secrets</I></B></FONT><FONT SIZE=2>" means all product specifications, data, know-how, formulae, compositions, processes, designs, sketches,
photographs, graphs, drawings, samples, inventions and ideas, research and development, manufacturing or distribution methods and processes including fabrication process architecture and process flow,
customer lists, current and anticipated customer requirements, price lists, market studies, business plans, computer software and programs (including object code), computer software and database
technologies, systems, structures and architectures (and related processes, formulae, composition, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs,
methods and information), and any other information, however documented, that is a trade secret within the meaning of the applicable trade-secret protection law. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Trademarks</I></B></FONT><FONT SIZE=2>" shall mean all (i)&nbsp;trademarks, service marks, marks, logos, insignias, designs, trade dress, names or other symbols,
(ii)&nbsp;applications for registration of trademarks, service marks, marks, logos, insignias, designs, trade dress, names or other symbols, and (iii)&nbsp;trademarks, service marks, marks, logos,
insignias, designs, trade dress, names or other symbols for which registrations has been obtained. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Voting Undertakings</I></B></FONT><FONT SIZE=2>" has the meaning set forth in the fifth paragraph under Recitals. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>A-i-10</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT> <FONT SIZE=2><B>Schedule&nbsp;A  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>List of Signatories for Company Voting Undertakings </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Clifton
L. Cooke,&nbsp;Jr. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Edward
M. Lake </FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Schedule&nbsp;B  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>List of Signatories for Parent Voting Undertakings </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>Scott&nbsp;I.
Anderson </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Bandel
L. Carano </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Eric
M. DeMarco </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>William
A. Hoglund </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Scot
B. Jarvis </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Deanna
Lund </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Robin
Mickle </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Schedule&nbsp;C  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Schedule&nbsp;6.2(c)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Key Employees  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Clifton
L. Cooke,&nbsp;Jr. </FONT></P>

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 </FONT></P>

<!-- TOC_END -->
<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="ma42501_annex_b"> </A>
<A NAME="toc_ma42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>Annex B    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ma42501_voting_agreement"> </A>
<A NAME="toc_ma42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>VOTING AGREEMENT    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Voting Agreement ("</FONT><FONT SIZE=2><B><I>Agreement</I></B></FONT><FONT SIZE=2>") is made and entered into as of February&nbsp;20, 2008, by and between Kratos
Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., a Delaware corporation (the "</FONT><FONT SIZE=2><B><I>Parent</I></B></FONT><FONT SIZE=2>") and, the undersigned shareholder
("</FONT><FONT SIZE=2><B><I>Shareholder</I></B></FONT><FONT SIZE=2>") of SYS, a California corporation (the "</FONT><FONT SIZE=2><B><I>Company</I></B></FONT><FONT SIZE=2>"). Certain capitalized terms used in this
Agreement that are not defined herein shall have the meaning given to such terms in the Merger Agreement (as defined below). </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ma42501_recitals"> </A>
<A NAME="toc_ma42501_3"> </A>
<BR></FONT><FONT SIZE=2><B>RECITALS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>WHEREAS</B></FONT><FONT SIZE=2>, Shareholder is the holder of record and the "beneficial owner" (within the meaning of
Rule&nbsp;13d-3 under the Securities Exchange Act of 1934) of certain shares of common stock of the Parent; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>WHEREAS</B></FONT><FONT SIZE=2>, concurrently with the execution and delivery of this Agreement, Parent, White Shadow,&nbsp;Inc., a California corporation and
wholly owned subsidiary of Parent ("</FONT><FONT SIZE=2><B><I>Merger Sub</I></B></FONT><FONT SIZE=2>") and the Company are entering into an Agreement and Plan of Merger and Reorganization (the
"</FONT><FONT SIZE=2><B><I>Merger Agreement</I></B></FONT><FONT SIZE=2>") which provides, upon the terms and subject to the conditions set forth therein, for the merger of Merger Sub with and into the
Company (the "</FONT><FONT SIZE=2><B><I>Merger</I></B></FONT><FONT SIZE=2>"); and </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>WHEREAS</B></FONT><FONT SIZE=2>, as a condition and inducement to Parent's willingness to enter into the Merger Agreement, Shareholder has agreed to execute and
deliver this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>NOW, THEREFORE</B></FONT><FONT SIZE=2>, the parties to this Agreement, intending to be legally bound, agree as follows: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Agreement to Vote Shares.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Prior to the Termination Date, at every meeting of the shareholders of the Company
called with respect to any of the following, and at every adjournment or postponement thereof, and on every action or approval by written consent of the shareholders of the Company with respect to any
of the following, Shareholder shall vote the Subject Securities: (a)&nbsp;in favor of approval and adoption of the Merger and the Merger Agreement and in favor of any matter that could reasonably be
expected to facilitate the Merger, (b)&nbsp;against any proposal for any Acquisition Transaction, other than the Merger, between the Company and any person or entity (other than Parent or Merger
Sub) and (c)&nbsp;against any other action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger
Agreement or which could result in any of the conditions to the consummation of the Merger under the Merger Agreement not being fulfilled. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Irrevocable Proxy.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Concurrently with the execution of this Agreement, Shareholder agrees to deliver to Parent
a proxy in the form attached hereto (the "</FONT><FONT SIZE=2><B><I>Proxy</I></B></FONT><FONT SIZE=2>"), which shall be irrevocable to the extent provided in Section&nbsp;705 of the California General
Corporation Law, with respect to the shares referred to therein. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Agreement to Retain Shares.</B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Restriction on Transfer.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise provided in Section&nbsp;3(c), during the period from the
date of this Agreement through the Termination Date, Shareholder shall not, directly or indirectly, cause or permit any Transfer of any of the Subject Securities to be effected. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Restriction on Transfer of Voting Rights.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During the period from the date of this Agreement through the
Termination Date, Shareholder shall ensure that: (a)&nbsp;none of the Subject Securities is deposited into a voting trust; and (b)&nbsp;no proxy (other than the Proxy granted herein) is granted,
and no voting agreement or similar agreement is entered into, with respect to any of the Subject Securities. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>B-1</FONT></P>

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<A NAME="page_ma42501_1_2"> </A>
<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Permitted Transfers.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3(a) shall not prohibit a transfer of Company Common Stock by
Shareholder (a)&nbsp;if Shareholder is an individual, (i)&nbsp;to any member of Shareholder's immediate family, or to a trust for the benefit of Shareholder or any member of Shareholder's
immediate family, or (ii)&nbsp;upon the death of Shareholder, or (b)&nbsp;if Shareholder is a partnership or limited liability company, to one or more partners or members of Shareholder or to an
affiliated corporation under common control with
Shareholder; </FONT><FONT SIZE=2><I>provided, however</I></FONT><FONT SIZE=2>, that a transfer referred to in this sentence shall be permitted only if, as a precondition to such transfer, the
transferee agrees in a writing, reasonably satisfactory in form and substance to Parent, to be bound by the terms of this Agreement and delivers a proxy to Parent in substantially the form of the
Proxy attached hereto. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Waiver of Appraisal Rights.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Shareholder hereby irrevocably and unconditionally waives any rights of
appraisal, any dissenters' rights and any similar rights relating to the Merger or any related transaction that Shareholder may have by virtue of any outstanding shares of Company Common Stock Owned
by Shareholder. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Representations, Warranties and Covenants of Shareholder.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Shareholder hereby represents and warrants to
Parent as follows: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Due Authorization, Etc.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All consents, approvals, authorizations and orders necessary for the execution and
delivery by Shareholder of this Agreement and the Proxy have been obtained, and Shareholder has full right, power and authority to enter into this Agreement and the Proxy. This Agreement and the Proxy
have been duly executed and delivered by Shareholder and constitute valid and binding agreements of Shareholder enforceable in accordance with their terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors' rights generally and subject to general principles of equity. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>No Conflict.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The execution and delivery of this Agreement and the Proxy by Shareholder do not, and the
performance of this Agreement and the Proxy by Shareholder will not (i)&nbsp;conflict with or violate any law, rule, regulation, order, decree or judgment applicable to Shareholder or by which he or
it or any of his or its properties is or may be bound or affected; or (ii)&nbsp;result in or constitute any breach of or default under, or give to any other Person any right of termination,
amendment, acceleration or cancellation of, or result in the creation of any encumbrance or restriction on any of the Subject Securities pursuant to, any contract to which Shareholder is a party or by
which Shareholder or any of his or its affiliates or properties is or may be bound or affected. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Title to Securities.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this Agreement: (a)&nbsp;Shareholder holds of record (free and
clear of any encumbrances or restrictions) the number of outstanding shares of Company Common Stock set forth under the heading "Shares Held of Record" on the signature page hereof;
(b)&nbsp;Shareholder holds (free and clear of any encumbrances or restrictions) the options, warrants and other rights to acquire shares of Company Common Stock set forth under the heading "Options
and Other Rights" on the signature page hereof; (c)&nbsp;Shareholder Owns the additional securities of the Parent set forth under the heading "Additional Securities Beneficially Owned" on the
signature page hereof; and (d)&nbsp;Shareholder does not directly or indirectly Own any shares of capital stock or other securities of the Parent, or any option, warrant or other right to acquire
(by purchase, conversion or otherwise) any shares of capital stock or other securities of the Parent, other than the shares and options, warrants and other rights set forth on the signature page
hereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Accuracy of Representations.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The representations and warranties contained in this Agreement are accurate in
all respects as of the date of this Agreement, and will be accurate in all respects at all times through the Termination Date. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>B-2</FONT></P>

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<A NAME="page_ma42501_1_3"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Additional Covenants of Shareholder.</B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Further Assurances.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;From time to time and without additional consideration, Shareholder shall (at
Shareholder's sole expense) execute and deliver, or cause to be executed and delivered, such additional transfers, assignments, endorsements, proxies, consents and other instruments, and shall (at
Shareholder's sole expense) take such further actions, as Company may request for the purpose of carrying out and furthering the intent of this Agreement. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Miscellaneous.</B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Survival of Representations, Warranties and Agreements.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All representations and warranties made by
Shareholder in this Agreement shall survive (i)&nbsp;the consummation of the Merger, and (ii)&nbsp;the Termination Date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Assignment; Binding Effect.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as provided herein, neither this Agreement nor any of the interests or
obligations hereunder may be assigned or delegated by Shareholder, and any attempted or purported assignment or delegation of any of such interests or obligations shall be void. Subject to the
preceding sentence, this Agreement shall be binding upon Shareholder and his heirs, estate, executors and personal representatives and his or its successors and assigns, and shall inure to the benefit
of Parent and its successors and assigns. Without limiting any of the restrictions set forth in Section&nbsp;3(a) or elsewhere in this Agreement, this Agreement shall be binding upon any Person to
whom any Subject Securities are transferred. Nothing in this Agreement is intended to confer on any Person (other than Parent and its successors and assigns) any rights or remedies of any nature. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Specific Performance.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The parties agree that irreparable damage would occur in the event that any of the
provisions of this Agreement or the Proxy were not performed in accordance with its specific terms or were otherwise breached. Shareholder agrees that, in the event of any breach or threatened breach
by Shareholder of any covenant or obligation contained in this Agreement or in the Proxy, Parent shall be entitled (in addition to any other remedy that may be available to it, including monetary
damages) to seek and obtain (a)&nbsp;a decree or order of specific performance to enforce the observance and performance of such covenant or obligation, and (b)&nbsp;an injunction restraining such
breach or threatened breach. Shareholder further agrees that neither Parent nor any other Person shall be required to
obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section&nbsp;7(c), and Shareholder irrevocably waives any
right he or it may have to require the obtaining, furnishing or posting of any such bond or similar instrument. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Waiver.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No failure on the part of Parent to exercise any power, right, privilege or remedy under this
Agreement, and no delay on the part of Parent in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. Parent shall not be
deemed to have waived any claim available to Parent arising out of this Agreement, or any power, right, privilege or remedy of Parent under this Agreement, unless the waiver of such claim, power,
right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of Parent; and any such waiver shall not be applicable or have any effect except in the
specific instance in which it is given. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Governing Law; Venue.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement and all acts and transactions pursuant hereto and the rights and
obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts or choice of law.
Any legal action or other legal proceeding relating to this Agreement or the </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>B-3</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_ma42501_1_4"> </A>
<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>Proxy
or the enforcement of any provision of this Agreement or the Proxy may be brought or otherwise commenced in any state or federal court located in the State of Delaware. Shareholder: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;expressly
and irrevocably consents and submits to the jurisdiction of each state and federal court located in the State of Delaware in connection with any such legal
proceeding; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;agrees
that service of any process, summons, notice or document by U.S. mail addressed to him or it at the address set forth on the signature page hereof shall
constitute effective service of such process, summons, notice or document for purposes of any such legal proceeding; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;agrees
that each state and federal court located in the State of Delaware shall be deemed to be a convenient forum; and </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;agrees
not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any state or federal court located in the State of
Delaware, any claim that Shareholder is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, that the venue of such
proceeding is improper or that this Agreement or the subject matter of this Agreement may not be enforced in or by such court. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nothing
contained in this Section&nbsp;7(e) shall be deemed to limit or otherwise affect the right of Parent to commence any legal proceeding or otherwise proceed against Shareholder
in any other forum or jurisdiction. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HOLDER
IRREVOCABLY WAIVES THE RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE PROXY OR THE ENFORCEMENT OF ANY PROVISION OF THIS AGREEMENT
OR THE PROXY. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Counterparts.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement may be executed in two or more counterparts (including by facsimile), each of
which shall be deemed an original and all of which together shall constitute one instrument. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Entire Agreement.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement, the Proxy and any other documents delivered by the parties in connection
herewith constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings between the parties with
respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon either party unless made in writing and signed by both parties. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Titles and Subtitles.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The titles and subtitles used in this Agreement are used for convenience only and are
not to be considered in construing or interpreting this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Notices.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Any notice required or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48)&nbsp;hours after being deposited in the regular mail as
certified or registered mail (airmail if sent internationally) with postage prepaid, if such notice is addressed to the party to be notified at such party's address or facsimile number as set forth
below, or as subsequently modified by written notice. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Attorneys' Fees.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If any legal action or other legal proceeding relating to this Agreement or the enforcement
of any provision of this Agreement is brought against Shareholder, the prevailing party shall be entitled to recover reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Severability.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If one or more provisions of this Agreement are held to be unenforceable under applicable law,
the parties agree to renegotiate such provision in good faith, in order to </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>B-4</FONT></P>

<HR NOSHADE>
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<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>maintain
the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a mutually agreeable and
enforceable replacement for such provision, then (i)&nbsp;such provision shall be excluded from this Agreement, (ii)&nbsp;the balance of the Agreement shall be interpreted as if such provision
were so excluded and (iii)&nbsp;the balance of the Agreement shall be enforceable in accordance with its terms. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Construction.</B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;For
purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the
feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;The
parties agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or
interpretation of this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;As
used in this Agreement, the words "include" and "including," and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be
followed by the words "without limitation." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;Except
as otherwise indicated, all references in this Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement and Exhibits to this
Agreement. </FONT></P>

</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Certain Definitions.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this Agreement, </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Company Common Stock</I></B></FONT><FONT SIZE=2>" shall mean the common stock, par value $0.001 per share, of the Company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;Shareholder
shall be deemed to "</FONT><FONT SIZE=2><B><I>Own</I></B></FONT><FONT SIZE=2>" or to have acquired "</FONT><FONT SIZE=2><B><I>Ownership</I></B></FONT><FONT SIZE=2>" of a
security if Shareholder is the "beneficial owner" within the meaning of Rule&nbsp;13d-3 under the Securities Exchange Act of 1934 of such security. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Person</I></B></FONT><FONT SIZE=2>" shall mean any (i)&nbsp;individual, (ii)&nbsp;corporation, limited liability company, partnership or other
entity, or (iii)&nbsp;Governmental Body. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Subject Securities</I></B></FONT><FONT SIZE=2>" shall mean: (i)&nbsp;all securities of the Company (including all shares of Company Common Stock
and all, options, warrants and other rights to acquire shares of Company Common Stock) Owned by Shareholder as of the date of this Agreement; and (ii)&nbsp;all additional securities of the Company
(including all additional shares of Company Common Stock and all additional options, warrants and other rights to acquire shares of Company Common Stock) of which Shareholder acquires Ownership during
the period from the date of this Agreement through the Termination Date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;The
term "</FONT><FONT SIZE=2><B><I>Termination Date</I></B></FONT><FONT SIZE=2>" means the earlier to occur of the date of the consummation of the transactions contemplated
by the Merger Agreement or the date the Merger Agreement terminates in accordance with its terms. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;A
Person shall be deemed to have a effected a "</FONT><FONT SIZE=2><B><I>Transfer</I></B></FONT><FONT SIZE=2>" of a security if such Person directly or indirectly:
(i)&nbsp;sells, pledges, encumbers, grants an option with respect to, transfers or disposes of such security or any interest in such security to any Person other than Parent; (ii)&nbsp;enters into
an agreement or commitment contemplating the possible sale of, pledge of, encumbrance of, grant of an option with respect to, transfer of or disposition of such security or any interest therein to any
Person other than Parent; or (iii)&nbsp;reduces such Person's beneficial ownership of, interest in or risk relating to such security. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>[Signature
page follows.] </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>B-5</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
parties have caused this Agreement to be duly executed on the date first above written. </FONT></P>

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<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><B>PARENT:</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><BR><FONT SIZE=2><B>Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
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<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>Name:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2>Eric M. DeMarco</FONT></TD>
</TR>
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<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>Title:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2>Chief Executive Officer, President</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><BR>
Address for notices:</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><BR>
4810 Eastgate Mall<BR>
San Diego, CA 92121<BR></FONT>
</TD>
</TR>
</TABLE>
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&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=2><B>SHAREHOLDER:</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2><BR>
Name:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="43%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Address for notices:</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
</TABLE>
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<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="32%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Shares Held of Record</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="32%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Options and Other Rights</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="32%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Shares Beneficially Owned</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>B-6</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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NAME="page_mc42501_1_7"> </A>


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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="mc42501_irrevocable_proxy"> </A>
<A NAME="toc_mc42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>IRREVOCABLE PROXY    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned shareholder (the "</FONT><FONT SIZE=2><B><I>Shareholder</I></B></FONT><FONT SIZE=2>") of SYS., a California corporation (the
"</FONT><FONT SIZE=2><B><I>Company</I></B></FONT><FONT SIZE=2>"), hereby irrevocably (to the full extent permitted by Section&nbsp;705 of the California General Corporation Law) appoints Eric M. DeMarco,
Chief Executive Officer and President and Deanna H. Lund, Senior Vice President and Chief Financial Officer of Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., a Delaware corporation (the
"</FONT><FONT SIZE=2><B><I>Parent</I></B></FONT><FONT SIZE=2>"), and each of them, as the sole and exclusive attorneys and proxies of the undersigned, with full power of substitution and resubstitution, to
vote and exercise all voting and related rights expressly provided herein (to the full extent that the undersigned is entitled to do so) with respect to (i)&nbsp;the outstanding shares of capital
stock of the Company owned of record by the Shareholder as of the date of this proxy (the "</FONT><FONT SIZE=2><B><I>Proxy</I></B></FONT><FONT SIZE=2>"), which shares are specified on the final page of this
Proxy, and (ii)&nbsp;any and all other shares of capital stock of the Company which the Shareholder may acquire on or after the date hereof. (The shares of the capital stock of the Company referred
to in clauses "(i)" and "(ii)" of the immediately preceding sentence are collectively referred to as the "</FONT><FONT SIZE=2><B><I>Shares</I></B></FONT><FONT SIZE=2>.") Upon the undersigned's execution of
this Proxy, any and all prior proxies given by the undersigned with respect to any Shares are hereby revoked and the undersigned agrees not to grant any subsequent proxies with respect to the Shares
at any time prior to the Termination Date (as defined below). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Proxy is irrevocable (to the extent permitted by Section&nbsp;705 of the California General Corporation Law), is coupled with an interest and is granted pursuant to that certain
Voting Agreement of even date herewith, by and between Parent and the undersigned Shareholder, and is granted in consideration of Parent entering into that certain Agreement and Plan of Merger and
Reorganization (the "</FONT><FONT SIZE=2><B><I>Merger Agreement</I></B></FONT><FONT SIZE=2>"), of even date herewith, by and among the Company, Parent and White Shadow,&nbsp;Inc., a California corporation
("</FONT><FONT SIZE=2><B><I>Merger Sub</I></B></FONT><FONT SIZE=2>"). The Merger Agreement provides for the merger of Merger Sub with and into the Company (the
"</FONT><FONT SIZE=2><B><I>Merger</I></B></FONT><FONT SIZE=2>"). As used herein, the term "</FONT><FONT SIZE=2><B><I>Termination Date</I></B></FONT><FONT SIZE=2>" shall mean the earlier to occur of (i)&nbsp;the
date and time as the Merger shall become effective in accordance with the terms and provisions of the Merger Agreement, or (ii)&nbsp;the date the Merger Agreement shall terminate in accordance with
its terms. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
attorneys and proxies named above, and each of them, are hereby authorized and empowered by the undersigned, at any time prior to the Termination Date, to act as the undersigned's
attorney and proxy to vote the Shares, and to exercise all voting and other rights of the undersigned with respect to the Shares (including, without limitation, the power to execute and deliver
written consents pursuant to Section&nbsp;603 of the California General Corporation Law), at every annual, special or adjourned meeting of the Stockholders of the Company and in every written
consent in lieu of such meeting: (i)&nbsp;in favor of approval and adoption of the Merger and the Merger Agreement and in favor of any matter that could
reasonably be expected to facilitate the Merger, (ii)&nbsp;against any proposal for any Acquisition Transaction, other than the Merger, between the Company and any person or entity (other than
Parent or Merger Sub) and (iii)&nbsp;against any other action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement or which could result in any of the conditions to the consummation of the Merger under the Merger Agreement not being fulfilled. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Shareholder may vote the Shares on all other matters not referred to in this Proxy, and the attorneys and proxies named above may not exercise this Proxy with respect to such other
matters. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Proxy shall be binding upon the heirs, estate, executors, personal representatives, successors and assigns of the Shareholder (including any transferee of any of the Shares). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any provision of this Proxy or any part of any such provision is held under any circumstances to be invalid or unenforceable in any jurisdiction, then (a)&nbsp;such provision or
part thereof shall, with respect to such circumstances and in such jurisdiction, be deemed amended to conform to applicable laws so as to be valid and enforceable to the fullest possible extent,
(b)&nbsp;the invalidity or </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>B-7</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_mc42501_1_8"> </A>
<BR>

<P style="font-family:times;"><FONT SIZE=2>unenforceability
of such provision or part thereof under such circumstances and in such jurisdiction shall not affect the validity or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (c)&nbsp;the invalidity or unenforceability of such provision or part thereof shall not affect the validity or enforceability of the remainder of such
provision or the validity or enforceability of any other provision of this Proxy. Each provision of this Proxy is separable from every other provision of this Proxy, and each part of each provision of
this Proxy is separable from every other part of such provision. </FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2>Dated: February&nbsp;20, 2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=1>(Signature of Shareholder)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="50%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=1>(Print Name of Shareholder)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2><BR>
Number of shares of common stock of the Company owned of record as of the date of this Proxy:</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>B-8</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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 </FONT></P>

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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="mg42501_annex_c"> </A>
<A NAME="toc_mg42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>Annex&nbsp;C    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="mg42501_voting_agreement"> </A>
<A NAME="toc_mg42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>VOTING AGREEMENT    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Voting Agreement ("</FONT><FONT SIZE=2><B><I>Agreement</I></B></FONT><FONT SIZE=2>") is made and entered into as of February&nbsp;20, 2008, by and between SYS, a
California corporation ("</FONT><FONT SIZE=2><B><I>Company</I></B></FONT><FONT SIZE=2>"), and the undersigned Stockholder ("</FONT><FONT SIZE=2><B><I>Stockholder</I></B></FONT><FONT SIZE=2>") of Kratos
Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., a Delaware corporation (the "</FONT><FONT SIZE=2><B><I>Parent</I></B></FONT><FONT SIZE=2>"). Certain capitalized terms used in this Agreement that are not
defined herein shall have the meaning given to such terms in the Merger Agreement (as defined below). </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="mg42501_recitals"> </A>
<A NAME="toc_mg42501_3"> </A>
<BR></FONT><FONT SIZE=2><B>RECITALS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>WHEREAS</B></FONT><FONT SIZE=2>, Stockholder is the holder of record and the "beneficial owner" (within the meaning of
Rule&nbsp;13d-3 under the Securities Exchange Act of 1934) of certain shares of common stock of Parent; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>WHEREAS</B></FONT><FONT SIZE=2>, concurrently with the execution and delivery of this Agreement, Parent, White Shadow,&nbsp;Inc., a California corporation and
wholly owned subsidiary of Parent ("</FONT><FONT SIZE=2><B><I>Merger Sub</I></B></FONT><FONT SIZE=2>") and the Company are entering into an Agreement and Plan of Merger and Reorganization (the
"</FONT><FONT SIZE=2><B><I>Merger Agreement</I></B></FONT><FONT SIZE=2>") which provides, upon the terms and subject to the conditions set forth therein, for the merger of Merger Sub with and into the
Company (the "</FONT><FONT SIZE=2><B><I>Merger</I></B></FONT><FONT SIZE=2>"); and </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>WHEREAS</B></FONT><FONT SIZE=2>, as a condition and inducement to the Company's willingness to enter into the Merger Agreement, Stockholder has agreed to execute
and deliver this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>NOW, THEREFORE</B></FONT><FONT SIZE=2>, the parties to this Agreement, intending to be legally bound, agree as follows: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Agreement to Vote Shares.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Prior to the Termination Date, at every meeting of the Stockholders of Parent
called with respect to any of the following, and at every adjournment or postponement thereof, and on every action or approval by written consent of the Stockholders of Parent with respect to any of
the following, Stockholder shall vote the Subject Securities: (a)&nbsp;in favor of the issuance of additional shares of Parent Common Stock in connection with the Merger and in favor of any matter
that could reasonably be expected to facilitate the Merger, and (b)&nbsp;against any other action or agreement that would result in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Parent under the Merger Agreement or which could result in any of the conditions to the consummation of the Merger under the Merger Agreement not being fulfilled. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Irrevocable Proxy.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Concurrently with the execution of this Agreement, Stockholder agrees to deliver to the
Company a proxy in the form attached hereto (the "</FONT><FONT SIZE=2><B><I>Proxy</I></B></FONT><FONT SIZE=2>"), which shall be irrevocable to the extent provided in Section&nbsp;212 of the Delaware
General Corporation Law, with respect to the shares referred to therein. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Agreement to Retain Shares.</B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Restriction on Transfer.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise provided in Section&nbsp;3(c), during the period from the
date of this Agreement through the Termination Date, Stockholder shall not, directly or indirectly, cause or permit any Transfer of any of the Subject Securities to be effected. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Restriction on Transfer of Voting Rights.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;During the period from the date of this Agreement through the
Termination Date, Stockholder shall ensure that: (a)&nbsp;none of the Subject Securities is deposited into a voting trust; and (b)&nbsp;no proxy (other than the Proxy granted herein) is granted,
and no voting agreement or similar agreement is entered into, with respect to any of the Subject Securities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Permitted Transfers.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;3(a) shall not prohibit a transfer of Company Common Stock by
Stockholder (a)&nbsp;if Stockholder is an individual, (i)&nbsp;to any member of Stockholder's </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>C-1</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_mg42501_1_2"> </A>
<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>immediate
family, or to a trust for the benefit of Stockholder or any member of Stockholder's immediate family, or (ii)&nbsp;upon the death of Stockholder, or (b)&nbsp;if Stockholder is a
partnership or limited liability company, to one or more partners or members of Stockholder or to an affiliated corporation under common control with Stockholder; </FONT><FONT SIZE=2><I>provided,
however</I></FONT><FONT SIZE=2>, that a transfer referred to in this sentence shall be permitted only if, as a precondition to such transfer, the transferee agrees in a writing, reasonably
satisfactory in form and substance to Parent, to be bound by the terms of this Agreement and delivers a proxy to Parent in substantially the form of the Proxy attached hereto. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Waiver of Appraisal Rights.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Stockholder hereby irrevocably and unconditionally waives any rights of
appraisal, any dissenters' rights and any similar rights relating to the Merger or any related transaction that Stockholder may have by virtue of any outstanding shares of Company Common Stock Owned
by Stockholder. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Representations, Warranties and Covenants of Stockholder.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Stockholder hereby represents and warrants to
Parent as follows: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Due Authorization, Etc.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All consents, approvals, authorizations and orders necessary for the execution and
delivery by Stockholder of this Agreement and the Proxy have been obtained, and Stockholder has full right, power and authority to enter into this Agreement and the Proxy. This Agreement and the Proxy
have been duly executed and delivered by Stockholder and constitute valid and binding agreements of Stockholder enforceable in accordance with their terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors' rights generally and subject to general principles of equity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>No Conflict.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The execution and delivery of this Agreement and the Proxy by Stockholder do not, and the
performance of this Agreement and the Proxy by Stockholder will not (i)&nbsp;conflict with or violate any law, rule, regulation, order, decree or judgment applicable to Stockholder or by which he or
it or any of his or its properties is or may be bound or affected; or (ii)&nbsp;result in or constitute any breach of or default under, or give to any other Person any right of termination,
amendment, acceleration or cancellation of, or result in the creation of any encumbrance or restriction on any of the Subject Securities pursuant to, any contract to which Stockholder is a party or by
which Stockholder or any of his or its affiliates or properties is or may be bound or affected. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Title to Securities.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this Agreement: (a)&nbsp;Stockholder holds of record (free and
clear of any encumbrances or restrictions) the number of outstanding shares of Company Common Stock set forth under the heading "Shares Held of Record" on the signature page of this Agreement;
(b)&nbsp;Stockholder holds (free and clear of any encumbrances or restrictions) the options, warrants and other rights to acquire shares of Company Common Stock set forth under the heading "Options
and Other Rights" on the signature page of this Agreement; (c)&nbsp;Stockholder Owns the additional securities of the Company set forth under the heading "Additional Securities Beneficially Owned"
on the signature page of this Agreement; and (d)&nbsp;Stockholder does not directly or indirectly Own any shares of capital stock or other securities of the Company, or any option, warrant or other
right to acquire (by purchase, conversion or otherwise) any shares of capital stock or other securities of the Company, other than the shares and options, warrants and other rights set forth on the
signature page of this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Accuracy of Representations.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The representations and warranties contained in this Agreement are accurate in
all respects as of the date of this Agreement, and will be accurate in all respects at all times through the Termination Date. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>C-2</FONT></P>

<HR NOSHADE>
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<A NAME="page_mg42501_1_3"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Additional Covenants of Stockholder.</B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Further Assurances.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;From time to time and without additional consideration, Stockholder shall (at
Stockholder's sole expense) execute and deliver, or cause to be executed and delivered, such additional transfers, assignments, endorsements, proxies, consents and other instruments, and shall (at
Stockholder's sole expense) take such further actions, as Parent may request for the purpose of carrying out and furthering the intent of this Agreement. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Miscellaneous.</B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Survival of Representations, Warranties and Agreements.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All representations and warranties made by
Stockholder in this Agreement shall survive (i)&nbsp;the consummation of the Merger, and (ii)&nbsp;the Termination Date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Assignment; Binding Effect.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as provided herein, neither this Agreement nor any of the interests or
obligations hereunder may be assigned or delegated by Stockholder, and any attempted or purported assignment or delegation of any of such interests or obligations shall be void. Subject to the
preceding sentence, this Agreement shall be binding upon Stockholder and his heirs, estate, executors and personal representatives and his or its successors and assigns, and shall inure to the benefit
of Parent and its successors and assigns. Without limiting any of the restrictions set forth in Section&nbsp;3(a) or elsewhere in this Agreement, this Agreement shall be binding upon any Person to
whom any Subject Securities are transferred. Nothing in this Agreement is intended to confer on any Person (other than the Company and its successors and assigns) any rights or remedies of any nature. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Specific Performance.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The parties agree that irreparable damage would occur in the event that any of the
provisions of this Agreement or the Proxy were not performed in accordance with its specific terms or were otherwise breached. Stockholder agrees that, in the event of any breach or threatened breach
by Stockholder of any covenant or obligation contained in this Agreement or in the Proxy, Parent shall be entitled (in addition to any other remedy that may be available to it, including monetary
damages) to seek and obtain (a)&nbsp;a decree or order of specific performance to enforce the observance and performance of such covenant or obligation, and (b)&nbsp;an injunction restraining such
breach or threatened breach. Stockholder further agrees that neither Parent nor any other Person shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a
condition to obtaining any remedy referred to in this Section&nbsp;7(c), and Stockholder irrevocably waives any right he or it may have to require the obtaining, furnishing or posting of any such
bond or similar instrument. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Waiver.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;No failure on the part of the Company to exercise any power, right, privilege or remedy under this
Agreement, and no delay on the part of the Company in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. The Company shall not
be deemed to have waived any claim available to the Company arising out of this Agreement, or any power, right, privilege or remedy of the Company under this Agreement, unless the waiver of such
claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of the Company; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Governing Law; Venue.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement and all acts and transactions pursuant hereto and the rights and
obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts or choice of law.
Any legal action or other legal proceeding relating to this Agreement or the </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>C-3</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_mg42501_1_4"> </A>
<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>Proxy
or the enforcement of any provision of this Agreement or the Proxy may be brought or otherwise commenced in any state or federal court located in the State of Delaware. Stockholder: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;expressly
and irrevocably consents and submits to the jurisdiction of each state and federal court located in the State of Delaware in connection with any such legal
proceeding; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;agrees
that service of any process, summons, notice or document by U.S. mail addressed to him or it at the address set forth on the signature page hereof shall
constitute effective service of such process, summons, notice or document for purposes of any such legal proceeding; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;agrees
that each state and federal court located in the State of Delaware shall be deemed to be a convenient forum; and </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;agrees
not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any state or federal court located in the State of
Delaware, any claim that Stockholder is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, that the venue of such
proceeding is improper or that this Agreement or the subject matter of this Agreement may not be enforced in or by such court. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nothing
contained in this Section&nbsp;7(e) shall be deemed to limit or otherwise affect the right of the Company to commence any legal proceeding or otherwise proceed against
Stockholder in any other forum or jurisdiction. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;HOLDER
IRREVOCABLY WAIVES THE RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE PROXY OR THE ENFORCEMENT OF ANY PROVISION OF THIS AGREEMENT
OR THE PROXY. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Counterparts.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement may be executed in two or more counterparts (including by facsimile), each of
which shall be deemed an original and all of which together shall constitute one instrument. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Entire Agreement.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement, the Proxy and any other documents delivered by the parties in connection
herewith constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings between the parties with
respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon either party unless made in writing and signed by both parties. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Titles and Subtitles.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The titles and subtitles used in this Agreement are used for convenience only and are
not to be considered in construing or interpreting this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Notices.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Any notice required or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48)&nbsp;hours after being deposited in the regular mail as
certified or registered mail (airmail if sent internationally) with postage prepaid, if such notice is addressed to the party to be notified at such party's address or facsimile number as set forth
below, or as subsequently modified by written notice. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Attorneys' Fees.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If any legal action or other legal proceeding relating to this Agreement or the enforcement
of any provision of this Agreement is brought against Stockholder, the prevailing party shall be entitled to recover reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Severability.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If one or more provisions of this Agreement are held to be unenforceable under applicable law,
the parties agree to renegotiate such provision in good faith, in order to </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>C-4</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_mg42501_1_5"> </A>
<UL>
<BR>

<P style="font-family:times;"><FONT SIZE=2>maintain
the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a mutually agreeable and
enforceable replacement for such provision, then (i)&nbsp;such provision shall be excluded from this Agreement, (ii)&nbsp;the balance of the Agreement shall be interpreted as if such provision
were so excluded and (iii)&nbsp;the balance of the Agreement shall be enforceable in accordance with its terms. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Construction.</B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;For
purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the
feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;The
parties agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or
interpretation of this Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;As
used in this Agreement, the words "include" and "including," and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be
followed by the words "without limitation." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;Except
as otherwise indicated, all references in this Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement and Exhibits to this
Agreement. </FONT></P>

</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Certain Definitions.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this Agreement, </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;Stockholder
shall be deemed to "</FONT><FONT SIZE=2><B><I>Own</I></B></FONT><FONT SIZE=2>" or to have acquired "</FONT><FONT SIZE=2><B><I>Ownership</I></B></FONT><FONT SIZE=2>" of a
security if Stockholder is the "beneficial owner" within the meaning of Rule&nbsp;13d-3 under the Securities Exchange Act of 1934 of such security. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Parent Common Stock</I></B></FONT><FONT SIZE=2>" shall mean the common stock, par value $0.01 per share, of Parent. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Person</I></B></FONT><FONT SIZE=2>" shall mean any (i)&nbsp;individual, (ii)&nbsp;corporation, limited liability company, partnership or other
entity, or (iii)&nbsp;Governmental Body. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B><I>Subject Securities</I></B></FONT><FONT SIZE=2>" shall mean: (i)&nbsp;all securities of the Company (including all shares of Company Common Stock
and all, options, warrants and other rights to acquire shares of Company Common Stock) Owned by Stockholder as of the date of this Agreement; and (ii)&nbsp;all additional securities of the Company
(including all additional shares of Company Common Stock and all additional options, warrants and other rights to acquire shares of Company Common Stock) of which Stockholder acquires Ownership during
the period from the date of this Agreement through the Termination Date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;The
term "</FONT><FONT SIZE=2><B><I>Termination Date</I></B></FONT><FONT SIZE=2>" means the earlier to occur of the date of the consummation of the transactions contemplated
by the Merger Agreement or the date the Merger Agreement terminates in accordance with its terms. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;A
Person shall be deemed to have a effected a "</FONT><FONT SIZE=2><B><I>Transfer</I></B></FONT><FONT SIZE=2>" of a security if such Person directly or indirectly:
(i)&nbsp;sells, pledges, encumbers, grants an option with respect to, transfers or disposes of such security or any interest in such security to any Person other than Parent; (ii)&nbsp;enters into
an agreement or commitment contemplating the possible sale of, pledge of, encumbrance of, grant of an option with respect to, transfer of or disposition of such security or any interest therein to any
Person other than Parent; or (iii)&nbsp;reduces such Person's beneficial ownership of, interest in or risk relating to such security. </FONT></P>

</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>[Signature
page follows.] </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>C-5</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_mg42501_1_6"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
parties have caused this Agreement to be duly executed on the date first above written. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><B>COMPANY:</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><BR><FONT SIZE=2><B>SYS</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><BR><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>Name:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2>Clifton L. Cooke, Jr.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>Title:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="37%" style="font-family:times;"><FONT SIZE=2>Chief Executive Officer</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><BR>
Address for notices:</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><BR>
5050 Murphy Canyon Road, Suite&nbsp;200<BR>
San Diego, CA 92123</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><BR><FONT SIZE=2><B>STOCKHOLDER:</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><BR>
Name:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="37%" style="font-family:times;"><BR><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><BR>
Address for notices:</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="46%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
</TABLE>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="32%" ALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2> Shares Held of Record</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="32%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
Options and Other Rights</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="32%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
Shares Beneficially Owned</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>C-6</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="mi42501_irrevocable_proxy"> </A>
<A NAME="toc_mi42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>IRREVOCABLE PROXY    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned Stockholder (the "</FONT><FONT SIZE=2><B><I>Stockholder</I></B></FONT><FONT SIZE=2>") of Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., a
Delaware corporation ("</FONT><FONT SIZE=2><B><I>Parent</I></B></FONT><FONT SIZE=2>"), hereby irrevocably (to the full extent permitted by Section&nbsp;212 of the Delaware General Corporation Law)
appoints Clifton L. Cooke, Chief Executive Officer and Edward M. Lake, Chief Financial Officer of SYS, a California corporation (the "</FONT><FONT SIZE=2><B><I>Company</I></B></FONT><FONT SIZE=2>"), and
each of them, as the sole and exclusive attorneys and proxies of the undersigned, with full power of substitution and resubstitution, to vote and exercise all voting and related rights expressly
provided herein (to the full extent that the undersigned is entitled to do so) with respect to (i)&nbsp;the outstanding shares of capital stock of Parent owned of record by the Stockholder as of the
date of this proxy (this "</FONT><FONT SIZE=2><B><I>Proxy</I></B></FONT><FONT SIZE=2>"), which shares are specified on the final page of this Proxy, and (ii)&nbsp;any and all other shares of capital stock
of Parent which the Stockholder may acquire on or after the date hereof. (The shares of the capital stock of Parent referred to in clauses "(i)" and "(ii)" of the immediately preceding sentence are
collectively referred to as the "</FONT><FONT SIZE=2><B><I>Shares</I></B></FONT><FONT SIZE=2>.") Upon the undersigned's execution of this Proxy, any and all prior proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to grant any subsequent proxies with respect to the Shares at any time prior to the Termination Date (as defined below). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Proxy is irrevocable (to the extent permitted by Section&nbsp;212 of the Delaware General Corporation Law), is coupled with an interest and is granted pursuant to that certain
Voting Agreement of even date herewith, by and between Company and the undersigned Stockholder, and is granted in consideration of Parent entering into that certain Agreement and Plan of Merger and
Reorganization (the "</FONT><FONT SIZE=2><B><I>Merger Agreement</I></B></FONT><FONT SIZE=2>"), of even date herewith, by and among the Company, Parent and White Shadow,&nbsp;Inc., a California corporation
("</FONT><FONT SIZE=2><B><I>Merger Sub</I></B></FONT><FONT SIZE=2>"). The Merger Agreement provides for the merger of Merger Sub with and into the Company (the
"</FONT><FONT SIZE=2><B><I>Merger</I></B></FONT><FONT SIZE=2>"). As used herein, the term "</FONT><FONT SIZE=2><B><I>Termination Date</I></B></FONT><FONT SIZE=2>" shall mean the earlier to occur of (i)&nbsp;the
date and time as the Merger shall become effective in accordance with the terms and provisions of the Merger Agreement, or (ii)&nbsp;the date the Merger Agreement shall terminate in accordance with
its terms. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
attorneys and proxies named above, and each of them, are hereby authorized and empowered by the undersigned, at any time prior to the Termination Date, to act as the undersigned's
attorney and proxy to vote the Shares, and to exercise all voting and other rights of the undersigned with respect to the Shares (including, without limitation, the power to execute and deliver
written consents pursuant to Section&nbsp;228 of the Delaware General Corporation Law), at every annual, special or adjourned meeting of the shareholders of the Parent and in every written consent
in lieu of such meeting: (i)&nbsp;in favor of the issuance of additional shares of Parent Common Stock in connection with the Merger and in favor of any matter that could reasonably be expected to
facilitate the Merger, and (ii)&nbsp;against any other
action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Parent under the Merger Agreement or which could result in any
of the conditions to the consummation of the Merger under the Merger Agreement not being fulfilled. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Stockholder may vote the Shares on all other matters not referred to in this Proxy, and the attorneys and proxies named above may not exercise this Proxy with respect to such other
matters. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Proxy shall be binding upon the heirs, estate, executors, personal representatives, successors and assigns of the Stockholder (including any transferee of any of the Shares). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any provision of this Proxy or any part of any such provision is held under any circumstances to be invalid or unenforceable in any jurisdiction, then (a)&nbsp;such provision or
part thereof shall, with respect to such circumstances and in such jurisdiction, be deemed amended to conform to applicable laws so as to be valid and enforceable to the fullest possible extent,
(b)&nbsp;the invalidity or unenforceability of such provision or part thereof under such circumstances and in such jurisdiction shall not affect the validity or enforceability of such provision or
part thereof under any other circumstances or in any other jurisdiction, and (c)&nbsp;the invalidity or unenforceability of such provision or </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>C-7</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>part
thereof shall not affect the validity or enforceability of the remainder of such provision or the validity or enforceability of any other provision of this Proxy. Each provision of this Proxy is
separable from every other provision of this proxy, and each part of each provision of this Proxy is separable from every other part of such provision. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Dated:
February&nbsp;20, 2008 </FONT></P>

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Number of shares of common stock of Parent owned of record as of the date of this Proxy:</FONT></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>C-8</FONT></P>

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<BR></FONT><FONT SIZE=2><B>Annex D    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=1>Wachovia Capital Markets,&nbsp;LLC<BR>
Four Embarcadero Center, 9th&nbsp;Floor<BR>
San Francisco, CA 94111 </FONT></P>

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<TD WIDTH="61%" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>February&nbsp;20, 2008</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<P style="font-family:times;"><FONT SIZE=2>
Board of Directors<BR>
Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.<BR>
4810 Eastgate Mall<BR>
San Diego, CA 92121 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Gentlemen:
</FONT></P>

<P style="font-family:times;"><FONT SIZE=2>You
have asked Wachovia Capital Markets,&nbsp;LLC ("Wachovia Securities") to advise you with respect to the fairness, from a financial point of view, to Kratos Defense&nbsp;&amp; Security Solutions
("Parent") of the Exchange Ratio (as defined below) pursuant to the terms of the Agreement and Plan of Merger (the "Agreement"), by and among Parent, White Shadow&nbsp;Inc., a Delaware corporation
and wholly owned subsidiary of Parent ("Merger Sub"), and SYS, a California corporation (the "Company"). Capitalized terms used, but not defined in this letter shall have the meaning ascribed to them
in the Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Pursuant
to the Agreement, Merger Sub will be merged with and into the Company and the separate existence of Merger Sub will thereupon cease and the Company will be the entity surviving the merger
(the "Merger"). In the Merger, among other things, each share of the common stock, par value $0.001 per share, of the Company (the "Company Common Stock") outstanding as of the Effective Time, other
than certain shares which will be cancelled in accordance with the Agreement, will be converted into the right to receive 1.2582 shares (the "Exchange Ratio") of the common stock, par value $0.001 per
share, of Parent (the "Parent Common Stock"). The terms and conditions of the Merger are more fully set forth in the Agreement. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>In
arriving at our opinion, we have, among other things: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the Agreement including the proposed financial terms of the Merger set forth therein.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
Annual Reports to Stockholders and Annual Reports on Form&nbsp;10-K for Parent.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
certain interim reports to Stockholders and Quarterly Reports on Form&nbsp;10-Q for Parent.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
certain other business, financial, and other information, including certain confidential information, regarding Parent and its prospects, including financial
forecasts, which were
furnished to us by Parent (the "Parent Forecasts"), and that we have discussed with, the management of Parent and its agents or representatives.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
Annual Reports to Stockholders and Annual Reports on Form&nbsp;10-K for the Company.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
certain interim reports to Stockholders and Quarterly Reports on Form&nbsp;10-Q for the Company. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>D-1</FONT></P>

<HR NOSHADE>
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<UL>
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<P style="font-family:times;"><FONT SIZE=2>Board
of Directors<BR>
Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.<BR>
February&nbsp;20, 2008<BR>
Page 2 </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
certain business, financial, and other information, including certain confidential information, regarding the Company and its subsidiaries and their respective
prospects which were publicly available or furnished to us by, and that we have discussed with, the respective managements of the Company and Parent, including financial forecasts for the Company
furnished to us by the Company and reviewed and discussed with Parent estimates for the Company prepared by Parent (the "Company Parent Forecasts" and together with the Parent Forecasts, the
"Forecasts").
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Compared
certain business, financial, and other information regarding the Company and Parent with publicly available business, financial and other information regarding
certain publicly traded companies that we deemed relevant.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Compared
the proposed financial terms of the Merger with the financial terms of certain other business combinations and transactions that we deemed relevant.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
a discounted cash flow model based upon the Parent Forecasts and the Company Parent Forecasts for Parent and the Company, respectively, on a stand-alone basis.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the potential pro forma impact of the Merger on Parent's financial statements on a Pro Forma and GAAP basis based upon the Parent Forecasts and the Company Parent
Forecasts.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
a contribution analysis based upon the Parent Forecasts and the Company Parent Forecasts.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the historic reported stock price and trading volumes of the Parent Common Stock and the Company Common Stock.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Considered
other information such as financial studies, analyses and investigations as well as financial, economic and market criteria that we deemed relevant. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>In
connection with our review, we have relied upon and assumed for purposes of this opinion, the accuracy and completeness of the foregoing financial and other information, including all accounting,
legal, regulatory and tax information that we have obtained and reviewed for the purpose of our opinion, and we have not assumed any responsibility for any independent verification of such information
or undertaken an independent evaluation or appraisal of any of the assets or liabilities of the Company and its subsidiaries or Parent and its Subsidiaries or been furnished with any such evaluation
or appraisal. We have assumed that the forecasts, including the Forecasts, estimates, judgments, and all assumptions expressed by the management of the Company have been reasonably formulated and that
they are the best currently available forecasts, estimates, judgments, and assumptions of Parent as to the expected future financial performance of the Company or Parent, as the case may be. We assume
no responsibility for and express no view as to any such forecasts, estimates, judgments, or the assumptions upon which they are based. In arriving at our opinion, we have not prepared or obtained any
independent evaluations or appraisals of the assets or liabilities of the Company and its subsidiaries or Parent and its Subsidiaries, including any contingent liabilities. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>In
rendering our opinion, we have assumed that the Merger will be consummated on the terms described in the Agreement, without waiver of any material terms or conditions, and that in the course of
obtaining any necessary legal, regulatory or third-party consents or approvals, no restrictions or </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>D-2</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>Board
of Directors<BR>
Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.<BR>
February&nbsp;20, 2008<BR>
Page 3 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>conditions
will be imposed that will have an adverse effect on the Merger, Parent, the Company or other actions contemplated by the Agreement. Our opinion is necessarily based on economic, market,
financial and other conditions and the information made available to us as of the date hereof. Although subsequent developments may affect our opinion, we do not have any obligation to update, revise
or reaffirm our opinion. Our opinion only addresses the fairness, from a financial point of view, to Parent of the Exchange Ratio and does not address any other term of the Merger or any other
agreement, arrangement or understanding entered into in connection with the Merger or otherwise, and does not address the relative merits of the Merger compared with other business strategies that may
have been considered by Parent's management or its Board of Directors, nor does our opinion address the merits of the underlying decision by Parent to enter into the Agreement. We have not considered,
nor are we expressing any opinion herein with respect to, the price at which the Parent Common Stock will trade following the announcement of the Merger or the price at which such stock will trade
following the consummation of the Merger. Further, we are not expressing any opinion as to the fairness or nature of the compensation to be received by either Parent's or the Company's directors,
officers, employees or other insiders, or class of such persons, in connection with the Merger relative to the Exchange Ratio. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Wachovia
Securities is a trade name of Wachovia Capital Markets,&nbsp;LLC, an investment banking subsidiary and affiliate of Wachovia Corporation. We have been engaged to render certain financial
advisory services to the Board of Directors of Parent in connection with the Agreement and will receive a fee for such services, a significant portion of which is payable upon, and which is contingent
upon, consummation of the Merger. We will also receive a fee on the delivery of our opinion, which fee will be credited in full against any other fees paid to us in connection with the Merger. In
addition, Parent has agreed to reimburse certain of our expenses and indemnify us against, and exculpate us from, certain liabilities arising out of our engagement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Wachovia
Securities and our affiliates provide a full range of financial advisory, securities and lending services in the ordinary course of business for which we receive customary fees. We, or our
affiliates, may provide additional banking or other financial services, including, but not limited to, investment banking services, to the Company or Parent in the future for which we would also be
paid fees and may receive other compensation. In the ordinary course of our business, we and our affiliates may actively trade or hold the securities (including derivative securities) of Parent for
our own account or for the account of our customers and, accordingly, may at any time hold a long or short position in such securities. Wachovia Securities was previously engaged by Parent's
predecessor company, Wireless Facilities,&nbsp;Inc., and received a fee for advising Wireless Facilities in the divestiture of its US Engineering Business to LCC International in May 2007 and its
Wireless Deployment Business to Platinum Equity in July 2007. In the ordinary course of business, we may provide in the future, equity or other research coverage of the securities of Parent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Our
opinion is for the information and use of the Board of Directors of Parent in its consideration of the Merger and shall not be used for any other purpose. In addition, our opinion does not
constitute a recommendation to the holders of Parent Common Stock as to how they should vote with respect to the Merger. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>D-3</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>Board
of Directors<BR>
Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.<BR>
February&nbsp;20, 2008<BR>
Page 4 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Except
as may be provided in our engagement letter, our opinion may not be disclosed, in whole or in part, to any third party, or circulated or referred to publicly, without our prior written consent.
Our opinion has been approved by a fairness opinion committee of Wachovia Securities. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>Based
upon and subject to the foregoing, our experience as investment bankers, our work as described above, and other factors we deem relevant, we are of the opinion that, as of the date hereof, the
Exchange Ratio pursuant to the Agreement is fair, from a financial point of view, to Parent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Very
truly yours, </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>
<IMG SRC="g798719.jpg" ALT="GRAPHIC" WIDTH="454" HEIGHT="54">
  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>WACHOVIA
CAPITAL MARKETS&nbsp;LLC </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>D-4</FONT></P>

<HR NOSHADE>
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<BR></FONT><FONT SIZE=2><B>Annex E    <BR>    </B></FONT></P>

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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=5>Imperial Capital </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>2000 Avenue of the Stars, 9<SUP>th</SUP>&nbsp;Floor South
&nbsp;&nbsp;&nbsp;&nbsp;Los Angeles, California 90067&nbsp;&nbsp;&nbsp;&nbsp;TEL 310&nbsp;246 3700&nbsp;&nbsp;&nbsp;&nbsp;800&nbsp;929 2299&nbsp;&nbsp;&nbsp;&nbsp;FAX
310&nbsp;246-3794</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>February&nbsp;19, 2008 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>The
Board of Directors of SYS<BR>
5050 Murphy Canyon Road<BR>
Suite&nbsp;200<BR>
San Diego, CA 92123 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Members
of the Board: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>We
understand that White Shadow,&nbsp;Inc. ("</FONT><FONT SIZE=2><B><I>Merger Sub</I></B></FONT><FONT SIZE=2>"), a wholly-owned subsidiary of Kratos Defense and Security Solutions,&nbsp;Inc.
("</FONT><FONT SIZE=2><B><I>Kratos</I></B></FONT><FONT SIZE=2>"), and SYS ("</FONT><FONT SIZE=2><B><I>SYS</I></B></FONT><FONT SIZE=2>" or the "</FONT><FONT SIZE=2><B><I>Company</I></B></FONT><FONT SIZE=2>") propose to
enter into a triangular merger whereby the Merger Sub will merge with and into the Company resulting in the Company becoming a wholly-owned subsidiary of Kratos. Under the terms of the merger
agreement, all outstanding shares of the Company's capital stock, no par value, will be converted into the right to receive 1.2582 (the "</FONT><FONT SIZE=2><B><I>Exchange
Ratio</I></B></FONT><FONT SIZE=2>") shares of Kratos common stock, par value $0.001 per share (the "</FONT><FONT SIZE=2><B><I>Transaction</I></B></FONT><FONT SIZE=2>"). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>The
Company has requested that we provide you with our opinion as to the fairness, from a financial point of view, to the holders of SYS common stock of the Exchange Ratio in the Transaction. We are
not opining on, and this opinion does not constitute an opinion with respect to, the Company's underlying business decision to effect the Transaction, any legal, tax or accounting issues concerning
the
Transaction, or any terms of the Transaction (other than the Exchange Ratio). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>In
connection with this opinion, we have made such reviews, analyses, and inquiries as we have deemed necessary and appropriate under the circumstances. We have, among other things: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Analyzed
certain publicly available information of the Company that we believe to be relevant to our analysis, including the Company's annual reports on
Form&nbsp;10-K for the fiscal years ending June&nbsp;30, 2005, June&nbsp;30, 2006, and June&nbsp;30, 2007, and the Company's quarterly reports on Form&nbsp;10-Q for
the quarters ending September&nbsp;30, 2007 and December&nbsp;31, 2007;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(ii)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Analyzed
certain publicly available information of Kratos that we believe to be relevant to our analysis, including Kratos' annual report on
Form&nbsp;10-K for the fiscal year ending December&nbsp;31, 2006 and Kratos' quarterly reports on Form&nbsp;10-Q for the quarters ending March&nbsp;31, 2007,
June&nbsp;30, 2007, and September&nbsp;30, 2007;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(iii)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
Kratos' internal draft income statements for the quarter and year ending December&nbsp;31, 2007;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(iv)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
certain internal financial forecasts and budgets prepared and provided by SYS' and Kratos' managements including Kratos' pro forma model prepared by
management; </FONT>
<BR>
<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>Imperial Capital, LLC </FONT></P>

</DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>E-1</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>The Board of Directors of SYS<BR>
February&nbsp;19, 2008<BR>
Page 2 of 3 </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(v)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Met
with and held discussions with certain members of SYS' and Kratos' managements to discuss the companies' operations and future prospects;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(vi)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
industry reports and publications;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(vii)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
public information with respect to certain other public companies with business lines and financial profiles which we deemed to be relevant;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(viii)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the implied financial multiples and premiums paid in merger and acquisition transactions which we deemed to be relevant;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(ix)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
current and historical market prices of SYS and Kratos common stock, as well as the trading volume and public float of such common stock;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(x)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the letter of intent and term sheet sent to SYS by Kratos dated December&nbsp;21, 2007;
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(xi)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Reviewed
the draft definitive agreement, including material schedules and exhibits, dated February&nbsp;18, 2008 (the "Merger Agreement"); and
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(xii)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Conducted
such other financial studies, analyses and investigations and took into account such other matters as we deemed necessary, including our assessment of
general economic and monetary conditions. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>In
giving our opinion, we have relied upon the accuracy and completeness of the foregoing financial and other information and have not assumed responsibility for independent verification of such
information or conducted or have been furnished with any current independent valuation or appraisal of any assets of SYS or Kratos or any appraisal or estimate of liabilities of SYS Kratos. With
respect to the financial forecasts, we have assumed, with your consent, that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of management of SYS and Kratos as to the future financial performance of the companies. We have also relied upon the
assurances of management of both companies that they are unaware of any facts that would make the information or financial forecasts provided to us incomplete or misleading. We assume no
responsibility for, and express no view as to, such financial forecasts or the assumptions on which they are based. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>Our
opinion is based upon economic, market and other conditions as they exist and can be evaluated on the date hereof and does not address the fairness of the Exchange Ratio as of any other date. The
financial markets in general, and the markets for the securities of the companies in particular, are subject to volatility, and our opinion does not purport to address potential developments in the
financial markets or in the markets for the securities of the companies after the date hereof. We express no opinion as to what the value of Kratos common stock will be when issued pursuant to the
Transaction or the prices at which Company common stock or Kratos common stock will trade at any time. In rendering this opinion, we have assumed, with your consent that (i)&nbsp;the final executed
form of the Merger Agreement does not differ in any material respect from the draft that we have examined, (ii)&nbsp;the parties to the Merger Agreement will comply with all the material terms or
the Merger Agreement, and (iii)&nbsp;the Transaction will be consummated in accordance with the terms of the Merger Agreement without any adverse waiver or amendment of any material term or
condition thereof. We </FONT></P>

<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>Imperial Capital, LLC </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>E-2</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>The Board of Directors of SYS<BR>
February&nbsp;19, 2008<BR>
Page 3 of 3 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>have
also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Transaction will be obtained without any material adverse effect on Kratos,
the Company or the Transaction. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Our
opinion expressed herein has been prepared at the request of the Company for the information of the Board of Directors of SYS in connection with their consideration of the Transaction. Our opinion
does not constitute a recommendation as to any action the Company or any shareholder of the
Company should take in connection with the Transaction or any aspect thereof. Our opinion does not address the merits of the underlying decision by the Company to engage in the Transaction or the
relative merits of any alternatives discussed by the Board of Directors of SYS. In addition, we express no opinion as to the fairness of the amount or nature of any compensation to be received by any
officers, directors or employees of any parties to the Transaction or any class of such persons. This opinion may not be reproduced, disseminated, quoted or referred to at any time without our prior
written consent, except that a copy of the opinion may be reproduced in full and otherwise referred to in the Company's proxy statement and related filings describing the Transaction. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>We
have acted as financial advisor to the Company in connection with the Transaction and will receive a fee from the Company for our services, a substantial portion of which will become payable only
if the Transaction closes. In addition, the Company has agreed to indemnify us for certain liabilities arising from our engagement. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>In
December 2007, Imperial Capital,&nbsp;LLC ("Imperial Capital") purchased the ongoing business of USBX Advisory Services,&nbsp;LLC ("USBX"). USBX and certain former USBX professionals, now
employed by Imperial Capital, provided financial advisory and investment banking services for the Company in the past including advising the Company on its acquisition of Ai Metrix,&nbsp;Inc. in
October 2006 and its acquisition of Reality Based IT Services,&nbsp;Ltd. in April 2006. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>In
the ordinary course of our business, we may actively trade the debt and equity securities of SYS and Kratos for our own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. The issuance of this opinion was approved by an authorized committee of Imperial Capital. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>Based
on and subject to the foregoing, we are of the opinion that, as of the date hereof, the Exchange Ratio in the Transaction is fair from a financial point of view to the shareholders of SYS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Very
truly yours, </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>
<IMG SRC="g498112.jpg" ALT="GRAPHIC" WIDTH="247" HEIGHT="58">
  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Imperial
Capital, LLC </FONT></P>

<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>Imperial Capital, LLC </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>E-3</FONT></P>

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<BR></FONT><FONT SIZE=2><B>ANNEX F    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="my42501_corporations_code_section_1300-1313"> </A>
<A NAME="toc_my42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>CORPORATIONS CODE SECTION&nbsp;1300-1313    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1300.
</FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;If
the approval of the outstanding shares (Section&nbsp;152) of a corporation is required for a reorganization under subdivisions (a)&nbsp;and (b)&nbsp;or
subdivision (e)&nbsp;or (f)&nbsp;of Section&nbsp;1201, each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the
shareholder which are dissenting shares as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization
or short-form merger, excluding any appreciation or depreciation in consequence of the proposed action, but adjusted for any stock split, reverse stock split, or share dividend which
becomes effective thereafter. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;As
used in this chapter, "dissenting shares" means shares which come within all of the following descriptions: </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;Which
were not immediately prior to the reorganization or short-form merger either (A)&nbsp;listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o)&nbsp;of Section&nbsp;25100 or (B)&nbsp;listed on the National Market System of the NASDAQ Stock Market, and the notice of meeting of
shareholders to act upon the reorganization summarizes this
section and Sections&nbsp;1301, 1302, 1303 and 1304; provided, however, that this provision does not apply to any shares with respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this provision does not apply to any class of shares described in subparagraph&nbsp;(A) or (B)&nbsp;if demands for payment are
filed with respect to 5&nbsp;percent or more of the outstanding shares of that class. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;Which
were outstanding on the date for the determination of shareholders entitled to vote on the reorganization and (A)&nbsp;were not voted in favor of the
reorganization or, (B)&nbsp;if described in subparagraph&nbsp;(A) or (B)&nbsp;of paragraph&nbsp;(1) (without regard to the provisos in that paragraph), were voted against the reorganization,
or which were held of record on the effective date of a short-form merger; provided, however, that subparagraph&nbsp;(A) rather than subparagraph&nbsp;(B) of this paragraph applies in
any case where the approval required by Section&nbsp;1201 is sought by written consent rather than at a meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)&nbsp;&nbsp;&nbsp;Which
the dissenting shareholder has demanded that the corporation purchase at their fair market value, in accordance with Section&nbsp;1301. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)&nbsp;&nbsp;&nbsp;Which
the dissenting shareholder has submitted for endorsement, in accordance with Section&nbsp;1302. </FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;As
used in this chapter, "dissenting shareholder" means the recordholder of dissenting shares and includes a transferee of record. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1301.
</FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;If,
in the case of a reorganization, any shareholders of a corporation have a right under Section&nbsp;1300, subject to compliance with paragraphs&nbsp;(3) and
(4)&nbsp;of subdivision (b)&nbsp;thereof, to require the corporation to purchase their shares for cash, that corporation shall mail to each such shareholder a notice of the approval of the
reorganization by its outstanding shares (Section&nbsp;152) within 10&nbsp;days after the date of that approval, accompanied by a copy of Sections&nbsp;1300, 1302, 1303, and 1304 and this </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-1</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>section,
a statement of the price determined by the corporation to represent the fair market value of the dissenting shares, and a brief description of the procedure to be followed if the shareholder
desires to exercise the shareholder's right under those sections. The statement of price constitutes an offer by the corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b)&nbsp;of Section&nbsp;1300, unless they lose their status as dissenting shares under Section&nbsp;1309. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;Any
shareholder who has a right to require the corporation to purchase the shareholder's shares for cash under Section&nbsp;1300, subject to compliance with
paragraphs&nbsp;(3) and (4)&nbsp;of subdivision&nbsp;(b) thereof, and who desires the corporation to purchase shares shall make written demand upon the corporation for the purchase of those
shares and payment to the shareholder in cash of their fair market value. The demand is not effective for any purpose unless it is received by the corporation or any transfer agent thereof
(1)&nbsp;in the case of shares described in clause&nbsp;(A) or (B)&nbsp;of paragraph&nbsp;(1) of subdivision (b)&nbsp;of Section&nbsp;1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon the reorganization, or (2)&nbsp;in any other case within 30&nbsp;days after the date on which the notice of the
approval by the outstanding shares pursuant to subdivision (a)&nbsp;or the notice pursuant to subdivision (i)&nbsp;of Section&nbsp;1110 was mailed to the shareholder. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;The
demand shall state the number and class of the shares held of record by the shareholder which the shareholder demands that the corporation purchase and shall contain
a statement of what that shareholder claims to be the fair market value of those shares as of the day before the announcement of the proposed reorganization or short-form merger. The
statement of fair market value constitutes an offer by the shareholder to sell the shares at that price. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1302.&nbsp;&nbsp;&nbsp;&nbsp;Within
30&nbsp;days after the date on which notice of the approval by the outstanding shares or the notice pursuant to subdivision (i)&nbsp;of Section&nbsp;1110 was mailed to
the shareholder, the shareholder shall submit to the corporation at its principal office or at the office of any transfer agent thereof, (a)&nbsp;if the shares are certificated securities, the
shareholder's certificates representing any shares which the shareholder demands that the corporation purchase, to be stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed or (b)&nbsp;if the shares are uncertificated securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the dissenting shares on the books of the corporation, the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name of the original dissenting holder of the shares. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>1303. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;If
the corporation and the shareholder agree that the shares are dissenting shares and agree upon the price of the shares, the dissenting shareholder is entitled to the
agreed price with interest thereon at the legal rate on judgments from the date of the agreement. Any agreements fixing the fair market value of any dissenting shares as between the corporation and
the holders thereof shall be filed with the secretary of the corporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;Subject
to the provisions of Section&nbsp;1306, payment of the fair market value of dissenting shares shall be made within 30&nbsp;days after the amount thereof has
been agreed or within 30&nbsp;days after any statutory or contractual conditions to the reorganization are satisfied, whichever is later, and in the case of certificated securities, subject to
surrender of the certificates therefor, unless provided otherwise by agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1304.
</FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;If
the corporation denies that the shares are dissenting shares, or the corporation and the shareholder fail to agree upon the fair market value of the shares, then the
shareholder demanding </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-2</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>purchase
of such shares as dissenting shares or any interested corporation, within six months after the date on which notice of the approval by the outstanding shares (Section&nbsp;152) or notice
pursuant to subdivision (i)&nbsp;of Section&nbsp;1110 was mailed to the shareholder, but not thereafter, may file&nbsp;a complaint in the superior court of the proper county praying the court to
determine whether the shares are dissenting shares or the fair market value of the dissenting shares or both or may intervene in any action pending on such a complaint. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;Two
or more dissenting shareholders may join as plaintiffs or be joined as defendants in any such action and two or more such actions may be consolidated. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;On
the trial of the action, the court shall determine the issues. If the status of the shares as dissenting shares is in issue, the court shall first determine that
issue. If the fair market value of the dissenting shares is in issue, the court shall determine, or shall appoint one or more impartial appraisers to determine, the fair market value of the shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1305.
</FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;If
the court appoints an appraiser or appraisers, they shall proceed forthwith to determine the fair market value per share. Within the time fixed by the court, the
appraisers, or a majority of them, shall make and file&nbsp;a report in the office of the clerk of the court. Thereupon, on the motion of any party, the report shall be submitted to the court and
considered on such evidence as the court considers relevant. If the court finds the report reasonable, the court may confirm it. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;If
a majority of the appraisers appointed fail to make and file&nbsp;a report within 10&nbsp;days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the court shall determine the fair market value of the dissenting shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;Subject
to the provisions of Section&nbsp;1306, judgment shall be rendered against the corporation for payment of an amount equal to the fair market value of each
dissenting share multiplied by the number of dissenting shares which any dissenting shareholder who is a party, or who has intervened, is entitled to require the corporation to purchase, with interest
thereon at the legal rate from the date on which judgment was entered. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;Any
such judgment shall be payable forthwith with respect to uncertificated securities and, with respect to certificated securities, only upon the endorsement and
delivery to the corporation of the certificates for the shares described in the judgment. Any party may appeal from the judgment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;The
costs of the action, including reasonable compensation to the appraisers to be fixed by the court, shall be assessed or apportioned as the court considers equitable,
but, if the appraisal exceeds the price offered by the corporation, the corporation shall pay the costs (including in the discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections&nbsp;1300, 1301 and 1302 if the value awarded by the court for the shares is more than 125&nbsp;percent of the price
offered by the corporation under subdivision (a)&nbsp;of Section&nbsp;1301). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1306.&nbsp;&nbsp;&nbsp;&nbsp;To
the extent that the provisions of Chapter&nbsp;5 prevent the payment to any holders of dissenting shares of their fair market value, they shall become creditors of the
corporation for the amount thereof together with interest at the legal rate on judgments until the date of payment, but subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter&nbsp;5. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1307.&nbsp;&nbsp;&nbsp;&nbsp;Cash
dividends declared and paid by the corporation upon the dissenting shares after the date of approval of the reorganization by the outstanding shares (Section&nbsp;152) and
prior to payment for the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-3</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>shares
by the corporation shall be credited against the total amount to be paid by the corporation therefor. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1308.&nbsp;&nbsp;&nbsp;&nbsp;Except
as expressly limited in this chapter, holders of dissenting shares continue to have all the rights and privileges incident to their shares, until the fair market value of
their shares is agreed upon or determined. A dissenting shareholder may not withdraw a demand for payment unless the corporation consents thereto. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1309.&nbsp;&nbsp;&nbsp;&nbsp;Dissenting
shares lose their status as dissenting shares and the holders thereof cease to be dissenting shareholders and cease to be entitled to require the corporation to purchase
their shares upon the happening of any of the following: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;The
corporation abandons the reorganization. Upon abandonment of the reorganization, the corporation shall pay on demand to any dissenting shareholder who has initiated
proceedings in good faith under this chapter all necessary expenses incurred in such proceedings and reasonable attorneys' fees. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;The
shares are transferred prior to their submission for endorsement in accordance with Section&nbsp;1302 or are surrendered for conversion into shares of another
class in accordance with the articles. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;The
dissenting shareholder and the corporation do not agree upon the status of the shares as dissenting shares or upon the purchase price of the shares, and neither
files&nbsp;a complaint or intervenes in a pending action as provided in Section&nbsp;1304, within six months after the date on which notice of the approval by the outstanding shares or notice
pursuant to subdivision (i)&nbsp;of Section&nbsp;1110 was mailed to the shareholder. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;The
dissenting shareholder, with the consent of the corporation, withdraws the shareholder's demand for purchase of the dissenting shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1310.&nbsp;&nbsp;&nbsp;&nbsp;If
litigation is instituted to test the sufficiency or regularity of the votes of the shareholders in authorizing a reorganization, any proceedings under Sections&nbsp;1304 and
1305 shall be suspended until final determination of such litigation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1311.&nbsp;&nbsp;&nbsp;&nbsp;This
chapter, except Section&nbsp;1312, does not apply to classes of shares whose terms and provisions specifically set forth the amount to be paid in respect to such shares in
the event of a reorganization or merger. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>1312.
</FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;No
shareholder of a corporation who has a right under this chapter to demand payment of cash for the shares held by the shareholder shall have any right at law or in equity to
attack the validity of the reorganization or short-form merger, or to have the reorganization or short-form merger set aside or rescinded, except in an action to test whether
the number of shares required to authorize or approve the reorganization have been legally voted in favor thereof; but any holder of shares of a class whose terms and provisions specifically set forth
the amount to be paid in respect to them in the event of a reorganization or short-form merger is entitled to payment in accordance with those terms and provisions or, if the principal
terms of the reorganization are approved pursuant to subdivision (b)&nbsp;of Section&nbsp;1202, is entitled to payment in accordance with the terms and provisions of the approved reorganization. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;If
one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the
reorganization or short-form merger, subdivision (a)&nbsp;shall not apply to any shareholder of such party who has not demanded </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-4</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_my42501_1_5"> </A>

<P style="font-family:times;"><FONT SIZE=2>payment
of cash for such shareholder's shares pursuant to this chapter; but if the shareholder institutes any action to attack the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded, the shareholder shall not thereafter have any right to demand payment of cash for the shareholder's shares pursuant to
this chapter. The court in any action attacking the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction except upon 10&nbsp;days' prior notice to the corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of shareholders of which such shareholder is a member. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;If
one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the
reorganization or short-form merger, in any action to attack the validity of the reorganization or short-form merger or to have the reorganization or short-form
merger set aside or rescinded, (1)&nbsp;a party to a reorganization or short-form merger which controls another party to the reorganization or short-form merger shall have
the burden of proving that the transaction is just and reasonable as to the shareholders of the controlled party, and (2)&nbsp;a person who controls two or more parties to a reorganization shall
have the burden of proving that the transaction is just and reasonable as to the shareholders of any party so controlled. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>1313.&nbsp;&nbsp;&nbsp;&nbsp;A
conversion pursuant to Chapter&nbsp;11.5 (commencing with Section&nbsp;1150) shall be deemed to constitute a reorganization for purposes of applying the provisions of this
chapter, in accordance with and to the extent provided in Section&nbsp;1159. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-5</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_nk42501_1_1"> </A>


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<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="nk42501_part_ii_information_not_required_in_prospectus"> </A>
<A NAME="toc_nk42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>PART II    <BR>    <BR>    INFORMATION NOT REQUIRED IN PROSPECTUS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;145 of the DGCL permits each Delaware business corporation to indemnify its directors, officers, employees and agents against liability for each
such person's acts taken in his or her capacity as a director, officer, employee or agent of the corporation if such actions were taken in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action, if he or she had no reasonable cause to believe his or her conduct was unlawful.
Kratos' amended and restated certificate of incorporation provides that Kratos, to the full extent permitted by law, shall indemnify any of Kratos' past and present directors, officers, employees or
any person that is or was serving at Kratos' request as a director, officer or employee of another enterprise if they were or are a party to, or are threatened to be made a party to, any threatened,
pending or complete action, suit or proceeding. The indemnification provided therein includes expenses (including attorneys' fees), judgments, fines and amounts paid in settlement and may be paid by
Kratos in advance of the final disposition of such action, suit or proceeding. In addition, Kratos' amended and restated certificate of incorporation provides that Kratos may, to the full extent
permitted by law, indemnify any other person for any such expenses as to actions in their official capacity or actions in another capacity while holding such office. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
permitted by Section&nbsp;102(b)(7) of the DGCL, Kratos' amended and restated certificate of incorporation provides that no director shall be liable to Kratos for monetary damages
for breach of fiduciary duty as a director, except for liability: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;for
any breach of the director's duty of loyalty; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;for
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;for
the unlawful payment of dividends on or redemption of Kratos' capital stock; or </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;for
any transaction from which the director derived an improper personal benefit. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kratos
has obtained policies insuring Kratos and its directors and officers against certain liabilities, including liabilities under the Securities Act. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="nk42501_item_21._exhibits_and_financial_statement_schedules"> </A>
<A NAME="toc_nk42501_2"> </A>
Item&nbsp;21.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B><I>Exhibits and Financial Statement Schedules    <BR>    </I></B></FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="9%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Incorporated by Reference</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Exhibit Number<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Exhibit Description<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Form</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Filing Date/Period End Date</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Filed-Furnished Herewith</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Agreement and Plan of Reorganization by and among Registrant, SYS and White Shadow,&nbsp;Inc.(1) (included as </FONT><FONT SIZE=2><I>Annex&nbsp;A </I></FONT><FONT SIZE=2>to the joint proxy statement/prospectus forming part of this registration
statement)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Stock Purchase Agreement by and among the Company, JMA Associates,&nbsp;Inc. d/b/a TLA Associates, and the Stockholders of JMA Associates,&nbsp;Inc., dated as of January&nbsp;27, 2005.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
02/02/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Equity Purchase Agreement, dated February&nbsp;17, 2006, by and between Sakoki&nbsp;LLC and the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
02/23/06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<BR>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-1</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_nk42501_1_2"> </A>
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<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Addendum and Waiver Related to the Equity Purchase Agreement, dated June&nbsp;26, 2006, by and between Sakoki&nbsp;LLC and the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-Q</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
06/30/06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Merger Agreement, dated August&nbsp;8, 2006, by and among the Company, WFI Government Services,&nbsp;Inc., MRC Merger Company,&nbsp;Inc. and Madison Research Corporation.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/14/06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Agreement dated as of March&nbsp;9, 2007 by and between LCC Wireless Engineering Services Limited and the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/31/06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Equity Purchase Agreement, dated April&nbsp;20, 2007, by and between the Company and Strategic Project Services,&nbsp;LLC.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/31/06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Asset Purchase Agreement, dated May&nbsp;29, 2007, by and between the Company and LCC International,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
05/30/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Asset Purchase Agreement, dated July&nbsp;7, 2007, by and between the Company and Burgundy Acquisition Corporation.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
07/12/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Agreement and Plan of Merger, dated November&nbsp;2, 2007, by and among the Company, Kratos Government Solutions,&nbsp;Inc., Haverstick Acquisition Corporation and Haverstick Consulting,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
11/07/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Amended and Restated Certificate of Incorporation.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-Q</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/30/01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Certificate of Ownership and Merger of Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc. into Wireless Facilities,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
9/12/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Amended and Restated Bylaws of the Company, as amended December&nbsp;31, 2007.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
01/07/08</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Certificate of Designations, Preferences and Rights of Series&nbsp;A Preferred Stock.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-Q</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/30/01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Certificate of Designations, Preferences and Rights of Series&nbsp;B Preferred Stock.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K/A</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
06/05/02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Certificate of Designation of Series&nbsp;C Preferred Stock.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/17/04</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
4.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Reference is made to Exhibits&nbsp;3.1 and 3.2.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
4.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Specimen Stock Certificate.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/18/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
4.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Rights Agreement, dated as of December&nbsp;16, 2004, between the Company and Wells Fargo, N.A.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/17/04</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
5.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Opinion of DLA Piper US&nbsp;LLP, counsel for Registrant</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
8.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Tax Opinion of DLA Piper US&nbsp;LLP, counsel for Registrant</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
8.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Tax Opinion of Luce, Forward, Hamilton&nbsp;&amp; Scripps&nbsp;LLP, counsel for SYS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
</TABLE>

<!-- insert table folio -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-2</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=483,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=478674,FOLIO='II-2',FILE='DISK112:[08ZAT1.08ZAT42501]NK42501A.;14',USER='GKIBBE',CD=';9-APR-2008;12:17' -->
<A NAME="page_nk42501_1_3"> </A>
<!-- end of table folio -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
9.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Voting Agreement between Registrant and certain shareholders of SYS (included as </FONT><FONT SIZE=2><I>Annex&nbsp;B</I></FONT><FONT SIZE=2> to the joint proxy statement/prospectus forming part of this registration statement).</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
9.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Voting Agreement between SYS and certain stockholders of Registrant (included as </FONT><FONT SIZE=2><I>Annex&nbsp;C</I></FONT><FONT SIZE=2> to the joint proxy statement/prospectus forming part of this registration statement).</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.1#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
1997 Stock Option Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/18/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.2#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Stock Option Agreement pursuant to the 1997 Stock Option Plan and related terms and conditions.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1/A</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/10/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.3#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
1999 Equity Incentive Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/18/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.4#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Stock Option Agreement pursuant to the 1999 Equity Incentive Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1/A</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/10/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.5#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
1999 Employee Stock Purchase Plan and related offering documents.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/18/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.6#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Indemnity Agreement by and between the Company and certain officers and directors of the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/18/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.7#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
2000 Nonstatutory Stock Option Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-Q</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/30/00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.8#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Stock Option Agreement and Grant Notice used in connection with the 2000 Nonstatutory Stock Option Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-Q</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/30/00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.9#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Executive Employment Agreement by and between the Company and Eric DeMarco effective November&nbsp;14, 2003.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/26/03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.10#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Amended and Restated Severance and Change of Control Agreement dated March&nbsp;28, 2006 between the Company and Deanna Lund.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/31/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.11#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Amended and Restated Severance and Change of Control Agreement dated March&nbsp;28, 2006 between the Company and James Edwards.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/31/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.12#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Nonqualified Deferred Compensation Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/31/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.13#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
2005 Equity Incentive Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/01/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.14#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Stock Option Agreement pursuant to the 2005 Equity Incentive Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/01/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.15#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Restricted Stock Unit Agreement and Form of Notice of Grant under the Company's 2005 Equity Incentive Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
01/17/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.16#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Severance and Change of Control Agreement dated as of July&nbsp;12, 2007 between the Company and Laura L. Siegal.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/11/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<BR>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-3</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=484,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=769038,FOLIO='II-3',FILE='DISK112:[08ZAT1.08ZAT42501]NK42501A.;14',USER='GKIBBE',CD=';9-APR-2008;12:17' -->
<A NAME="page_nk42501_1_4"> </A>
<!-- end of table folio -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.17</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Subordinated Promissory Note issued by LCC International,&nbsp;Inc. to the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
5/30/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.18</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Subordination Agreement executed by LCC International,&nbsp;Inc., the Company and Bank of America, N.A.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
5/30/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.19</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Note Sale Agreement, dated July&nbsp;3, 2007, by and between SPCP Group,&nbsp;LLC International,&nbsp;Inc. and the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
7/10/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.20</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Assignment Agreement, dated July&nbsp;3, 2007, by and among the Company, SPCP Group&nbsp;LLC, LCC International,&nbsp;Inc. and Bank of America, N.A.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
7/10/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.21</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Earnout Agreement executed by the Company and Burgundy Acquisition Corporation.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
7/12/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Facility Letter, dated October&nbsp;24, 2007, by and between the Company and KeyBank Capital Markets.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
11/07/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.23</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
First Lien Credit Agreement among Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., KeyBank National Association, as Administrative Agent and Lender and the other financial institutions parties thereto and Keybanc Capital Markets as lead
arranger and book runner, dated as of December&nbsp;31, 2007.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
01/07/08</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.24</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Second Lien Credit Agreement among Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., KeyBank National Association, as Administrative Agent and Lender, the other financial institutions parties thereto and Keybanc Capital Markets as lead
arranger and book runner, dated as of December&nbsp;31, 2007.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
01/07/08</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
21.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
List of Subsidiaries of Registrant</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Independent Registered Public Accounting Firm Grant Thornton,&nbsp;LLP for Registrant</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Independent Registered Public Accounting Firm Grant Thornton,&nbsp;LLP for Haverstick Consulting,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Imperial Capital,&nbsp;LLC</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Independent Registered Public Accounting Firm KPMG, LLP for SYS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Independent Registered Public Accounting Firm Grant Thornton,&nbsp;LLP for SYS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of DLA Piper US&nbsp;LLP (included in Exhibit&nbsp;5.1 and 8.1)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Luce, Forward, Hamilton&nbsp;&amp; Scripps (included in Exhibit&nbsp;8.2)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-4</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=485,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=950900,FOLIO='II-4',FILE='DISK112:[08ZAT1.08ZAT42501]NK42501A.;14',USER='GKIBBE',CD=';9-APR-2008;12:17' -->
<A NAME="page_nk42501_1_5"> </A>
<!-- end of table folio -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
24.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Power of Attorney for Registrant (included on signature page of this registration statement)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Proxy Card for Registrant</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Proxy Card for SYS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Opinion of Wachovia Capital Markets,&nbsp;LLC (included as </FONT><FONT SIZE=2><I>Annex&nbsp;D</I></FONT><FONT SIZE=2> to the joint proxy statement/prospectus forming part of this registration statement).</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Opinion of Imperial Capital,&nbsp;LLC (included as </FONT><FONT SIZE=2><I>Annex&nbsp;E</I></FONT><FONT SIZE=2> to the joint proxy statement/prospectus forming part of this registration statement).</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Financial Statements and Report of Independent Certified Public Accountants for Haverstick Consulting,&nbsp;Inc. (included as financial statements to the joint proxy statement/prospectus forming part of this registration
statement).</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Wachovia Capital Markets,&nbsp;LLC.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>As
required by paragraph&nbsp;(b)(2) of Item&nbsp;601 of Regulation&nbsp;S-K, this exhibit does not contain schedules and similar attachments to this exhibit. The
registrant will furnish supplementally a copy of any omitted schedules to the Commission upon request. </FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>#</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Indicates
a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form. </FONT></DD></DL>
<BR>

<P style="font-family:times;"><FONT SIZE=2><B> <A NAME="nk42501_item_22._undertakings"> </A>
<A NAME="toc_nk42501_3"> </A>
Item&nbsp;22.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B><I>Undertakings    <BR>    </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;The
undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is
a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule&nbsp;145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other
items of the applicable form. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;The
registrant undertakes that every prospectus: (1)&nbsp;that is filed pursuant to the immediately preceding paragraph, or (2)&nbsp;that purports to meet the
requirements of Section&nbsp;10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule&nbsp;415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-5</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_nk42501_1_6"> </A>
<BR>

<P style="font-family:times;"><FONT SIZE=2>therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;The
undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item&nbsp;4,
10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;The
undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the registration statement when it became effective. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>(2)&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the proxy statement/prospectus to Items&nbsp;4, 10(b), 11,
or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement through the date of responding to the request. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>(3)&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the registration statement when it became effective. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-6</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="page_nm42501_1_7"> </A>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




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 </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="nm42501_signatures"> </A>
<A NAME="toc_nm42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>SIGNATURES    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Diego, State of California, on the 8 day of April, 2008. </FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="46%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>ERIC M. DEMARCO</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Eric M. DeMarco<BR></FONT> <FONT SIZE=2><I>President and Chief Executive Officer</I></FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="nm42501_power_of_attorney"> </A>
<A NAME="toc_nm42501_2"> </A>
<BR></FONT><FONT SIZE=2><B>POWER OF ATTORNEY    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Know all men by these presents, that the undersigned directors and officers of the Registrant, a Delaware corporation, which is filing a Registration Statement on
Form&nbsp;S-4 with the Securities and Exchange Commission, Washington, D.C. 20549 under the provisions of the Securities Act of 1933, as amended, hereby constitute and appoint
Eric&nbsp;M. DeMarco and Deanna&nbsp;H. Lund, and each of them, the individual's true and lawful attorney-in-fact and agents, with full power of substitution and
resubstitution, for the person and in his or her name, place and stead, in any and all capacities, to sign such registration statement and any or all amendments, including post-effective
amendments to the registration statement, including a prospectus
or an amended prospectus therein and any registration statement for the same offering that is to be effective upon filing pursuant to Rule&nbsp;462(b) under the Securities Act of 1933, as amended,
and all other documents in connection therewith to be filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full
power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact as agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration statement and the Power of Attorney has been signed by the following persons in the capacities
and on the dates indicated. </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="39%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Signature</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="36%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Title</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Date</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>ERIC M. DEMARCO</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Eric M. DeMarco</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>President, Chief Executive Officer and Director (Principal Executive Officer)</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>April&nbsp;8, 2008</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>DEANNA H. LUND</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Deanna H. Lund</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
Senior Vice President and Chief Financial Officer</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
April&nbsp;8, 2008</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>LAURA L. SIEGAL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Laura L. Siegal</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
Vice President, Corporate Controller and Acting Secretary (Principal Accounting Officer)</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
April&nbsp;8, 2008</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<BR>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-7</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_nm42501_1_8"> </A>
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<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>SCOTT I. ANDERSON</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Scot I. Anderson</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
April&nbsp;8, 2008</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>BANDEL L. CARANO</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Bandel L. Carano</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
April&nbsp;8, 2008</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>SCOT B. JARVIS</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Scot B. Jarvis</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
April&nbsp;8, 2008</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="39%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><HR NOSHADE><FONT SIZE=2> William A. Hoglund</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="3%" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
April&nbsp;8, 2008</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-8</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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NAME="page_no42501_1_9"> </A>


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 </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="no42501_exhibit_index"> </A>
<A NAME="toc_no42501_1"> </A>
<BR></FONT><FONT SIZE=2><B>EXHIBIT INDEX    <BR>    </B></FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="9%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Incorporated by Reference</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="9%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Exhibit Number<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="51%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Exhibit Description<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Form</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Filing Date/Period End Date</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Filed-Furnished Herewith</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Agreement and Plan of Reorganization by and among Registrant, SYS and White Shadow,&nbsp;Inc.(1) (included as </FONT><FONT SIZE=2><I>Annex&nbsp;A </I></FONT><FONT SIZE=2>to the joint proxy statement/prospectus forming part of this registration
statement)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Stock Purchase Agreement by and among the Company, JMA Associates,&nbsp;Inc. d/b/a TLA Associates, and the Stockholders of JMA Associates,&nbsp;Inc., dated as of January&nbsp;27, 2005.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
02/02/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Equity Purchase Agreement, dated February&nbsp;17, 2006, by and between Sakoki&nbsp;LLC and the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
02/23/06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Addendum and Waiver Related to the Equity Purchase Agreement, dated June&nbsp;26, 2006, by and between Sakoki&nbsp;LLC and the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-Q</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
06/30/06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Merger Agreement, dated August&nbsp;8, 2006, by and among the Company, WFI Government Services,&nbsp;Inc., MRC Merger Company,&nbsp;Inc. and Madison Research Corporation.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/14/06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Agreement dated as of March&nbsp;9, 2007 by and between LCC Wireless Engineering Services Limited and the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/31/06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Equity Purchase Agreement, dated April&nbsp;20, 2007, by and between the Company and Strategic Project Services,&nbsp;LLC.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/31/06</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Asset Purchase Agreement, dated May&nbsp;29, 2007, by and between the Company and LCC International,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
05/30/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.9</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Asset Purchase Agreement, dated July&nbsp;7, 2007, by and between the Company and Burgundy Acquisition Corporation.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
07/12/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
2.10</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Agreement and Plan of Merger, dated November&nbsp;2, 2007, by and among the Company, Kratos Government Solutions,&nbsp;Inc., Haverstick Acquisition Corporation and Haverstick Consulting,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
11/07/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Amended and Restated Certificate of Incorporation.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-Q</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/30/01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Certificate of Ownership and Merger of Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc. into Wireless Facilities,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
9/12/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Amended and Restated Bylaws of the Company, as amended December&nbsp;31, 2007.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
01/07/08</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Certificate of Designations, Preferences and Rights of Series&nbsp;A Preferred Stock.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-Q</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/30/01</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Certificate of Designations, Preferences and Rights of Series&nbsp;B Preferred Stock.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K/A</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
06/05/02</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<BR>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-9</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=490,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=308303,FOLIO='II-9',FILE='DISK112:[08ZAT1.08ZAT42501]NO42501A.;14',USER='GKIBBE',CD=';9-APR-2008;12:18' -->
<A NAME="page_no42501_1_10"> </A>
<!-- end of table folio -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
3.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Certificate of Designation of Series&nbsp;C Preferred Stock.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/17/04</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
4.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Reference is made to Exhibits&nbsp;3.1 and 3.2.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
4.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Specimen Stock Certificate.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/18/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
4.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Rights Agreement, dated as of December&nbsp;16, 2004, between the Company and Wells Fargo, N.A.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/17/04</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
5.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Opinion of DLA Piper US&nbsp;LLP, counsel for Registrant</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
8.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Tax Opinion of DLA Piper US&nbsp;LLP, counsel for Registrant</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
8.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Tax Opinion of Luce, Forward, Hamilton&nbsp;&amp; Scripps&nbsp;LLP, counsel for SYS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
9.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Voting Agreement between Registrant and certain shareholders of SYS (included as </FONT><FONT SIZE=2><I>Annex&nbsp;B</I></FONT><FONT SIZE=2> to the joint proxy statement/prospectus forming part of this registration statement).</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
9.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Voting Agreement between SYS and certain stockholders of Registrant (included as </FONT><FONT SIZE=2><I>Annex&nbsp;C</I></FONT><FONT SIZE=2> to the joint proxy statement/prospectus forming part of this registration statement).</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.1#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
1997 Stock Option Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/18/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.2#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Stock Option Agreement pursuant to the 1997 Stock Option Plan and related terms and conditions.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1/A</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/10/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.3#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
1999 Equity Incentive Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/18/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.4#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Stock Option Agreement pursuant to the 1999 Equity Incentive Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1/A</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/10/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.5#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
1999 Employee Stock Purchase Plan and related offering documents.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/18/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.6#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Indemnity Agreement by and between the Company and certain officers and directors of the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/18/99</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.7#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
2000 Nonstatutory Stock Option Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-Q</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/30/00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.8#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Stock Option Agreement and Grant Notice used in connection with the 2000 Nonstatutory Stock Option Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-Q</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/30/00</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.9#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Executive Employment Agreement by and between the Company and Eric DeMarco effective November&nbsp;14, 2003.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/26/03</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.10#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Amended and Restated Severance and Change of Control Agreement dated March&nbsp;28, 2006 between the Company and Deanna Lund.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/31/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-10</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=491,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=169557,FOLIO='II-10',FILE='DISK112:[08ZAT1.08ZAT42501]NO42501A.;14',USER='GKIBBE',CD=';9-APR-2008;12:18' -->
<A NAME="page_no42501_1_11"> </A>
<!-- end of table folio -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.11#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Amended and Restated Severance and Change of Control Agreement dated March&nbsp;28, 2006 between the Company and James Edwards.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/31/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.12#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Nonqualified Deferred Compensation Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
12/31/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.13#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
2005 Equity Incentive Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/01/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.14#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Stock Option Agreement pursuant to the 2005 Equity Incentive Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
S-8</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
08/01/05</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.15#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Restricted Stock Unit Agreement and Form of Notice of Grant under the Company's 2005 Equity Incentive Plan.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
01/17/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.16#</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Severance and Change of Control Agreement dated as of July&nbsp;12, 2007 between the Company and Laura L. Siegal.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
10-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
09/11/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.17</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Subordinated Promissory Note issued by LCC International,&nbsp;Inc. to the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
5/30/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.18</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Subordination Agreement executed by LCC International,&nbsp;Inc., the Company and Bank of America, N.A.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
5/30/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.19</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Note Sale Agreement, dated July&nbsp;3, 2007, by and between SPCP Group,&nbsp;LLC International,&nbsp;Inc. and the Company.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
7/10/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.20</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Assignment Agreement, dated July&nbsp;3, 2007, by and among the Company, SPCP Group&nbsp;LLC, LCC International,&nbsp;Inc. and Bank of America, N.A.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
7/10/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.21</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Earnout Agreement executed by the Company and Burgundy Acquisition Corporation.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
7/12/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.22</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Facility Letter, dated October&nbsp;24, 2007, by and between the Company and KeyBank Capital Markets.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
11/07/07</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.23</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
First Lien Credit Agreement among Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., KeyBank National Association, as Administrative Agent and Lender and the other financial institutions parties thereto and Keybanc Capital Markets as lead
arranger and book runner, dated as of December&nbsp;31, 2007.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
01/07/08</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
10.24</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Second Lien Credit Agreement among Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., KeyBank National Association, as Administrative Agent and Lender, the other financial institutions parties thereto and Keybanc Capital Markets as lead
arranger and book runner, dated as of December&nbsp;31, 2007.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8-K</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
01/07/08</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
21.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
List of Subsidiaries of Registrant</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<BR>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-11</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Independent Registered Public Accounting Firm Grant Thornton,&nbsp;LLP for Registrant</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Independent Registered Public Accounting Firm Grant Thornton,&nbsp;LLP for Haverstick Consulting,&nbsp;Inc.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Imperial Capital,&nbsp;LLC</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Independent Registered Public Accounting Firm KPMG, LLP for SYS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Independent Registered Public Accounting Firm Grant Thornton,&nbsp;LLP for SYS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of DLA Piper US&nbsp;LLP (included in Exhibit&nbsp;5.1 and 8.1)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
23.7</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Luce, Forward, Hamilton&nbsp;&amp; Scripps (included in Exhibit&nbsp;8.2)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
24.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Power of Attorney for Registrant (included on signature page of this registration statement)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.1</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Proxy Card for Registrant</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.2</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Form of Proxy Card for SYS</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.3</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Opinion of Wachovia Capital Markets,&nbsp;LLC (included as </FONT><FONT SIZE=2><I>Annex&nbsp;D</I></FONT><FONT SIZE=2> to the joint proxy statement/prospectus forming part of this registration statement).</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.4</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Opinion of Imperial Capital,&nbsp;LLC (included as </FONT><FONT SIZE=2><I>Annex&nbsp;E</I></FONT><FONT SIZE=2> to the joint proxy statement/prospectus forming part of this registration statement).</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.5</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consolidated Financial Statements and Report of Independent Certified Public Accountants for Haverstick Consulting,&nbsp;Inc. (included as financial statements to the joint proxy statement/prospectus forming part of this registration
statement).</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=2><BR>
99.6</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%" style="font-family:times;"><FONT SIZE=2><BR>
Consent of Wachovia Capital Markets,&nbsp;LLC.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
*</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>As
required by paragraph&nbsp;(b)(2) of Item&nbsp;601 of Regulation&nbsp;S-K, this exhibit does not contain schedules and similar attachments to this exhibit. The
registrant will furnish supplementally a copy of any omitted schedules to the Commission upon request. </FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>#</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Indicates
a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-12</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=493,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="1",CHK=71212,FOLIO='II-12',FILE='DISK112:[08ZAT1.08ZAT42501]NO42501A.;14',USER='GKIBBE',CD=';9-APR-2008;12:18' -->
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<BR>
<P><br><A NAME="08ZAT42501_1">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_bc42501_1">PROPOSED MERGER&#151;YOUR VOTE IS VERY IMPORTANT</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_bf42501_1">NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON , 2008</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_bg42501_1">NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 2008</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_bk42501_1">TABLE OF CONTENTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_bl42501_1">VOTING ELECTRONICALLY OR BY TELEPHONE</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_bm42501_1">QUESTIONS AND ANSWERS ABOUT THE MEETINGS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ca42501_1">SUMMARY</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_cc42501_1">SELECTED HISTORICAL FINANCIAL DATA OF KRATOS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ce42501_1">SELECTED HISTORICAL FINANCIAL DATA OF SYS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_cg42501_1">SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ci42501_1">COMPARATIVE PER SHARE DATA (UNAUDITED)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ck42501_1">MARKET PRICES AND DIVIDENDS AND OTHER DISTRIBUTIONS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_cm42501_1">CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_de42501_1">RISK FACTORS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_di42501_1">THE MERGER</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_do42501_1">MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_dq42501_1">THE MERGER AGREEMENT</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ds42501_1">INFORMATION ABOUT THE COMPANIES</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ds42501_2">KRATOS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ds42501_3">COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Kratos Defense &amp; Security Solutions, Inc. The NASDAQ Composite Index, The NASDAQ Telecommunications Index And A Peer Group</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_dy42501_1">SYS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_dz42501_1">SYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ea42501_1">KRATOS ANNUAL MEETING</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ea42501_2">PROPOSAL 1 ELECTION OF DIRECTORS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ea42501_3">The Kratos board of directors recommends that stockholders vote FOR the election of each of the nominees for director listed below.</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ec42501_1">PROPOSAL 2 RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ec42501_2">PROPOSAL 3 APPROVAL OF AMENDMENT TO THE KRATOS 1999 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE AGGREGATE NUMBER OF SHARES THAT MAY BE ISSUED UNDER THE PLAN BY 1,500,000 SHARES</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ee42501_1">PROPOSAL 4 APPROVAL OF AMENDMENT TO THE KRATOS 2005 EQUITY INCENTIVE PLAN TO INCREASE THE AGGREGATE NUMBER OF SHARES THAT MAY BE ISSUED UNDER THE PLAN BY 3,000,000 SHARES</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_eg42501_1">PROPOSAL 5 TO APPROVE ISSUANCE OF KRATOS COMMON STOCK IN CONNECTION WITH THE MERGER</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_eg42501_2">PROPOSAL 6 POSSIBLE ADJOURNMENT OR POSTPONEMENT OF THE KRATOS ANNUAL MEETING</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_eg42501_3">OTHER MATTERS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_eg42501_4">KRATOS STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ei42501_1">CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ei42501_2">KRATOS EXECUTIVE COMPENSATION</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ei42501_3">COMPENSATION COMMITTEE REPORT</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ek42501_1">FISCAL YEAR 2007 SUMMARY COMPENSATION TABLE</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ek42501_2">FISCAL YEAR 2007 GRANTS OF PLAN-BASED AWARDS</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_em42501_1">OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_em42501_2">FISCAL YEAR 2007 OPTIONS EXERCISES AND STOCK VESTED</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_em42501_3">NON-QUALIFIED DEFERRED COMPENSATION</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_eo42501_1">DIRECTOR COMPENSATION</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_eq42501_1">SYS SPECIAL MEETING</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_eq42501_2">PROPOSAL 1 APPROVAL OF MERGER</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_eq42501_3">PROPOSAL 2 POSSIBLE ADJOURNMENT OR POSTPONEMENT OF THE SYS SPECIAL MEETING</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_eq42501_4">OTHER MATTERS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_es42501_1">UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_eu42501_1">UNAUDITED PRO FORMA COMBINED BALANCE SHEET December 31, 2007 (in millions)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ew42501_1">UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007 (in millions, except per share amounts)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ey42501_1">NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ez42501_1">DESCRIPTION OF KRATOS CAPITAL STOCK</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ez42501_2">COMPARISON OF RIGHTS OF KRATOS STOCKHOLDERS AND SYS SHAREHOLDERS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ez42501_3">LEGAL MATTERS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ez42501_4">EXPERTS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ez42501_5">FUTURE STOCKHOLDER PROPOSALS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ez42501_6">WHERE YOU CAN FIND MORE INFORMATION</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fa42501_1">KRATOS FINANCIAL STATEMENTS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fa42501_2">INDEX OF KRATOS FINANCIAL STATEMENTS</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fc42501_1">REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fe42501_1">KRATOS DEFENSE &amp; SECURITY SOLUTIONS, INC. Consolidated Balance Sheets December 31, 2006 and 2007 (in millions, except par value and number of shares)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fg42501_1">KRATOS DEFENSE &amp; SECURITIES SOLUTIONS, INC. Consolidated Statements of Operations Years ended December 31, 2005, 2006 and 2007 (in millions, except per share amounts)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fk42501_1">KRATOS DEFENSE &amp; SECURITY SOLUTIONS, INC. Consolidated Statements of Cash Flows Years ended December 31, 2005, 2006 and 2007 (in millions)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fm42501_1">KRATOS DEFENSE &amp; SECURITY SOLUTIONS, INC. Notes to Consolidated Financial Statements Years ended December 31, 2005, 2006 and 2007</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_fm42501_2">RECONCILIATION OF STOCK-BASED COMPENSATION EXPENSE FOR 2005 (In millions, except per share data)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ga42501_1">SYS FINANCIAL STATEMENTS INDEX OF SYS FINANCIAL STATEMENTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_gc42501_1">Report of Independent Registered Public Accounting Firm</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_gc42501_2">Report of Independent Registered Public Accounting Firm</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ge42501_1">SYS AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 2007 AND 2006 (amounts in thousands, except par value amounts)</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ge42501_2">SYS AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FISCAL YEARS ENDED JUNE 30, 2007, 2006 AND 2005 (amounts in thousands except per share data)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_gg42501_1">SYS AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FISCAL YEARS ENDED JUNE 30, 2007, 2006 AND 2005 (amounts in thousands)</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_gg42501_2">SYS AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FISCAL YEARS ENDED JUNE 30, 2007, 2006 AND 2005 (amounts in thousands)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_gi42501_1">SYS AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_gu42501_1">SYS AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (amounts in thousands, except par value amounts)</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_gu42501_2">SYS AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (amounts in thousands, except per share data)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_gw42501_1">SYS AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 28, 2007 AND DECEMBER 29, 2006 (UNAUDITED) (amounts in thousands)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_gy42501_1">SYS AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_hc42501_1">HAVERSTICK FINANCIAL STATEMENTS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_hc42501_2">CONTENTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_he42501_1">REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_hg42501_1">Haverstick Consulting, Inc. CONSOLIDATED BALANCE SHEET December 31, 2007</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_hg42501_2">Haverstick Consulting, Inc. CONSOLIDATED STATEMENT OF OPERATIONS For Year Ended December 31, 2007</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_hg42501_3">Haverstick Consulting, Inc. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For Year Ended December 31, 2007</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_hg42501_4">Haverstick Consulting, Inc. CONSOLIDATED STATEMENT OF CASH FLOWS For Year Ended December 31, 2007</A></FONT><BR>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_la42501_1">Annex A</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_lc42501_1">TABLE OF CONTENTS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_lc42501_2">EXHIBITS</A></FONT><BR>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ma42501_1">Annex B</A></FONT><BR>
</UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ma42501_2">VOTING AGREEMENT</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ma42501_3">RECITALS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_mc42501_1">IRREVOCABLE PROXY</A></FONT><BR>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_mg42501_1">Annex C</A></FONT><BR>
</UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_mg42501_2">VOTING AGREEMENT</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_mg42501_3">RECITALS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_mi42501_1">IRREVOCABLE PROXY</A></FONT><BR>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_mm42501_1">Annex D</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ms42501_1">Annex E</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_my42501_1">ANNEX F</A></FONT><BR>
</UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_my42501_2">CORPORATIONS CODE SECTION 1300-1313</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_nk42501_1">PART II INFORMATION NOT REQUIRED IN PROSPECTUS</A></FONT><BR>
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_nk42501_2">Item 21. Exhibits and Financial Statement Schedules</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_nk42501_3">Item 22. Undertakings</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_nm42501_1">SIGNATURES</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_nm42501_2">POWER OF ATTORNEY</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_no42501_1">EXHIBIT INDEX</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-5.1
<SEQUENCE>2
<FILENAME>a2183215zex-5_1.htm
<DESCRIPTION>EXHIBIT 5.1
<TEXT>
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="kc42502_exhibit_5.1"> </A>
<A NAME="toc_kc42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;5.1    <BR>    </B></FONT></P>

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 </B></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><B>DLA Piper US&nbsp;LLP</B></FONT><FONT SIZE=2><BR>
4365 Executive Drive, Suite&nbsp;1100<BR>
San Diego, California 92121-2133<BR></FONT> <FONT SIZE=2><B>T:</B></FONT><FONT SIZE=2> 858.677.1400<BR></FONT> <FONT SIZE=2><B>F:</B></FONT><FONT SIZE=2> 858.677.1401<BR></FONT> <FONT SIZE=2><B>W&nbsp;&nbsp;</B></FONT><FONT
SIZE=2>www.dlapiper.com</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<P style="font-family:times;"><FONT SIZE=2>April&nbsp;8,
2008 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Kratos
Defense and Security Solutions,&nbsp;Inc.<BR>
4810 Eastgate Mall<BR>
San Diego, California 92121<BR></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Ladies
and Gentlemen: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have acted as counsel to Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., a Delaware corporation (the "</FONT><FONT SIZE=2><B><I>Company</I></B></FONT><FONT SIZE=2>"), in connection
with the Registration Statement on Form&nbsp;S-4 (the "</FONT><FONT SIZE=2><B><I>Registration Statement</I></B></FONT><FONT SIZE=2>"), filed by the Company with the Securities and Exchange
Commission (the "</FONT><FONT SIZE=2><B><I>Commission</I></B></FONT><FONT SIZE=2>") under the Securities Act of 1933, as amended (the "</FONT><FONT SIZE=2><B><I>Act</I></B></FONT><FONT SIZE=2>"), relating to the
issuance by the Company of up to 32,500,00 shares of Company common stock, par value $0.001 per share (together with any additional shares of such stock that may be issued by the Company pursuant to
Rule&nbsp;462(b) under the Act in connection with the offering described in the Registration Statement, the "</FONT><FONT SIZE=2><B><I>Shares</I></B></FONT><FONT SIZE=2>"), pursuant to the Agreement and
Plan of Merger and Reorganization (the "</FONT><FONT SIZE=2><B><I>Merger Agreement</I></B></FONT><FONT SIZE=2>"), dated as of February&nbsp;20, 2008, by and among the Company, White Shadow,&nbsp;Inc.
("</FONT><FONT SIZE=2><B><I>Merger Sub</I></B></FONT><FONT SIZE=2>"), and SYS. ("</FONT><FONT SIZE=2><B><I>SYS</I></B></FONT><FONT SIZE=2>"), whereby Merger Sub will merge with and into SYS, with SYS thereupon
becoming a wholly-owned subsidiary of the Company (the "</FONT><FONT SIZE=2><B><I>Merger</I></B></FONT><FONT SIZE=2>"). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with this opinion, we have reviewed and relied upon the Registration Statement and related prospectus, the Merger Agreement, a form of the Company's share certificate, the
Company's charter and bylaws, as amended to date, and records of its corporate proceedings in connection with the issuance of the Shares. We have assumed the authenticity of all records, documents and
instruments submitted to us as originals, the genuineness of all signatures, the legal capacity of natural persons and the conformity to the originals of all records, documents and instruments
submitted to us as copies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
upon the foregoing, and subject to the qualifications, assumptions and limitations stated herein, we are of the opinion that when (1)&nbsp;the stockholders of the Company have
duly approved the issuance of the Shares, (2)&nbsp;the certificate of merger relating to the Merger has been duly filed with the Secretary of State of the State of California and (3)&nbsp;the
Shares have been duly issued in accordance with the Merger Agreement upon consummation of the Merger, the Shares will be validly issued, fully paid and nonassessable. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
do not express any opinion herein concerning any law other than the Delaware General Corporation Law (including the statutory provisions, all applicable provisions of the Delaware
Constitution and reported judicial decisions interpreting the foregoing). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the prospectus that is
part of the Registration Statement. The giving of this consent, however, does not constitute an admission that we </FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<BR>

<P style="font-family:times;"><FONT SIZE=2>are
"experts" within the meaning of Section&nbsp;11 of the Act or within the category of persons whose consent is required by Section&nbsp;7 of the Act. </FONT></P>

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<TD WIDTH="37%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Very truly yours,</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="60%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
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</TR>
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<TD WIDTH="37%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>/s/ DLA Piper US&nbsp;LLP</FONT><HR NOSHADE><FONT SIZE=2> DLA Piper US&nbsp;LLP</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_kc42502_1">Exhibit 5.1</A></FONT><BR>
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<TYPE>EX-8.1
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<DESCRIPTION>EXHIBIT 8.1
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NAME="ke42502_exhibit_8.1"> </A>
<A NAME="toc_ke42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit 8.1    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>
<IMG SRC="g890698.jpg" ALT="" WIDTH="684" HEIGHT="103">
  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>April&nbsp;8,
2008 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Kratos
Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.<BR>
4810 Eastgate Mall<BR>
San Diego, CA 92121 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Ladies
and Gentlemen: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have acted as counsel to Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., a Delaware corporation ("</FONT><FONT SIZE=2><B><I>Parent</I></B></FONT><FONT SIZE=2>"), in connection with
the transactions described in the Agreement and Plan of Merger and Reorganization dated as of February&nbsp;20, 2008 (the "</FONT><FONT SIZE=2><B><I>Agreement</I></B></FONT><FONT SIZE=2>"), by and among
Parent, White Shadow,&nbsp;Inc., a California corporation and a wholly owned subsidiary of Parent ("</FONT><FONT SIZE=2><B><I>Merger Sub</I></B></FONT><FONT SIZE=2>"), and SYS, a California corporation
(the "Company"). Capitalized terms not otherwise defined herein shall have the same meanings as set forth in the Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Parent
is filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "</FONT><FONT SIZE=2><B><I>Securities Act</I></B></FONT><FONT SIZE=2>"), a
registration statement on Form&nbsp;S-4 (the "</FONT><FONT SIZE=2><B><I>Registration Statement</I></B></FONT><FONT SIZE=2>") with respect to the common stock of Parent to be issued to Company
shareholders in exchange for their shares of Company Common Stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the Merger is consummated on the terms and subject to the conditions set forth in the Agreement, then Merger Sub will be merged with and into the Company, the separate corporate
existence of Merger Sub will cease and the Company will continue as the surviving company. We have assumed for purposes of the opinion set forth below that the Merger will be effective under the
applicable provisions of state law. The holders of shares of Company Common Stock will be entitled to receive for each share of Company Common Stock held by them, other than cash in lieu of a
fractional share, the number of shares of Parent Common Stock as determined pursuant to the Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
opinion is being rendered pursuant to the requirements of Item&nbsp;21(a) of Form&nbsp;S-4 under the Securities Act. In connection with this opinion, we have
examined, and are familiar with: (i)&nbsp;the Agreement (including all exhibits and schedules attached thereto), (ii)&nbsp;the Registration Statement and the Proxy Statement which is contained in
and made part of the Registration Statement (the "</FONT><FONT SIZE=2><B><I>Proxy Statement</I></B></FONT><FONT SIZE=2>"), and (iii)&nbsp;such other presently existing documents, records and matters of
law as we have deemed appropriate in order to enable us to render this opinion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
rendering this opinion, we have assumed the following (without any independent investigation or review thereof): </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
legal capacity of all natural persons, the authenticity of original documents submitted to us, the conformity to original documents of all documents submitted to us
as copies and the authenticity of the originals of such copies, the genuineness of all signatures and the due execution and delivery of all documents; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
truth and accuracy at all relevant times of the representations, warranties and statements of fact made or to be made by Parent, Merger Sub, Company and their
respective management, employees, officers, directors and shareholders in connection with the Merger, including, but not limited to, those set forth in the Agreement; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
representation or statement made "to the knowledge of" or similarly qualified is correct without such qualification; </FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=1,EFW="2183215",CP="KRATOS DEFENSE & SECURITY",DN="3",CHK=768074,FOLIO='blank',FILE='DISK104:[08ZAT2.08ZAT42502]KE42502A.;7',USER='ABEAULI',CD=';9-APR-2008;16:14' -->
<A NAME="page_ke42502_1_2"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Merger will be consummated in accordance with the Agreement without any waiver or breach of any material provision thereof, and the Merger will be effective under
applicable state law; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Merger will be reported by Parent, Merger Sub and Company on their respective U.S. federal income tax returns in a manner consistent with treatment of the Merger as a
"reorganization" within the meaning of Section&nbsp;368(a) of the Internal Revenue Code of 1986, as amended; and </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
opinion of Luce, Forward, Hamilton&nbsp;&amp; Scripps&nbsp;LLP, counsel to the Company, substantially identical in substance to this opinion, has been delivered and
has not been withdrawn. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
upon and subject to (i)&nbsp;the Merger being consummated in the manner described in the Agreement, (ii)&nbsp;the accuracy of the Registration Statement and the Proxy Statement
and the facts concerning the Merger that have come to our attention during our engagement, and (iii)&nbsp;certain representations made by Parent, Merger Sub and Company pursuant to the Agreement or
in connection with the issuance of our opinion, we are of the opinion that the discussion in the Proxy Statement included as part of the Registration Statement under the caption "Material United
States Federal Income Tax Consequences of the Merger" (the "</FONT><FONT SIZE=2><B><I>Tax Section</I></B></FONT><FONT SIZE=2>"), insofar as it relates to statements of law or legal conclusions, sets forth
the material United States federal income tax considerations generally applicable to the Merger based upon current law and the facts and assumptions stated or referred to therein. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
express no opinion as to whether such description in the Tax Section addresses all of the United States federal income tax consequences of the Merger that may be applicable to Parent,
Merger Sub, Company, or to any particular Parent stockholder or Company shareholder. In addition, we express no opinion as to United States federal, state, local, foreign or other tax consequences,
other than as set forth in the Tax Section. Because this opinion is being delivered prior to the Effective Time of the Merger, it must be considered prospective and dependent upon future events. There
can be no assurance that changes in the law will not take place which could affect the United States federal income tax consequences of the Merger or that contrary positions may not be taken by the
Internal Revenue Service. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
hereby consent to the filing of this opinion as an exhibit to the Registration Statement. We also consent to the references to our firm name in the Tax Section. By giving this
consent, we do not admit that we come within the category of persons whose consent is required under Section&nbsp;7 of the Securities Act or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder (the "</FONT><FONT SIZE=2><B><I>Rules</I></B></FONT><FONT SIZE=2>"), nor do we hereby admit that we are experts with respect to any part of the Registration Statement
within the meaning of the Securities Act or the Rules. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
opinion is expressed as to any federal income tax consequence of the Merger or the other transactions contemplated by the Agreement except as specifically set forth herein. This
opinion may not be relied upon except with respect to the consequences specifically discussed herein. By rendering this opinion, we undertake no responsibility to update this opinion after the date
hereof for any reason, including but not limited to, any new or changed facts or law which come to our attention after the date hereof. This opinion is being delivered to you solely in connection with
the filing of the Registration Statement and is intended only for the benefit of Parent and its stockholders. This opinion may not be relied upon or utilized for any other purpose or by any other
person or entity without our prior written consent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Very
truly yours, </FONT></P>

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<TR VALIGN="BOTTOM">
<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2>/s/ DLA Piper US&nbsp;LLP</FONT><HR NOSHADE><FONT SIZE=2> DLA Piper US&nbsp;LLP</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ke42502_1">Exhibit 8.1</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-8.2
<SEQUENCE>4
<FILENAME>a2183215zex-8_2.htm
<DESCRIPTION>EXHIBIT 8.2
<TEXT>
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<FONT SIZE=3 ><A HREF="#08ZAT42501_4">QuickLinks</A></FONT>
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="kg42502_exhibit_8.2"> </A>
<A NAME="toc_kg42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit 8.2    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>April&nbsp;8,
2008 </FONT></P>

<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28720-00026 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Board
of Directors<BR>
SYS<BR>
5050 Murphy Canyon Road, Suite&nbsp;200<BR>
San Diego, California 92123 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Ladies
and Gentlemen: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have acted as counsel to SYS, a California corporation (the "Company") in connection with the transactions described in the Agreement and Plan of Merger and Reorganization dated as of
February&nbsp;20, 2008 (the "Agreement"), by and among Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., a Delaware corporation ("Parent"), White Shadow,&nbsp;Inc., a California corporation
and a wholly owned subsidiary of Parent ("Merger Sub"), and the Company. Capitalized terms not otherwise defined herein shall have the same meanings as set forth in the Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Parent
is filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"), a registration statement on Form&nbsp;S-4
(the "Registration Statement") with respect to the common stock of Parent to be issued to Company shareholders in exchange for their shares of Company Common Stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the Merger is consummated on the terms and subject to the conditions set forth in the Agreement, then Merger Sub will be merged with and into the Company, the separate corporate
existence of Merger Sub will cease and the Company will continue as the surviving company. We have assumed for purposes of the opinion set forth below that the Merger will be effective under the
applicable provisions of state law. The holders of shares of Company Common Stock will be entitled to receive for each share of Company Common Stock held by them, other than cash in lieu of a
fractional share, the number of shares of Parent Common Stock as determined pursuant to the Agreement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
opinion is being rendered pursuant to the requirements of Item&nbsp;21(a) of Form&nbsp;S-4 under the Securities Act. In connection with this opinion, we have
examined, and are familiar with: (i)&nbsp;the Agreement (including all exhibits and schedules attached thereto), (ii)&nbsp;the Registration Statement and the Proxy Statement which is contained in
and made part of the Registration Statement (the "Proxy Statement"), and (iii)&nbsp;such other presently existing documents, records and matters of law as we have deemed appropriate in order to
enable us to render this opinion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
rendering this opinion, we have assumed the following (without any independent investigation or review thereof): </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
legal capacity of all natural persons, the authenticity of original documents submitted to us, the conformity to original documents of all documents submitted to us
as copies and the authenticity of the originals of such copies, the genuineness of all signatures and the due execution and delivery of all documents; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
truth and accuracy at all relevant times of the representations, warranties and statements of fact made or to be made by Parent, Merger Sub, Company and their
respective management, employees, officers, directors and shareholders in connection with the Merger, including, but not limited to, those set forth in the Agreement; </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
representation or statement made "to the knowledge of" or similarly qualified is correct without such qualification; </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Merger will be consummated in accordance with the Agreement without any waiver or breach of any material provision thereof, and the Merger will be effective under
applicable state law; </FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_kg42502_1_2"> </A>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Merger will be reported by Parent, Merger Sub and Company on their respective U.S. federal income tax returns in a manner consistent with treatment of the Merger as a
"reorganization" within the meaning of Section&nbsp;368(a) of the Internal Revenue Code of 1986, as amended; and </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
opinion of DLA Piper US&nbsp;LLP, counsel to Parent, substantially identical in substance to this opinion, has been delivered and has not been withdrawn. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
upon and subject to (i)&nbsp;the Merger being consummated in the manner described in the Agreement, (ii)&nbsp;the accuracy of the Registration Statement and the Proxy Statement
and the facts concerning the Merger that have come to our attention during our engagement, and (iii)&nbsp;certain representations made by Parent, Merger Sub and Company pursuant to the Agreement or
in connection with the issuance of our opinion, we are of the opinion that the discussion in the Proxy Statement included as part of the Registration Statement under the caption "Material United
States Federal Income Tax Consequences of the Merger" (the "Tax Section"), insofar as it relates to statements of law or legal conclusions, sets forth the material United States federal income tax
considerations generally applicable to the Merger based upon current law and the facts and assumptions stated or referred to therein. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
express no opinion as to whether such description in the Tax Section addresses all of the United States federal income tax consequences of the Merger that may be applicable to Parent,
Merger Sub, Company, or to any particular Parent stockholder or Company shareholder. In addition, we express no opinion as to the United States federal, state, local, foreign or other tax
consequences, other than as set forth in the Tax Section. Because this opinion is being delivered prior to the Effective Time of the Merger, it must be considered prospective and dependent upon future
events. There can be no assurance that changes in the law will not take place which could affect the United States federal income tax consequences of the Merger or that contrary positions may not be
taken by the Internal Revenue Service. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
hereby consent to the filing of this opinion as an exhibit to the Registration Statement. We also consent to the references to our firm name in the Tax Section. By giving this
consent, we do not admit that we come within the category of persons whose consent is required under Section&nbsp;7 of the Securities Act or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder (the "Rules"), nor do we hereby admit that we are experts with respect to any part of the Registration Statement within the meaning of the Securities Act or the
Rules. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
opinion is expressed as to any federal income tax consequence of the Merger or the other transactions contemplated by the Agreement except as specifically set forth herein. This
opinion may
not be relied upon except with respect to the consequences specifically discussed herein. By rendering this opinion, we undertake no responsibility to update this opinion after the date hereof for any
reason, including but not limited to, any new or changed facts or law which come to our attention after the date hereof. This opinion is being delivered to you solely in connection with the filing of
the Registration Statement and is intended only for the benefit of Company and its stockholders. This opinion may not be relied upon or utilized for any other purpose or by any other person or entity
without our prior written consent. </FONT></P>

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<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Very truly yours,</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2><BR>
/s/ LUCE, FORWARD, HAMILTON&nbsp;&amp; SCRIPPS LLP</FONT><HR NOSHADE><FONT SIZE=2> LUCE, FORWARD, HAMILTON&nbsp;&amp; SCRIPPS LLP</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2><BR>
MLM/kat</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_kg42502_1">Exhibit 8.2</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>5
<FILENAME>a2183215zex-21_1.htm
<DESCRIPTION>EXHIBIT 21.1
<TEXT>
<HTML>
<HEAD>
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="ka42502_exhibit_21.1"> </A>
<A NAME="toc_ka42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>EXHIBIT 21.1    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ka42502_list_of_subsidiaries"> </A>
<A NAME="toc_ka42502_2"> </A></FONT> <FONT SIZE=2><B>List of Subsidiaries    <BR>    </B></FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="54%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Subsidiary Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Jurisdiction of<BR>
Organization</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="26%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Type&nbsp;of&nbsp;Entity</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Bejing Wanfeng United Wireless Technology Consulting Co. (dba WFI China)</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" style="font-family:times;"><FONT SIZE=2>China</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Defense Systems, Incorporated</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Virginia</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>DTI Associates,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Viriginia</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>EyeVelocity,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Washington</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Haverstick Consulting,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Indiana</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Haverstick Government Solutions,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Ohio</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>HGS Holdings,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Indiana</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>JMA Associates, Inc (dba TLA Associates)</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Delaware</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Kratos Commercial Solutions,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Delaware</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Kratos Government Solutions,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Delaware</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Kratos Mid-Atlantic,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Delaware</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Kratos Souteast,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Georgia</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Kratos Southwest L.P.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Texas</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Limited Partnership</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Kratos Texas,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Texas</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Madison Research Corporation</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Alabama</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Posinet,&nbsp;Inc.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Delaware</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Rocket Support Services, LLC</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Indiana</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Limited Liabilitity Company</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>WFI India Private Limited</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>India</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>WFI NMC Corp.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Delaware</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>WFI Uruguay S.A.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Uruguay</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Wireless Facilities International Hong Kong Limited</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Hong Kong</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Wireless Facilities International Singapore PTE&nbsp;LTD.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Singapore</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Wireless Facilities International, Spain S.L.&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Spain</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="54%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Wireless Facilities, Inc./Entel</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Delaware</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="26%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Corporation</FONT></TD>
</TR>
</TABLE>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ka42502_2">List of Subsidiaries</A></FONT><BR>

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<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>a2183215zex-23_1.htm
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="kk42502_exhibit_23.1"> </A>
<A NAME="toc_kk42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;23.1    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="kk42502_consent_of_independent__kk402319"> </A>
<A NAME="toc_kk42502_2"> </A>
<BR></FONT><FONT SIZE=2><B>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have issued our report dated March&nbsp;27, 2008, accompanying the consolidated financial statements of Kratos Defense&nbsp;&amp; Security
Solutions,&nbsp;Inc. and subsidiaries contained in the Registration Statement of the Company on Form&nbsp;S-4 and Preliminary Proxy Statement dated April&nbsp;8, 2008. We consent to
the use of the aforementioned report in the Registration Statement and Preliminary Proxy Statement and to the use of our name as it appears under the caption "Experts". </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;<BR></FONT></P>


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<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2>/s/ Grant Thornton&nbsp;LLP</FONT><HR NOSHADE><FONT SIZE=2> Grant Thornton&nbsp;LLP</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
Irvine, California<BR>
April&nbsp;8, 2008 </FONT></P>

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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_kk42502_2">CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></FONT><BR>

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<TYPE>EX-23.2
<SEQUENCE>7
<FILENAME>a2183215zex-23_2.htm
<DESCRIPTION>EXHIBIT 23.2
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="km42502_exhibit_23.2"> </A>
<A NAME="toc_km42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;23.2    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="km42502_consent_of_independent__km402321"> </A>
<A NAME="toc_km42502_2"> </A>
<BR></FONT><FONT SIZE=2><B>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have issued our report dated March&nbsp;24, 2008, accompanying the consolidated financial statements of Haverstick Consulting,&nbsp;Inc. and subsidiaries
contained in the Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-4 and Preliminary Proxy Statement dated April&nbsp;8, 2008. We consent
to the use of the aforementioned report in the Registration Statement and Preliminary Proxy Statement and to the use of our name as it appears under the caption "Experts". </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;<BR></FONT></P>


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<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2>/s/ Grant Thornton&nbsp;LLP</FONT><HR NOSHADE><FONT SIZE=2> Grant Thornton&nbsp;LLP</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR>
Irvine, California<BR>
April&nbsp;8, 2008 </FONT></P>

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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_km42502_2">CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></FONT><BR>

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<TYPE>EX-23.3
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<FILENAME>a2183215zex-23_3.htm
<DESCRIPTION>EXHIBIT 23.3
<TEXT>
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="ko42502_exhibit_23.3"> </A>
<A NAME="toc_ko42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;23.3    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B>
<IMG SRC="g667197.jpg" ALT="" WIDTH="657" HEIGHT="132">
  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>The
Board of Directors of SYS<BR>
5050 Murphy Canyon Road<BR>
Suite 200<BR>
San Diego, CA 92123 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Dear
Members of the Board:<BR></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
hereby consent to the inclusion of our opinion letter, dated February&nbsp;19, 2008, to the Board of Directors of SYS ("SYS") as Annex&nbsp;E to, and reference thereto under the
headings "SUMMARY&#151;Opinions of Financial Advisor" and "The Merger&#151;Opinion of Financial Advisor to the SYS Board of Directors" in, the joint proxy statement-prospectus relating
to the proposed transaction involving Kratos Defense&nbsp;&amp; Security Solutions, Inc. ("Kratos") and SYS, which joint proxy statement-prospectus forms a part of Kratos's Registration Statement on
Form&nbsp;S-4. By giving such consent, we do not thereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term "expert" as used in, or that
we come within the category of persons whose consent is required under the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated
thereunder. </FONT></P>

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<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2>/s/ IMPERIAL CAPITAL LLC</FONT><HR NOSHADE><FONT SIZE=2> IMPERIAL CAPITAL LLC</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%" style="font-family:times;"><FONT SIZE=2><BR>
April&nbsp;8, 2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="50%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
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<TYPE>EX-23.4
<SEQUENCE>9
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<DESCRIPTION>EXHIBIT 23.4
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="ki42502_exhibit_23.4"> </A>
<A NAME="toc_ki42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;23.4    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ki42502_consent_of_independent__ki402317"> </A>
<A NAME="toc_ki42502_2"> </A>
<BR></FONT><FONT SIZE=2><B>Consent of Independent Registered Public Accounting Firm    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>The
Board of Directors<BR>
SYS: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>We
consent to the use of our report dated September&nbsp;29, 2006, except for the 2006 and 2005 segment related information in Notes&nbsp;5 and 14, which is as of September&nbsp;28, 2007, with
respect to the consolidated balance sheet of SYS as of June&nbsp;30, 2006, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the
two-year period ended June&nbsp;30, 2006, included herein and to the reference to our firm under the heading "Experts" in the registration statement. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Our
report contains an explanatory paragraph which states the Company has adopted the provisions of Statement of Financial Accounting Standards No.&nbsp;123(R), "Share-Based Payment," and
accordingly, has changed its method of accounting for share-based compensation. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>/s/
KPMG&nbsp;LLP </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>San
Diego, California<BR>
April&nbsp;8, 2008 </FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ki42502_1">Exhibit 23.4</A></FONT><BR>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ki42502_2">Consent of Independent Registered Public Accounting Firm</A></FONT><BR>

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<TYPE>EX-23.5
<SEQUENCE>10
<FILENAME>a2183215zex-23_5.htm
<DESCRIPTION>EXHIBIT 23.5
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="ky42502_exhibit_23.5"> </A>
<A NAME="toc_ky42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit 23.5    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have issued our report dated September&nbsp;28, 2007, accompanying the consolidated financial statements of SYS contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts." </FONT></P>

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<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2>/s/ Grant Thornton LLP</FONT><HR NOSHADE><FONT SIZE=2> Grant Thornton LLP</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<TD WIDTH="32%" style="font-family:times;"><FONT SIZE=2><BR>
Los Angeles, California<BR>
April 8, 2008</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="65%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ky42502_1">Exhibit 23.5</A></FONT><BR>
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<TYPE>EX-99.1
<SEQUENCE>11
<FILENAME>a2183215zex-99_1.htm
<DESCRIPTION>EXHIBIT 99.1
<TEXT>
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<FONT SIZE=3 ><A HREF="#08ZAT42501_11">QuickLinks</A></FONT>
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<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="ma42502_exhibit_99.1"> </A>
<A NAME="toc_ma42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit 99.1    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.<BR>
(formerly Wireless Facilities,&nbsp;Inc.)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> ANNUAL MEETING OF STOCKHOLDERS<BR>
[&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,] 2008<BR>
10:00&nbsp;a.m.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.  </B></FONT></P>

<HR NOSHADE>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.<BR>
(formerly Wireless Facilities,&nbsp;Inc.)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> PROXY SOLICITED BY THE BOARD OF DIRECTORS<BR>
FOR THE ANNUAL MEETING OF STOCKHOLDERS<BR>
TO BE HELD ON NOVMEBER 14, 2007  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby appoints Eric M. DeMarco and Deanna&nbsp;H. Lund, and each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc. (the "Company") which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at our offices at 4810 Eastgate Mall San Diego, CA 92121 on&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;at 10:00&nbsp;a.m. (local time), and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned would possess if personally present, upon and in respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters that may properly come before the meeting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Unless a contrary direction is indicated, this Proxy will be voted for the nominees listed in Proposal 1 and for Proposals 2, 3, 4, 5, 6 and 7 as more
specifically described in the Proxy Statement. If specific instructions are indicated, this Proxy will be voted in accordance therewith.</B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>Please
vote, date and promptly return this proxy in the enclosed return envelope which is postage prepaid if mailed in the United States. </FONT></P>

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<TD WIDTH="16%" style="font-family:times;"><FONT SIZE=2><B>Address&nbsp;Changes:</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="82%" style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><HR NOSHADE></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>(If
you noted any Address Changes above, please mark corresponding box on reverse side.) </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>(continued
and to be signed on other side) </FONT></P>

<HR NOSHADE>
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<IMG SRC="g990767.jpg" ALT="GRAPHIC" WIDTH="204" HEIGHT="60">
 </B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
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<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=1><BR>
Wells Fargo Bank, N.A.<BR>
Shareowner Services<BR>
161 Concord Exchange North<BR>
South St.&nbsp;Paul, MN 55075</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><BR><FONT SIZE=1><B>VOTE BY INTERNET&#151;</B></FONT><FONT SIZE=1><B><I>www.proxyvote.com</I></B></FONT><FONT SIZE=1><BR>
Use of the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59&nbsp;P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and
follow the instructions to obtain your records and to create an electronic voting instruction form.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><BR><FONT SIZE=1><B>ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS</B></FONT><FONT SIZE=1><BR>
If you would like to reduce the costs incurred by Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via email or
the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><BR><FONT SIZE=1><B>VOTE BY PHONE&#151;1-800-690-6903</B></FONT><FONT SIZE=1><BR>
Use any touch-tone telephone to transmit your voting instructions up until 11:59&nbsp;P.M. Eastern Time the day before the cut-off or meeting date. Have your proxy card in hand when you call and then follow the instructions.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><BR><FONT SIZE=1><B>VOTE BY MAIL</B></FONT><FONT SIZE=1><BR>
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><BR><FONT SIZE=1><B>Your telephone or Intranet vote authorizes the Named Proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><BR><FONT SIZE=1><B>If you vote by Phone or Intranet, Please do not mail your Proxy Card</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><BR><FONT SIZE=1><B>You can view the Proxy Statement on the internet at: www.kratosdefense.com</B></FONT></TD>
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<TD WIDTH="60%" style="font-family:times;"><FONT SIZE=1>TO&nbsp;VOTE,&nbsp;MARK&nbsp;THE&nbsp;BLOCKS&nbsp;BELOW&nbsp;IN&nbsp;BLUE&nbsp;OR&nbsp;BLACK&nbsp;INK&nbsp;AS&nbsp;FOLLOWS:</FONT></TD>
<TD WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>KRATD1</FONT></TD>
<TD WIDTH="32%" ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>KEEP THIS PORTION FOR YOUR RECORDS</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3 style="font-family:times;"><HR NOSHADE></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><B>THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT></TD>
<TD WIDTH="32%" ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><B>DETACH&nbsp;AND&nbsp;RETURN&nbsp;THIS&nbsp;PORTION&nbsp;ONLY</B></FONT></TD>
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<P style="font-family:times;"><FONT SIZE=1>KRATOS
DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC.<BR>
(formerly Wireless Facilities,&nbsp;Inc.)<BR></FONT> <FONT SIZE=1><B>Management recommends a vote for the nominees for<BR>
director listed below.</B></FONT></P>

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<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1><B>Vote on Directors</B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="3%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>For<BR>
All</B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Withhold<BR>
All</B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>For&nbsp;All<BR>
Except</B></FONT><BR></TH>
<TH WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="38%" ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>1:</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="38%" style="font-family:times;"><FONT SIZE=1>To elect directors to hold office until the next Annual Meeting of Stockholders and until their successors are elected.</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="38%" style="font-family:times;"><FONT SIZE=1><B>Instructions: To withhold authority to vote for any indicated nominee, mark "For All Except" and write the number(s) of the nominee(s) on the line below.<BR>
&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><HR NOSHADE></TD>
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<TD WIDTH="19%" style="font-family:times;"><FONT SIZE=1>Nominees&nbsp;for&nbsp;Directors:</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="79%" style="font-family:times;"><FONT SIZE=1>01-Scott I. Anderson<BR>
02-Bandel L. Carano<BR>
03-Eric M. DeMarco<BR>
04-William A. Hoglund<BR>
05-Scot B. Jarvis</FONT></TD>
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<P style="font-family:times;"><FONT SIZE=1><B>Management recommends a vote for Proposal 2.<BR>
Vote on Proposal</B></FONT></P>

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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>For</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>Against</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>Abstain</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>2.</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=1>To ratify the selection of Grant Thornton&nbsp;LLP as the Company's independent registered public accounting firm for its fiscal year ending December&nbsp;28, 2008.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 VALIGN="TOP" style="font-family:times;"><BR><FONT SIZE=1><B>Management recommends a vote for Proposal 3.<BR>
Vote on Proposal</B></FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
</TR>
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<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>
3.</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=1><BR>
To approve an amendment to the Kratos 1999 Employee Stock Purchase Plan to increase the aggregate number of shares that may be issued under the Plan by 1,500,000&nbsp;shares.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 VALIGN="TOP" style="font-family:times;"><BR><FONT SIZE=1><B>Management recommends a vote for Proposal 4.<BR>
Vote on Proposal</B></FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>
4.</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=1><BR>
To approve an amendment to the Kratos 2005 Equity Incentive Plan to increase the aggregate number of shares that may be issued under the Plan by 3,000,000&nbsp;shares.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 VALIGN="TOP" style="font-family:times;"><BR><FONT SIZE=1><B>Management recommends a vote for Proposal 5.<BR>
Vote on Proposal</B></FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>
5.</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=1><BR>
To approve the issuance of Kratos common stock, par value $0.001 per share, pursuant to the Agreement and Plan of Merger and Reorganization, dated as of February&nbsp;20, 2008, by and among Kratos Defense &amp; Security Solutions, Inc., White Shadow,
Inc., and SYS, as the same may be amended from time to time.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 VALIGN="TOP" style="font-family:times;"><BR><FONT SIZE=1><B>Management recommends a vote for Proposal 6.<BR>
Vote on Proposal</B></FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>
6.</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=1><BR>
To approve any motion to adjourn or postpone the annual meeting to a later date or dates, if necessary, to solicit additional proxies if there are insufficient votes at the time of the annual meeting to approve the first five proposals listed
above.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
<FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>
7.</FONT></TD>
<TD WIDTH="1%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="75%" style="font-family:times;"><FONT SIZE=1><BR>
To transact such other business as may properly come before the annual meeting or any adjournment or postponement thereof.</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="6%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P style="font-family:times;"><FONT SIZE=1>Please
sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should sign. Executors, administrators, trustees, guardians and
attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate name and have a duly authorized officer sign, stating title. If signer is a
partnership, please sign in partnership name by authorized person. </FONT></P>

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<TABLE WIDTH="62%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="84%" style="font-family:times;"><FONT SIZE=1>For&nbsp;address&nbsp;changes,&nbsp;please&nbsp;check&nbsp;this&nbsp;box&nbsp;and&nbsp;write&nbsp;them&nbsp;on&nbsp;the&nbsp;back&nbsp;where&nbsp;indicated.</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="84%" style="font-family:times;"><FONT SIZE=1><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
Yes</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><BR>
No</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="84%" style="font-family:times;"><FONT SIZE=1>Please indicated if you plan on attending this meeting</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
</TR>
</TABLE>
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<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="100%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="38%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=1> Signature [PLEASE SIGN WITHIN BOX]</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=1> Date</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="38%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=1> Signature (Joint Owners)</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" style="font-family:times;"><FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=1> Date</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<BR>
<P><br><A NAME="08ZAT42501_11">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_ma42502_1">Exhibit 99.1</A></FONT><BR>
</UL>

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<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>12
<FILENAME>a2183215zex-99_2.htm
<DESCRIPTION>EXHIBIT 99.2
<TEXT>
<HTML>
<HEAD>
</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#08ZAT42501_12">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>
<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>


<!-- COMMAND=ADD_BASECOLOR,"Black" -->




<!-- COMMAND=ADD_DEFAULTFONT,"font-family:times;" -->


 </FONT></P>

<!-- TOC_END -->
<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><A
NAME="kw42502_exhibit_99.2"> </A>
<A NAME="toc_kw42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;99.2    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="kw42502_sys"> </A>
<A NAME="toc_kw42502_2"> </A>
<BR></FONT><FONT SIZE=2><B>SYS    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="kw42502_proxy_for_the_special_meeting___pro04740"> </A>
<A NAME="toc_kw42502_3"> </A></FONT> <FONT SIZE=2><B>PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS<BR>  TO BE HELD
[&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;], 2008<BR>  THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS    <BR>
</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby revokes all previous proxies, if any, hereby acknowledges receipt of the Notice of Special Meeting of Shareholders (the "Meeting") and
Joint Proxy Statement-Prospectus, and hereby appoints Thomas A. Page, or in his absence or inability to act, Michael W. Fink, as attorneys, agents and proxies of the undersigned, with full powers of
substitution, to attend and act as proxies of the undersigned at the Special Meeting of Shareholders of SYS (the "Company"), to be held at 5050 Murphy Canyon Road, Suite&nbsp;200, San Diego, CA
92123, on [&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;], 2008 at 11:00&nbsp;a.m., local time, and at any and all adjournments or continuations
thereof, and to vote as specified herein the number of
shares which the undersigned, if personally present, would be entitled to vote, with the same force and effect as the undersigned might or could do if personally present. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1, THE ADOPTION AND APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, DATED AS OF FEBRUARY
20, 2008, BY AND AMONG KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC., WHITE SHADOW,&nbsp;INC., AND SYS, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, AND "FOR" PROPOSAL 2, THE APPROVAL OF
ANY MOTION TO ADJOURN OR POSTPONE THE SPECIAL MEETING TO A LATER DATE OR DATES, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE INSUFFICIENT VOTES AT THE TIME OF THE SPECIAL MEETING TO
APPROVE THE PROPOSAL TO ADOPT THE MERGER AGREEMENT.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED. IF NO OTHER INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1 AND
2.</B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>PLEASE COMPLETE, SIGN AND DATE ON REVERSE SIDE AND RETURN TO THE COMPANY</I></FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>SYS<BR>
&nbsp;&nbsp;<BR>
Vote by Internet, Telephone or Mail<BR>
24 Hours a Day&#151;7 Days a Week </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Your
telephone or internet vote authorizes the named proxies to vote your shares in the same manner<BR>
As if you marked, signed and returned your proxy card. </FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><I>INTERNET</I></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><I>TELEPHONE</I></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><I>MAIL</I></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>http://www.proxyvoting.com/sys</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>1-866-540-5760</B></FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>1.</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Go to the website listed above</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>1.</FONT></TD>
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2>Use any touch-tone telephone</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>1.</FONT></TD>
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2>Mark, sign, and date your proxy card</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>2.</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Have your proxy card ready</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>2.</FONT></TD>
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2>Have your proxy card ready</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>2.</FONT></TD>
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2>Detach your proxy card</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>3.</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Enter your Control Number located above your name and address</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>3.</FONT></TD>
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2>Enter your Control Number above your name and address</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>3.</FONT></TD>
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2>Return your proxy card in the postage paid envelope provided</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>4.</FONT></TD>
<TD WIDTH="34%" style="font-family:times;"><FONT SIZE=2>Follow the simple instructions on the website</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>4.</FONT></TD>
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2>Follow the simple recorded instructions</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="27%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>You
do NOT need to mail back your proxy card<BR>
if you vote your proxy by telephone or internet. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>FOLD
AND DETACH HERE </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><I>(continued from other side)</I></FONT></P>

<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, DATED AS OF FEBRUARY 20, 2008, BY AND AMONG KRATOS DEFENSE&nbsp;&amp; SECURITY SOLUTIONS,&nbsp;INC., WHITE
SHADOW,&nbsp;INC., AND SYS.</B></FONT><FONT SIZE=2> To approve the principal terms of the merger of White Shadow,&nbsp;Inc. with and into SYS pursuant to, the Agreement and Plan of Merger and
Reorganization, dated as of February&nbsp;20, 2008, by and among Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc., White Shadow,&nbsp;Inc., and SYS, as the same may be amended from time to
time, and the transactions related thereto. </FONT></DD></DL>

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<TR VALIGN="TOP">
<TD WIDTH="33%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><FONT FACE="WINGDINGS">&#111;</FONT> </FONT><FONT SIZE=2><B>FOR</B></FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><FONT FACE="WINGDINGS">&#111;</FONT> </FONT><FONT SIZE=2><B>AGAINST</B></FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><FONT FACE="WINGDINGS">&#111;</FONT> </FONT><FONT SIZE=2><B>ABSTAIN</B></FONT></TD>
</TR>
</TABLE>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>ADJOURNMENT OR POSTPONEMENT. </B></FONT><FONT SIZE=2>To approve any motion to adjourn or postpone the special meeting to a later date or dates, if necessary, to
solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement. </FONT></DD></DL>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="33%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><FONT FACE="WINGDINGS">&#111;</FONT> </FONT><FONT SIZE=2><B>FOR</B></FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><FONT FACE="WINGDINGS">&#111;</FONT> </FONT><FONT SIZE=2><B>AGAINST</B></FONT></TD>
<TD WIDTH="33%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><FONT FACE="WINGDINGS">&#111;</FONT> </FONT><FONT SIZE=2><B>ABSTAIN</B></FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B>OTHER BUSINESS. </B></FONT><FONT SIZE=2>In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Meeting
at any and all adjournments or continuations thereof. The Board of Directors at present knows of no other business to be presented by or on behalf of the Company or the Board of Directors at the
Meeting. </FONT></DD></DL>

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<TR VALIGN="TOP">
<TD WIDTH="25%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><FONT FACE="WINGDINGS">&#111;</FONT> </FONT><FONT SIZE=2><B>I/(WE) WILL</B></FONT></TD>
<TD WIDTH="75%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><FONT FACE="WINGDINGS">&#111;</FONT> </FONT><FONT SIZE=2><B>WILL NOT ATTEND THE MEETING IN PERSON</B></FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
signing as attorney, executor, officer, administrator, trustee or guardian, please give full title. If more than one trustee, all should sign. All joint owners must sign. </FONT></P>

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<TD WIDTH="8%" style="font-family:times;"><FONT SIZE=2>Dated:</FONT></TD>
<TD WIDTH="73%" ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
<TD WIDTH="19%" style="font-family:times;"><FONT SIZE=2>, 2008</FONT></TD>
</TR>
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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TD WIDTH="100%" ALIGN="CENTER" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Signature</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="100%" ALIGN="CENTER" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Signature (if shares held jointly or if more than one trustee)</FONT></TD>
</TR>
</TABLE>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_kw42502_1">Exhibit 99.2</A></FONT><BR>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_kw42502_2">SYS</A></FONT><BR>
<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_kw42502_3">PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD [ ], 2008 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS</A></FONT><BR>

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<TYPE>EX-99.6
<SEQUENCE>13
<FILENAME>a2183215zex-99_6.htm
<DESCRIPTION>EXHIBIT 99.6
<TEXT>
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NAME="la42502_exhibit_99.6"> </A>
<A NAME="toc_la42502_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;99.6    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Wachovia
Capital Markets,&nbsp;LLC<BR>
Four Embarcaredo Center, 9<SUP>th</SUP>&nbsp;Floor<BR>
San Francisco, CA 94111 </FONT></P>

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<TD WIDTH="61%" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>April&nbsp;8, 2008</FONT></TD>
<TD WIDTH="2%" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="28%" ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><B>
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<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;<BR>
&nbsp;&nbsp;&nbsp;<BR>
Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc.<BR>
4810 Eastgate Mall<BR>
San Diego, CA 92121 </FONT></P>

<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>Re:</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Registration
Statement on Form&nbsp;S-4 Kratos Defense&nbsp;&amp; Security Solutions,&nbsp;Inc. (File No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;) Relating to the
Registration of 32,500,000 Shares of Common Stock, Par Value $0.001 Per Share, filed as of April&nbsp;9, 2008 (the "Registration Statement") </FONT></DD></DL>

<P style="font-family:times;"><FONT SIZE=2>Ladies
and Gentlemen: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reference
is made to our opinion letter, dated February&nbsp;20, 2008, with respect to the fairness, from a financial point of view, to Kratos Defense&nbsp;&amp; Security
Solutions,&nbsp;Inc., a Delaware corporation ("Kratos"), of the Exchange Ratio, as defined in the Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), dated February&nbsp;20,
2008, by and between Kratos, White Shadow,&nbsp;Inc., a Delaware corporation and wholly owned subsidiary of Kratos, and SYS, a California corporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
foregoing opinion was provided for the information and use of the Board of Directors of Kratos in connection with their consideration of the transaction contemplated by the Merger
Agreement. We understand that Kratos has determined to include our opinion in the Registration Statement and in connection therewith, we are providing this consent. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
that regard, we hereby consent to the reference to our opinion under the captions "Summary&#151;Opinions of Financial Advisors&#151;Kratos Financial Advisor" and "The
Merger&#151;Opinion of Financial Advisor to the Kratos Board of Directors", and to the inclusion of the foregoing opinion in the Proxy Statement/Prospectus included in the above-mentioned
Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section&nbsp;7 of the Securities Act of 1933 or
the rules and regulations of the Securities and Exchange Commission thereunder. </FONT></P>

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<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>Very truly yours,</FONT></TD>
</TR>
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<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2><BR>
/s/ Wachovia Capital Markets, LLC</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" style="font-family:times;"><FONT SIZE=2>WACHOVIA CAPITAL MARKETS,&nbsp;LLC.</FONT></TD>
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<FONT SIZE=2 style="font-family:times;"><A HREF="#toc_la42502_1">Exhibit 99.6</A></FONT><BR>
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