UNITEDTable STATES SECURITIESof AND EXCHANGE COMMISSION Contents

~~Washington,~~UNITED ~~D.C.~~STATES SECURITIES ~~20549~~AND EXCHANGE COMMISSION

~~FORM~~Washington, ~~10-Q~~D.C. 20549

~~(Mark~~FORM ~~one)~~10-Q

~~þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15~~(d)Mark ~~OF THE SECURITIES EXCHANGE ACT OF 1934~~one)

~~For~~þ ~~the~~QUARTERLY ~~quarterly~~REPORT ~~period~~PURSUANT ~~ended~~TO ~~March 31,~~SECTION ~~2009~~ 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

oFor ~~TRANSITION~~the ~~REPORT~~quarterly ~~PURSUANT~~period TOended ~~SECTION~~September 30, ~~13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~2009

~~For~~o ~~the~~TRANSITION ~~transition~~REPORT ~~period~~PURSUANT ~~from to~~ TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Commission~~For ~~file~~the ~~number~~transition ~~0-1388~~period from to

~~ZAREBA~~ Commission ~~SYSTEMS,~~file ~~INC.~~number 0-1388

~~State~~ZAREBA ofSYSTEMS, ~~Incorporation: Minnesota IRS Employer Identification No~~INC. ~~41-0832194~~ ~~13705 26th Avenue N., Suite 102, Minneapolis, MN 55441 (763) 551-1125~~

~~Indicate~~State byof ~~check~~Incorporation: ~~mark~~Minnesota IRS ~~whether~~Employer ~~the~~Identification ~~registrant~~No. ~~(1) has filed all reports required to be filed by~~41-0832194 ~~Section 13~~13705 or26th ~~15(d)~~Avenue ofN., ~~the Securities Exchange Act of 1934 during the preceding 12~~Suite ~~months~~102, ~~(or for such shorter period that the registrant was required to file such reports)~~Minneapolis, ~~and~~MN 55441 (2763) ~~has been subject to such filing requirements for the past 90 days.~~ 551-1125

~~Yes~~Indicate ~~þ No~~by ocheck mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

~~Indicate~~Yes byþ ~~check~~No mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o

~~Yes~~Indicate ~~o No~~by ocheck mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

~~Indicate~~Yes byo ~~check~~No mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. o

~~Large~~Indicate ~~accelerated~~by ~~filer~~check omark ~~Accelerated~~whether ~~filer~~the oregistrant ~~Non-~~is a large accelerated filer, oan ~~(Do~~accelerated ~~not~~filer, ~~check~~a non-accelerated iffiler, or a smaller reporting company). ~~Smaller~~See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” þin Rule 12b-2 of the Exchange Act.

~~Indicate~~Large byaccelerated ~~check~~filer ~~mark~~o ~~whether~~Accelerated ~~the~~filer ~~registrant~~o isNon-accelerated afiler ~~shell~~o Smaller reporting company þ (asDo ~~defined~~not incheck ~~Rule 12b-2~~if ofa ~~the Exchange~~smaller ~~Act~~reporting company).

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

~~The~~Yes ~~number~~o ofNo ~~shares outstanding of the Company’s Common Stock on May 4, 2009 was 2,481,973.~~ þ

~~INDEX~~The TOnumber ~~FORM~~of shares outstanding of the Company’s Common Stock on November 10-Q, 2009 was 2,481,973.

	Page Number
PART I: FINANCIAL INFORMATION
Item 1 Financial Statements		3
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Operations		4
Condensed Consolidated Statements of Cash Flows		5
Notes to Condensed Consolidated Financial Statements		6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 4 Controls and Procedures		17
PART II: OTHER INFORMATION
Item 1A Risk Factors		18
Item 6 Exhibits		18
SIGNATURES		19

INDEX TO FORM 10-Q

Zareba Systems, Inc. Form 10-Q, March 31, 2009 page 2


		Page Number

	PART I: FINANCIAL INFORMATION
Item 1	Financial Statements		3
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Statements of Operations		4
	Condensed Consolidated Statements of Cash Flows		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 4	Controls and Procedures		14
	PART II: OTHER INFORMATION
Item 1A	Risk Factors		15
Item 6	Exhibits		15
	SIGNATURES		16
EX-31.1
EX-31.2
EX-32.1
EX-32.2

~~PART~~Zareba I:Systems, ~~FINANCIAL~~Inc. ~~INFORMATION~~ Form 10-Q, September 30, 2009 page 2

Item 1.Table Financialof Statements Contents

~~ZAREBA~~PART ~~SYSTEMS,~~I: ~~INC.~~FINANCIAL INFORMATION

~~Condensed~~Item ~~Consolidated~~1. ~~Balance~~Financial ~~Sheets~~Statements

	March 31,			June 30,
(In thousands, except share amounts)	2009			2008
	(Unaudited)
Current assets
Cash and cash equivalents	$	122		$	633
Accounts receivable, net		4,275			8,031
Inventories		5,639			6,083
Other current assets		1,209			1,112
Current assets of discontinued operations		—			257
Total current assets		11,245			16,116
Property, plant and equipment, net		2,711			2,628
Other assets
Trademarks		2,510			2,681
Customer relationships, net		607			1,098
Other, net		115			525
Total other assets		3,232			4,304
TOTAL ASSETS	$	17,188		$	23,048
Current liabilities
Accounts payable	$	2,480		$	4,282
Accrued liabilities		1,643			2,617
Income taxes payable		—			676
Current maturities of long-term debt		379			1,121
Current liabilities of discontinued operations		6			172
Total current liabilities		4,508			8,868
Deferred income taxes		334			685
Other long-term liability		187			175
Long-term debt, less current maturities		3,428			3,570
Total liabilities		8,457			13,298
Stockholders’ equity
Undesignated shares as of March 31, 2009 and June 30, 2008, $0.01 par value, 39,950,000 shares authorized, none issued or outstanding		—			—
Series A Preferred Stock as of March 31, 2009 and June 30, 2008, $0.01 par value per share, 50,000 shares authorized, none issued or outstanding		—			—
Common stock as of March 31, 2009 and June 30, 2008, par value $.01 per share; authorized: 20,000,000 shares; issued and outstanding 2,481,973 and 2,465,696 shares, respectively		25			25
Additional paid-in capital		2,710			2,635
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment		(455	)		389
Retained earnings		6,451			6,701
Total stockholders’ equity		8,731			9,750
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	17,188		$	23,048

ZAREBA SYSTEMS, INC.

~~See~~Condensed ~~notes~~Consolidated toBalance ~~the condensed consolidated financial statements.~~Sheets

Zareba Systems, Inc. Form 10-Q, March 31, 2009 page 3


	September 30,			June 30,
(Dollars in thousands, except share amounts)	2009			2009
	(Unaudited)
Current assets
Cash and cash equivalents	$	343		$	272
Accounts receivable, net		4,601			7,256
Inventories		5,575			4,911
Other current assets		445			519
Deferred tax assets		409			409

Total current assets		11,373			13,367

Property, plant and equipment, net		2,786			2,698

Other assets
Trademarks		2,562			2,576
Customer relationships, net		543			628
Other, net		98			118

Total other assets		3,203			3,322

TOTAL ASSETS	$	17,362		$	19,387


Current liabilities
Accounts payable	$	3,330		$	3,768
Accrued salaries, wages, and other compensation		484			699
Accrued product warranties		598			546
Accrued customer rebates		574			395
Other accrued liabilities		515			644
Income taxes payable		179			198
Current maturities of long-term debt		265			213

Total current liabilities		5,945			6,463

Deferred income taxes		468			512
Other long-term liability		276			271
Long-term debt, less current maturities		1			1,840

Total liabilities		6,690			9,086


Commitments and contingencies		—			—

Stockholders’ equity
Undesignated shares as of September 30, 2009 and June 30, 2009, $0.01 par value, 39,950,000 shares authorized, none issued or outstanding		—			—
Series A Preferred Stock as of September 30, 2009 and June 30, 2009, $0.01 par value per share, 50,000 shares authorized, none issued or outstanding		—			—
Common stock as of September 30, 2009 and June 30, 2009, par value $.01 per share; authorized: 20,000,000 shares; issued and outstanding 2,481,973 and 2,481,973 shares, respectively		25			25
Additional paid-in capital		2,728			2,720
Accumulated other comprehensive loss:
Foreign currency translation adjustment		(217	)		(157	)
Retained earnings		8,136			7,713

Total stockholders’ equity		10,672			10,301

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	17,362		$	19,387

~~ZAREBA~~See ~~SYSTEMS,~~notes ~~INC~~to the condensed consolidated financial statements.

~~Condensed~~Zareba ~~Consolidated~~Systems, ~~Statements~~Inc. ofForm ~~Operations (Unaudited)~~10-Q, September 30, 2009 page 3

	Three months						Nine months
	ended March 31,						ended March 31,
(In thousands, except per share data)	2009			2008			2009			2008
Net sales	$	6,709		$	7,029		$	20,530		$	22,407
Cost of goods sold		4,752			4,916			14,248			15,847
Gross profit		1,957			2,113			6,282			6,560
Operating expenses
Selling, general and administrative		1,717			2,249			5,702			6,795
Research and development		213			246			692			773
Total operating expenses		1,930			2,495			6,394			7,568
Gain (loss) from operations		27			(382	)		(112	)		(1,008	)
Other income (expense), net
Interest income		—			6			8			28
Interest expense		(49	)		(86	)		(185	)		(297	)
Other income (expense), net		(97	)		(101	)		(279	)		(162	)
Loss before income taxes		(119	)		(563	)		(568	)		(1,439	)
Income tax benefit		(86	)		(187	)		(214	)		(480	)
Loss from continuing operations		(33	)		(376	)		(354	)		(959	)
Loss from discontinued operations, net of tax		—			(113	)		(7	)		(283	)
Gain from sale of discontinued product line, net of tax		111			—			111			—
Gain from sale of subsidiary, net of tax		—			—			—			2,546
Net income (loss)	$	78		$	(489	)	$	(250	)	$	1,304
Income from continuing operations per common and common equivalent share:
basic	$	(0.01	)	$	(0.15	)	$	(0.14	)	$	(0.39	)
diluted	$	(0.01	)	$	(0.15	)	$	(0.14	)	$	(0.39	)
Loss from discontinued operations per common and common equivalent share:
basic	$	—		$	(0.05	)	$	—		$	(0.12	)
diluted	$	—		$	(0.05	)	$	—		$	(0.12	)
Gain from sale of discontinued product line per common and common equivalent share:
basic	$	0.04		$	—		$	0.04		$	—
diluted	$	0.04		$	—		$	0.04		$	—
Gain from sale of subsidiary per common and common equivalent share:
basic	$	—		$	—		$	—		$	1.04
diluted	$	—		$	—		$	—		$	1.04
Net income per common and common equivalent share:
basic	$	0.03		$	(0.20	)	$	(0.10	)	$	0.53
diluted	$	0.03		$	(0.20	)	$	(0.10	)	$	0.53
Weighted average number of shares outstanding
basic		2,481,973			2,464,212			2,471,042			2,456,236
diluted		2,481,973			2,464,212			2,471,042			2,456,236

~~See~~ZAREBA ~~notes~~SYSTEMS, ~~to the condensed consolidated financial statements~~INC.

~~Zareba~~Condensed ~~Systems,~~Consolidated ~~Inc.~~Statements ~~Form~~of ~~10-Q, March 31, 2009 page 4~~Operations (Unaudited)

ZAREBA SYSTEMS, INC.


	Three months
	ended September 30,
(Dollars in thousands, except per share data)	2009			2008

Net sales	$	7,704		$	8,970
Cost of goods sold		4,807			6,092

Gross profit		2,897			2,878
Operating expenses
Selling, general and administrative		1,995			2,199
Research and development		170			242

Total operating expenses		2,165			2,441

Income from operations		732			437

Other income (expense), net
Interest income		—			5
Interest expense		(32	)		(71	)
Other income (expense), net		(74	)		(115	)

Income before income taxes		626			256
Income tax provision		224			92

Income from continuing operations		402			164
Loss from discontinued operations, net of tax		—			(6	)
Gain from sale of discontinued product line, net of tax		21			—

Net income	$	423		$	158


Income from continuing operations per common and common equivalent share:
basic	$	0.16		$	0.07
diluted	$	0.16		$	0.07

Loss from discontinued operations, net of tax per common and common equivalent share:
basic	$	—		$	—
diluted	$	—		$	—

Gain from sale of discontinued product line, net of tax per common and common equivalent share:
basic	$	0.01		$	—
diluted	$	0.01		$	—

Net income per common and common equivalent share:
basic	$	0.17		$	0.06
diluted	$	0.17		$	0.06

Weighted average number of shares outstanding
Basic		2,481,973			2,465,696
diluted		2,499,291			2,466,495

~~Condensed~~See ~~Consolidated~~notes ~~Statements~~to ofthe ~~Cash~~condensed ~~Flows~~consolidated financial statements.

~~(Unaudited)~~Zareba Systems, Inc. Form 10-Q, September 30, 2009 page 4

	For the nine months
	ended March 31,
(In thousands)	2009			2008
Cash flows provided by (used in) operations:
Reconciliation of net income (loss) to net cash provided by operations
Net income (loss)	$	(250	)	$	1,304
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		619			843
Gain on sale of discontinued product line		(111	)		—
Gain on sale of subsidiary		—			(2,546	)
(Gain) loss on disposal of plant and equipment		(28	)		9
Stock-based compensation expense		54			134
Deferred income taxes		(62	)		(216	)
Changes in assets and liabilities:
Accounts receivable, net		3,286			3,490
Inventories		(263	)		(1,197	)
Other assets		132			(461	)
Accounts payable and accrued expenses		(3,349	)		(3,056	)
Other long-term liability		12			—
Net cash provided by (used in) operations		40			(1,696	)
Cash flows provided by (used in) investing activities:
Purchases of property and equipment		(194	)		(167	)
Proceeds from sale of discontinued product line		289			—
Proceeds from sale of subsidiary		—			5,000
Net cash provided by (used in) investing activities		95			4,833
Cash flows provided by (used in) financing activities:
Net proceeds from (payments on) long-term debt – revolving credit facility		67			2,748
Proceeds from sale of common stock		21			53
Payments of debt issue costs		(11	)		(40	)
Payments on long-term debt		(659	)		(6,987	)
Net cash provided by (used in) financing activities		(582	)		(4,226	)
Effect of exchange rate changes in cash		(64	)		6
Net increase (decrease) in cash and cash equivalents		(511	)		(1,083	)
Cash and cash equivalents — beginning of period		633			1,614
CASH AND CASH EQUIVALENTS — END OF PERIOD	$	122		$	531
Supplemental Schedule of Non-Cash Activities
Long-term liability recorded for adoption of FIN 48 (See Note 8)	$	—		$	175
Change in deferred income taxes and income taxes payable related to other comprehensive income		—			96
Equipment placed into service that was purchased in previous period		346			—

~~See~~ZAREBA ~~notes~~SYSTEMS, ~~to the condensed consolidated financial statements~~INC.

~~Zareba~~Condensed ~~Systems,~~Consolidated ~~Inc.~~Statements ~~Form~~of ~~10-Q,~~Cash ~~March 31, 2009 page 5~~Flows (Unaudited)

ZAREBA SYSTEMS, INC.


	For the three months
	ended September 30,
(In thousands)	2009			2008

Reconciliation of net income to net cash provided by (used in) operations
Net income	$	423		$	158
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		188			236
Gain on sale of discontinued product line, net of tax		(21	)		—
Loss on disposal of plant and equipment		4			3
Stock-based compensation expense		8			14
Allowance for doubtful accounts		1			(15	)
Deferred income taxes		(21	)		(24	)
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable		2,619			2,492
Inventories		(715	)		(55	)
Other assets		39			(159	)
Accounts payable, accrued expenses and other long-term liability		(547	)		(1,527	)

Net cash provided by (used in) operations		1,978			1,123

Cash flows provided by (used in) investing activities:
Purchases of property and equipment		(196	)		(11	)
Proceeds from sale of discontinued product line		67			—

Net cash provided by (used in) investing activities		(129	)		(11	)

Cash flows provided by (used in) financing activities:
Net payments on debt — revolving credit facility		(1,575	)		(965	)
Payments on long-term debt		(212	)		(260	)

Net cash provided by (used in) financing activities		(1,787	)		(1,225	)
Effect of exchange rate changes in cash		9			(27	)

Net increase (decrease) in cash and cash equivalents		71			(140	)
Cash and cash equivalents — beginning of period		272			633

CASH AND CASH EQUIVALENTS — END OF PERIOD	$	343		$	493

~~Notes~~See notes to ~~Condensed~~the ~~Consolidated~~condensed ~~Financial~~consolidated ~~Statements~~financial statements.

~~March 31~~Zareba Systems, Inc. Form 10-Q, September 30, 2009 ~~and~~page ~~2008~~5

(Unaudited)Table of Contents

~~Zareba~~ZAREBA ~~Systems~~SYSTEMS, ~~Inc~~INC.~~, (the Company) prepared the condensed consolidated financial statements~~ without audit and pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary in order to make the consolidated financial statements not misleading. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.

~~These~~Notes ~~condensed~~to ~~consolidated~~Condensed ~~financial~~Consolidated ~~statements~~Financial should be read in conjunction with the consolidated financial statements and the accompanying notes included in the Company’s Form 10-K for the year ended June 30, 2008, and the Fiscal Year 2008 Annual Report. Statements

~~The results of operations for the three and nine months ended March~~September 3130, 2009 ~~are~~and ~~not necessarily indicative of the operating results to be expected for the full fiscal year.~~ 2008

Preparation of the Company’s condensed consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and related net sales and expenses. Actual results could differ from those estimates. (Unaudited)

1.Zareba ~~Net~~Systems, ~~Income~~Inc., (~~loss~~the Company) ~~per~~ ~~Share~~prepared the condensed consolidated financial statements without audit and pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary in order to make the consolidated financial statements not misleading. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.

~~The~~These ~~following~~condensed ~~table~~consolidated ~~sets~~financial ~~forth~~statements ~~the~~should ~~computation~~be ofread ~~basic~~in ~~and~~conjunction ~~diluted~~with ~~income~~the financial statements and ~~income~~the ~~per~~accompanying ~~share:~~notes included in the Company’s Form 10-K for the year ended June 30, 2009.

	Three months					Nine months
	ended March 31,					ended March 31,
(Dollars in thousands, except per share amounts)	2009		2008			2009			2008
Numerator:
Net income	$	78	$	(489	)	$	(250	)	$	1,304
Denominator:
Weighted average common shares outstanding-basic		2,481,973		2,464,212			2,471,042			2,456,236
Dilution associated with the company’s stock-based compensation plans		—		—			—			—
Weighted average common shares outstanding-diluted		2,481,973		2,464,212			2,471,042			2,456,236
Net income (loss) per common share-basic	$	0.03	$	(0.20	)	$	(0.10	)	$	0.53
Net income (loss) per common share-diluted	$	0.03	$	(0.20	)	$	(0.10	)	$	0.53
Dilutive potential shares excluded because the effect would be antidilutive:
In-the-money stock options		5,025		87,300			5,025			87,300
Stock options with exercise prices greater than the average market price of the common shares for those periods		118,800		222,525			118,800			222,525

The results of operations for the three months ended September 30, 2009 are not necessarily indicative of the operating results to be expected for the full fiscal year.

2Preparation of the Company’s condensed consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and related net sales and expenses. ~~Comprehensive~~Actual ~~Income~~results ~~(loss)~~could differ from those estimates.

The ~~components~~Company ofhas ~~comprehensive~~evaluated ~~income~~subsequent ~~(loss),~~events ~~net~~occurring ofthrough ~~related~~November 10, ~~tax~~2009, ~~for~~ the ~~three~~date ~~and~~on ~~nine months~~which ~~ended~~this ~~March 31,~~Form ~~2009~~10-Q ~~and~~was ~~2008 were as follows:~~issued.

	Three months						Nine months
	ended March 31,						ended March 31,
(In thousands)	2009			2008			2009			2008
Net income (loss)	$	78		$	(489	)	$	(250	)	$	1,304
Foreign currency translation adjustment, net of tax		(31	)		(90	)		(844	)		(138	)
Comprehensive income (loss)	$	47		$	(579	)	$	(1,094	)	$	1,166

1. Net Income per Share

3.The ~~Stock-Based~~following ~~Compensation~~table sets forth the computation of basic and diluted income and income per share:

Commencing July 1, 2006, we adopted Statement of Financial Accounting Standard No. 123(R), Share Based Payment (SFAS 123(R)), and SEC Staff Accounting Bulletin No. 107, Share Based Payment, (“SAB 107”) requiring all share-based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their fair value over the requisite service period. We recorded $96,000 of related compensation expense, or $60,000 net of tax or $0.02 per basic and diluted share, to the gain on sale of subsidiary during the first quarter of fiscal 2008 as a result of


	Three months
	ended September 30,
(Dollars in thousands, except per share data)	2009		2008
Numerator:
Net income	$	423	$	158

Denominator:
Denominator for basic earnings per share, weighted average shares		2,481,973		2,465,696
Dilutive potential shares — employee stock options		17,318		799

Denominator for diluted earnings per share, weighted average shares		2,499,291		2,466,495

Net income per share-basic	$	0.17	$	0.06
Net income per share-diluted	$	0.17	$	0.06

Dilutive potential shares excluded because the effect would be antidilutive:
In-the-money stock options		—		—
Stock options with exercise prices greater than the average market price of the common shares for those periods		48,800		135,075

~~Zareba Systems, Inc~~2. ~~Form~~Comprehensive ~~10-Q,~~Income ~~March 31, 2009 page 6~~(loss)

~~accelerated~~The ~~vesting~~components of ~~certain~~comprehensive ~~options~~income ~~upon closing of the transaction. We also recorded $10~~(loss),~~000 and~~ ~~$38,000~~net of related compensation expense, all to general and administrative expense, for the three and nine month periods ended March 31, 2009, respectively, as compared to $13,000 and $38,000 for the respective comparable periods in the prior year. The related tax ~~benefit from recording this non-cash general and administrative expense was $4~~,~~000~~ ~~and $14,000, and the net compensation expense to operations was $6,000, or $0.00 per basic and diluted share, and $24,000, or $0.01 per basic and diluted share,~~ for the three ~~and~~months ~~nine month periods~~ ended ~~March 31, 2009, respectively.~~ The related tax benefit from recording this non-cash general and administrative expense was $5,000 and $14,000 and the net compensation expense to operations was $8,000, or $0.00 per basic and diluted share, and $24,000, or $0.01 per basic and diluted share, for the three and nine months ended MarchSeptember 3130, ~~2008, respectively. Remaining stock-based compensation for both periods is related to the Company’s employee stock purchase plan. As of March 31,~~ 2009, awere ~~total~~as ~~of $76,000 of~~follows: ~~unrecognized compensation costs related to non-vested stock option awards was outstanding and is expected to be recognized within the next four years.~~

The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options. The volatility factor used in the Black-Scholes option pricing model is based on historical stock price fluctuations. The current forfeiture rate is based on a reasonable estimate by management. Expected dividend yield is based upon the Company’s historical and projected dividend activity and the risk free interest rate is based upon US Treasury rates appropriate for the expected term of the options. The expected term is based on estimates regarding projected employee stock option exercise behavior. Options for 5,025 shares were granted during the nine months ended March 31, 2009, and the weighted average fair value of these options was $1.48, determined using an expected dividend yield of 0.00%, an expected stock price volatility of 103.78%, a risk-free interest rate of 4.00% and expected option lives of 7.5 years. There were no options granted in the three months ended March 31, 2009.


	Three months
	ended September 30,
(In thousands)	2009			2008
Net income	$	423		$	158
Foreign currency translation adjustment, net of tax		(60	)		(380	)

Comprehensive income (loss)	$	363		$	(222	)

~~The~~Zareba ~~Company’s~~Systems, ~~stock~~Inc. ~~options~~Form ~~generally vest over four to five years of service and have a contractual life of~~ 10 ~~years.~~-Q, WeSeptember ~~have 550~~30,~~000~~ ~~shares~~2009 ~~authorized~~page ~~for grant under the 2004 Equity Incentive Plan.~~ 6

OptionTable activityof under both plans during the nine months ended March 31, 2009 was as follows: Contents

			Weighted Avg.		Aggregate
	Number		Exercise Price		Intrinsic
	of Options		Per Share		Value
Options outstanding, June 30, 2008		159,825	$	3.99
Granted		5,025		1.72
Exercised		—		—
Forfeited		41,025	$	3.20
Options outstanding, March 31, 2009		123,825	$	4.17	$	—
Exercisable, March 31, 2009		79,325	$	4.88	$	—

3. Stock-Based Compensation

AsThe Company recognizes all share-based payments, including grants of ~~March 31~~stock options and compensatory employee stock purchase plans, ~~2009~~in the income statement as an operating expense, based on their fair value over the ~~options~~requisite ~~outstanding~~service ~~have~~period. aWe ~~weighted~~recorded ~~average~~$8,000 ~~remaining~~of ~~contractual~~related ~~life~~compensation expense to general and administrative expense for the three months ended September 30, 2009, as compared to $14,000 of related compensation expense for the three 5months ended September 30, 2008.8 As of September ~~years~~30, ~~and~~2009, ~~exercise~~a ~~prices~~total of $62,000 of unrecognized compensation costs related to non-vested stock option awards was outstanding and ~~unexercised~~is ~~options~~expected asto ~~follows:~~be recognized within the next three fiscal years.

Options outstanding						Options exercisable
			Weighted	Weighted				Weighted
Exercise	Outstanding		Average	Average		Number		Average
Price	Shares		Contractual Life	Exercise Price		Exercisable		Exercise Price
$1.72 to $3.63		75,025	6.3 years	$	2.49		35,025	$	2.53
$4.00 to $4.52		16,275	2.0 years	$	4.16		16,275	$	4.16
$6.83 to $8.47		32,525	6.6 years	$	8.04		28,025	$	8.23
$1.72 to $8.47		123,825	5.8 years	$	4.17		79,325	$	4.88

The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options. The volatility factor used in the Black-Scholes option pricing model is based on historical stock price fluctuations. The current forfeiture rate is based on a reasonable estimate by management. Expected dividend yield is based upon the Company’s historical and projected dividend activity and the risk free interest rate is based upon US Treasury rates appropriate for the expected term of the options. The expected term is based on estimates regarding projected employee stock option exercise behavior. Options for 5,025 shares were granted during the three months ended September 30, 2008, and the weighted average fair value of these options was $1.48, determined using an expected dividend yield of 0.00%, an expected stock price volatility of 103.78%, a risk-free interest rate of 4.00% and expected option lives of 7.5 years. There were no options granted in the three months ended September 30, 2009.

4The Company’s stock options generally vest over five years of service and have a contractual life of 10 years. ~~Balance~~We ~~Sheet~~have ~~Information~~550,000 shares authorized for grant under the 2004 Equity Incentive Plan.

~~Accrued~~Option ~~severance~~activity ~~expense,~~during ~~included~~the inthree ~~accrued~~months ~~liabilities~~ended September 30, 2009 was as follows:

	March 31,
				Weighted Avg.		Aggregate
(In thousands)	2009
	Number			Exercise Price		Intrinsic
	(Unaudited)
	of Options			Per Share		Value
Beginning balance, June 30, 2008	$	377
Options outstanding, June 30, 2009		123,825		$	4.17
Severance accrual		—
Granted		—			—
Severance payments		(319	)
Exercised		—			—
Ending balance, March 31, 2009	$	58
Forfeited		—			—
Options outstanding, September 30, 2009		123,825		$	4.17	$	198,401
Exercisable, September 30, 2009		90,825		$	4.64	$	123,098

~~Inventories~~As ~~consisted~~ of September 30, 2009, the ~~following~~options outstanding have a weighted average remaining contractual life of 5.3 years, and exercise prices and unexercised options as follows:

	March 31,		June 30,
Options outstanding							Options exercisable
(In thousands)	2009		2008
			Weighted		Weighted				Weighted
	(Unaudited)
Exercise	Outstanding		Average		Average		Number		Average
Raw materials	$	1,929	$	2,311
Price	Shares		Contractual Life		Exercise Price		Exercisable		Exercise Price
Finished goods		3,710		3,772
$1.72 to $2.67		75,025	5.8 years		$	2.49		45,025	$	2.52
TOTALS	$	5,639	$	6,083
$4.00 to $4.52		16,275	1.5 years		$	4.16		16,275	$	4.16
$6.83 to $8.47		32,525	6.0 years		$	8.04		29,525	$	8.16
$1.72 to $8.47		123,825	5.3 years		$	4.17		90,825	$	4.64

~~Zareba Systems, Inc~~4. ~~Form~~Balance ~~10-Q,~~Sheet ~~March 31, 2009 page 7~~Information

5.Inventories ~~Goodwill~~consisted ~~and~~of ~~Intangible~~the ~~Assets~~following:

Effective July 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which established new standards related to how acquired goodwill and indefinite-lived intangible assets are to be recorded upon their acquisition as well as how they are to be accounted for after they have been initially recognized in the financial statements.


	September 30,		June 30,
(In thousands)	2009		2009

	(Unaudited)
Raw materials	$	1,840	$	1,815
Finished goods		3,735		3,096

TOTALS	$	5,575	$	4,911

~~Intangible~~Zareba ~~assets~~Systems, ~~are~~Inc. ~~amortized~~Form ~~on a straight~~10-~~line~~Q, ~~basis~~September over the estimated periods benefited; a seven-year useful life has been assigned to the acquired customer relationships and five-year useful life for the non-compete. Amortization expenses related to definite lived intangible assets for the three and nine months ended March 3130, 2009 ~~were~~page ~~$69,000 and $208,000, respectively, compared to $83,000 and $256,000 in the respective comparable periods ended March 31, 2008.~~ 7

AtTable June 30, 2007, the Company completed its annual impairment tests for acquired goodwill and indefinite lived intangible assets using methodologies consistent with those applied for its transitional impairment tests performed as of July 1, 2002. Such testing resulted in no impairment charge. Contents

After completing step one of the annual impairment test as of June 30, 2008, the Company determined that the estimated fair value of the Company was less than the net book value, requiring the completion of the second step of the impairment test5. ToIntangible ~~measure the amount of the impairment, SFAS~~Assets 142 prescribes that the Company determine the implied fair value of goodwill in the same manner as if the Company was acquired at the measurement date. Specifically, the fair value of the Company must be allocated to all of the assets of the Company, including any unrecognized intangible assets, in a hypothetical calculation that would yield the implied fair value of goodwill. The impairment loss is measured as the difference between the book value of the goodwill and the implied fair value of the goodwill computed in step two. Based on the step two of the analysis prepared as of June 30, 2008, the Company determined that the entire amount of goodwill was impaired.

~~Accordingly,~~Intangible ~~the~~assets ~~Company~~are ~~reduced~~amortized ~~goodwill~~on toa ~~zero~~straight-line inbasis over the ~~fourth~~estimated ~~quarter~~periods ~~of fiscal 2008. In~~benefited; ~~accordance~~a ~~with~~seven-year ~~SFAS~~useful ~~142~~life ~~and~~has ~~SFAS~~been ~~No. 130,~~assigned ~~Reporting~~to ~~Comprehensive~~the ~~Income,~~acquired ~~the~~customer ~~Company~~relationships ~~recorded~~and afive-year ~~$6,264,000~~useful ~~goodwill~~life ~~impairment~~for ~~charge~~the tonon-compete. ~~operations~~Amortization toexpense ~~reverse~~related ~~the~~to ~~original~~definite ~~amount~~lived ~~recorded~~intangible toassets ~~goodwill~~for at the ~~respective~~three ~~transaction~~months ~~dates.~~ended ~~This~~September 30, ~~amount~~2009 ~~includes~~was ~~a reclassification of~~ $~~325~~70,000 ~~from~~, ~~accumulated~~compared ~~other comprehensive income~~ to ~~reverse previously recorded foreign currency translation gains to goodwill~~$80,000 in ~~accordance~~the ~~with~~comparable period ~~View~~ended ~~B of Emerging Issues Task Force (EITF)~~September ~~Issue No~~30, 2008. ~~01-5.~~

6. Bank Debt Disclosure

On August 29, 2007, the Company entered into a secured revolving credit facility with JPMorgan Chase Bank, N.A. (Chase) (the “~~2007~~Chase ~~Credit~~ Facility”),. ~~subsequently~~The ~~terminating~~Chase ~~the Wells Fargo Business Credit (WF)~~ facility ~~and paying in full all outstanding balances under the WF facility~~, ~~totaling~~ ~~approximately~~as ~~$1.1 million on August 30~~amended, ~~2007. The 2007 Credit Facility~~ provides for a $6 .0 million secured revolving credit facility (the “Credit Facility”), with the option to increase borrowings in additional $500,000 increments with the consent of the Lender, up to a total of $7.5 million. Amounts under the facility may be borrowed, repaid and ~~reborrowed~~re-borrowed from time to time until its maturity on August 29, 2010. Loans under the ~~2007~~ Credit Facility, ~~as amended,~~ will bear interest at either a base ~~rate~~ ~~minus 1.0 percent to 0 percent (amended to base~~ rate plus 0 ~~percent~~.0% to ~~plus~~ 0.~~50 percent),~~ 5% based upon financial performance, or a Eurocurrency rate equal to the London Inter-Bank Offered Rate (“LIBOR”) for the relevant term plus 1.5 ~~percent~~% to ~~2.5 percent (amended to plus 1.5 percent to plus~~ 3~~.0 percent),~~% based upon financial performance. The outstanding balance under this revolving credit facility at ~~March 31~~September 30, 2009 was $30.43 million. The effective interest rate at ~~March 31~~September 30, 2009 was 3.~~50 percent~~25%, and the average effective interest rate for the three ~~and nine~~ months then ended was 3.6337% ~~and 3.98 percent, respectively,~~ versus 54.220% ~~and 6.23 percent~~ for the ~~respective~~ ~~periods~~respective period in the prior year. ~~The~~Unused ~~Company~~availability ~~and~~under ~~Chase entered into amendments to~~ the ~~2007~~ Credit Facility onat September 30, ~~2008~~2009 ~~and~~totaled ~~October~~$3.8 ~~22, 2008~~million.

~~Also,~~The inChase ~~September 2004,~~Credit ~~Zareba~~Facility ~~Systems~~is ~~Europe~~collateralized ~~secured~~by asubstantially ~~£2,214,000~~all ~~term~~of ~~loan (approximately $4.0 million) from~~ the ~~Bank~~Company’s ofUS ~~Scotland~~based ~~(BoS)~~assets and inis ~~the~~subject ~~United~~to ~~Kingdom~~certain ~~for~~restrictive ~~the Rutland acquisition~~covenants. ~~Under the~~Line ~~terms~~ of ~~the BoS~~ credit ~~facility~~borrowings ~~agreement,~~are ~~interest~~limited isto ~~charged on outstanding balances at the~~eligible ~~rate~~accounts ofreceivable ~~two~~ and ~~one eighth percent (or 2~~inventory.~~125 percent) above~~

Also, in September 2004, Zareba Systems Europe secured a £2,214,000 ~~Inc~~term loan (approximately $4.0 million) ~~Form~~from 10the Bank of Scotland (BoS) in the United Kingdom for the Rutland acquisition. Under the terms of the BoS credit facility agreement, interest is charged on outstanding balances at the rate of two and one eighth percent (or 2.125 percent) above the base rate with a five-Qyear term. The average effective interest rate for the three months ended September 30, ~~March~~2009 31was 2.7% versus 7.26% for the prior year. The BoS term loan matured on September 27, 2009 ~~page~~and 8the balance was paid in full.

~~the~~The ~~base~~following ~~rate~~table ~~with~~summarizes ~~a five-year term. On March 31, 2009,~~ the ~~effective~~debt interest rate was 2.76 percent and the average effective interest rate for the three and nine months then ended was 3.49 percent and 5.58 percent, respectively, versus 7.51 percent and 7.74 percent for the respective periods in the prior year. The BoS term loan matures on September 27, 2009, with monthly principal and interest payments of £49,355 (approximately $71,000). The balance outstanding ~~under this facility at March 31, 2009 was £0.3 million, or~~: ~~approximately $0.4 million.~~

The following table summarizes the debt outstanding:


	United States Bank Debt as of
	September 30,			June 30,
(In thousands)	2009			2009

Note payable to bank	$	264		$	1,839
Other		2			2

		266			1,841
Less current maturities and short-term borrowings		(265	)		(1	)

Total	$	1		$	1,840

United States Bank Debt as of


	United Kingdom Bank Debt as of
	September 30,		June 30,
(In thousands)	2009		2009

Note payable to bank	$	—	$	212
Less current maturities and short-term borrowings		—		(212	)

Total	$	—	$	—

	March 31,			June 30,
(In thousands)	2009			2008
Note payable to bank	$	3,426		$	3,360
Other		3			3
		3,429			3,363
Less current maturities and short-term borrowings		(1	)		(1	)
Total	$	3,428		$	3,362

7. Discontinued Operations

~~United~~Professional ~~Kingdom~~Series Automatic ~~Bank~~Gate ~~Debt~~Opener asProduct ofLine

	March 31,			June 30,
(In thousands)	2009			2008
Note payable to bank	$	378		$	1,328
Less current maturities and short-term borrowings		(378	)		(1,120	)
Total	$	—		$	208

In June 2008, Zareba discontinued its professional series automatic gate opener (PS AGO) product line and commenced efforts to sell the related assets and eliminate personnel and support costs associated with the product line. In conjunction with the decision to discontinue the PS AGO product line, the Company recorded a $400,000 valuation adjustment related to the inventory and fixed assets and purchase commitments of the PS AGO product line. Accordingly, all results of operations and assets and liabilities of the PS AGO product line for all periods presented prior to the decision date have been restated and classified as discontinued operations.

~~Both~~On October 22, 2008, the ~~Chase~~Company ~~and~~sold substantially all of the ~~BoS~~assets ~~credit~~of ~~facilities~~its ~~are~~professional ~~collateralized~~series automatic bygate ~~substantially~~operator ~~all~~product line to Amazing Gates of ~~the~~America, ~~assets~~LLC (Buyer) for $739,000, plus the assumption of certain outstanding inventory purchase obligations of the Company. ~~and~~The ~~Zareba~~purchase price ~~Systems~~was ~~Europe,~~payable in ~~their~~cash ~~respective~~of ~~localities~~$200,000 ~~and~~at ~~are~~the ~~subject~~closing, with the balance to ~~certain~~be paid in installments ~~restrictive~~by ~~covenants~~December 2010. ~~Line~~The ofpurchase ~~credit~~price ~~borrowings~~is ~~are~~evidenced ~~limited~~by topromissory ~~eligible~~notes ~~accounts~~ receivable ~~and~~ ~~inventory.~~

7.Zareba ~~Discontinued Operations~~Systems, ~~Sale~~Inc. ofForm ~~Professional~~10-Q, ~~Series Automatic~~September ~~Gate~~30, ~~Opener~~2009 ~~Product~~page ~~Line and Sale of Waters Medical Systems, Inc.~~ 8

ProfessionalTable Series Automaticof Gate Opener Product Line Contents

Infrom ~~June 2008,~~the ~~Zareba~~Buyer ~~discontinued~~which ~~its~~are ~~professional~~secured ~~series~~by ~~automatic~~the ~~gate~~assets ~~opener~~sold ~~(PS~~to ~~AGO)~~Buyer. ~~product line~~The ~~and~~payment ~~commenced~~at ~~efforts~~closing towas directly ~~sell~~applied as the ~~related~~purchase ~~assets~~price ~~and~~of ~~eliminate~~the ~~personnel~~assets ~~and~~transferred ~~support~~to ~~costs associated~~Buyer ~~with~~at ~~the~~that ~~product line~~date. InThe ~~conjunction~~Company retained ~~with~~possession of the ~~decision~~remaining toassets ~~discontinue~~and ~~the~~will PSdeliver ~~AGO product~~them ~~line,~~to the ~~Company~~Buyer ~~recorded~~as ~~a $400,000 valuation adjustment related to~~ the ~~inventory~~Buyer ~~and~~makes ~~fixed~~the ~~assets~~required ~~and~~installment ~~purchase~~payments ~~commitments~~under of the PSnotes ~~AGO product line~~receivable. ~~Accordingly,~~Valuation ~~all~~reserves ~~results~~were ofestablished ~~operations~~for ~~and~~100% ~~assets~~of ~~and~~the ~~liabilities~~balance of the PSnotes ~~AGO~~receivable ~~product~~by ~~line~~the ~~for~~Company ~~all~~at ~~periods~~the ~~presented~~transaction ~~prior~~date toand, ~~the~~accordingly, ~~decision~~no ~~date~~gain ~~have~~on ~~been~~the ~~restated~~transaction ~~and~~was ~~classified~~recorded asat ~~discontinued operations~~Closing.

OnDuring ~~October 22, 2008,~~ the ~~Company~~first ~~sold~~quarter ~~substantially all~~ of ~~the~~fiscal ~~assets of its professional series automatic gate operator product line to Amazing Gates of America~~2010, ~~LLC (Buyer) for $739,000, plus~~ the ~~assumption of certain outstanding inventory purchase obligations of the~~ Company. ~~The~~received ~~purchase price was payable in cash of~~ $~~200~~67,000 atthrough ~~the~~payments ~~closing,~~by ~~with~~ the ~~balance to be paid in installments~~Buyer byagainst ~~December 2010.~~the ~~The purchase price is evidenced by~~ promissory notes ~~receivable~~in ~~from~~accordance with the ~~Buyer which~~terms ~~are~~of ~~secured by~~ the ~~assets~~purchase ~~sold to Buyer~~agreement. The ~~payment~~Company recorded ata ~~closing~~corresponding ~~was~~gain ~~directly~~on ~~applied~~sale asof ~~the purchase~~$21,000, ~~price~~net of ~~the~~tax, ~~assets transferred~~ to ~~Buyer~~reflect atthese ~~that date~~transactions. ~~The Company retained possession of~~ ~~the~~Further ~~remaining~~payments ~~assets~~by ~~and will deliver them to~~ the Buyer ason the ~~Buyer makes the required installment payments under the~~ notes receivable. ~~Valuation~~along ~~reserves~~with ~~were~~valuation ~~established~~assessments ~~for~~by ~~100%~~Company management ofeach ~~the~~quarter ~~balance of~~may ~~the~~result ~~notes~~in ~~receivable~~additional bygain on the ~~Company~~sale atof the ~~transaction~~product ~~date~~line ~~and, accordingly, no gain on the~~being ~~transaction~~realized ~~was~~in ~~recorded~~future ~~at Closing~~periods.

~~During~~Condensed ~~the~~consolidated ~~third~~statements ~~quarter~~ of ~~fiscal~~operations ~~2009,~~for ~~the~~PS ~~Company~~AGO ~~received~~product ~~$0.2 million~~line ~~through~~for ~~payments~~three bymonths ~~the~~ended ~~Buyer~~September 30, ~~against~~2009 ~~the promissory notes~~ and ~~assumption~~2008 ofare ~~all~~as ~~remaining inventory purchase obligations,~~follows: in accordance with the terms of the purchase agreement. The Company recorded a corresponding gain on sale of $111,000, net of tax, to reflect these transactions. Further payments by the Buyer on the notes receivable along with valuation assessments by Company management each quarter may result in additional gain on the sale of the product line being realized in future periods.

Zareba Systems, Inc. Form 10-Q, March 31, 2009 page 9


	Three months ended
	September 30,
(In thousands)	2009		2008

Net sales	$	—	$	3
Gross profit		—		(10	)
Selling, general and administrative		—		—
Research and development		—		—
Income tax provision (benefit)		—		(4	)
Loss from discontinued operations, net of tax	$	—	$	(6	)

~~Assets~~8. ~~and~~Income ~~liabilities of PS AGO product line at March 31, 2009 and June 30, 2008 were as follows:~~Taxes

	March 31,		June 30,
(In thousands)	2009		2008
Accounts receivable, net	$	—	$	39
Inventories, net		—		218
Other current assets		—		—
Current assets of discontinued operations		—		257
Property and equipment, net		—		—
Other assets of discontinued operations		—		—
Accounts payable		—		—
Accrued compensation and other liabilities		6		172
Current liabilities of discontinued operations	$	6	$	172

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At June 30, 2009 and September 30, 2009, the balance of unrecognized tax benefits is $271,000 and $276,000, respectively. The Company expects the balance of unrecognized tax benefits to fluctuate in future periods with the lapse of the statute of limitations on some periods and the addition of provisions for future periods; however, the net fluctuation, if any, cannot be reasonably predicted. The September 30, 2009 balance of unrecognized tax benefits, if ultimately recognized, will reduce the Company’s annual effective tax rate.

~~Condensed~~The ~~consolidated~~Company ~~statements~~is ofsubject ~~operations~~to ~~for~~income PStaxes ~~AGO~~in ~~product~~the ~~line~~U.S. ~~for~~Federal jurisdiction, Minnesota, and the ~~three~~United Kingdom. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and ~~nine~~regulations and require significant judgment to apply. With few exceptions, the ~~months~~Company ~~ended~~is ~~March 31~~no longer subject to U.S. federal, ~~2009~~state ~~and~~or ~~2008~~local ~~are~~income astax ~~follows:~~examinations by tax authorities for the fiscal years ended before June 30, 2006.

	Three months ended					Nine months ended
	March 31,					March 31,
(In thousands)	2009		2008			2009			2008
Net sales	$	—	$	45		$	2		$	363
Gross profit		—		(2	)		(11	)		71
Selling, general and administrative		—		117			—			367
Research and development		—		57			—			166
Income tax provision (benefit)		—		(63	)		(4	)		(166	)
Loss from discontinued operations, net of tax	$	—	$	(113	)	$	(7	)	$	(296	)

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense for all periods presented. Accrued interest and penalties at September 30, 2009 and June 30, 2009 totaled approximately $34,000 and $28,000, respectively.

~~Waters~~Zareba ~~Medical~~ Systems, Inc. Form 10-Q, September 30, 2009 page 9

OnTable July 24, 2007 the Company entered into a Stock Purchase Agreement for the sale of the Company’s Waters Medical Systems, Inc. (WMS) subsidiary to a third party. The WMS subsidiary, a provider of medical products was initially formed on June 30, 2005, when all the assets of the WMS division of Zareba were transferred to the newly-formed subsidiary, and has operated in a separate business segment of the Company. Accordingly, all results of operations and assets and liabilities of WMS for all periods presented prior to the transaction date have been restated and classified as discontinued operations. Contents

~~The sale of WMS was completed on August~~Item ~~1, 2007~~2. ~~The~~Management’s ~~transaction~~Discussion ~~involved~~and ~~the~~Analysis ~~sale~~ of ~~100 percent of~~Financial ~~the~~Condition ~~stock of WMS, including all assets~~ and ~~liabilities~~Results of ~~WMS at close, for $5 million cash~~Operations.

The ~~gain~~following ondiscussion of the ~~sale~~Company’s results of ~~WMS~~operations ~~recorded~~and financial condition should be read together with the other financial information and Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the ~~first~~year ~~quarter~~ended June 30, 2009. The results of ~~fiscal~~operations ~~2008~~relate ~~was~~to ~~calculated~~continuing operations unless noted. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as ~~follows:~~a result of a variety of factors, including those discussed in Part I, Item 1A Risk Factors, in our Annual Report on Form 10-K for the year ended June 30, 2009, and elsewhere in this report.

Cash received	$	5,000
Less: investment in WMS		(665	)
transaction costs		(228	)
Gain on sale before tax		4,107
Income tax (estimated rate of 38%)		(1,561	)
Gain on sale, net of tax	$	2,546

Executive Summary

Zareba Systems, Inc. ~~Form 10-Q~~(“Zareba”, ~~March~~“Zareba 31Systems” or the “Company”) net sales were $7.7 million for the three months ended September 30, 2009, ~~page~~versus 10net sales of $9.0 million for the comparable period in the prior year. The decrease resulted from a general softness in sales in our primary markets, North America and the UK, brought about by the prolonged economic downturn in those markets, and to a lesser extent, from the translation of sales from British pound sterling to US dollars at lower exchange rates in fiscal 2010 than 2009.

~~Condensed~~Income ~~consolidated~~from ~~statements~~continuing of operations ~~for~~was ~~WMS~~$402,000, ~~for~~or ~~three~~$0.16 per basic and ~~nine~~diluted ~~months~~share for the first quarter ended ~~March~~September 3130, 2009, compared to income from continuing operations of $164,000, or $0.07 per basic and ~~2008~~diluted ~~are~~share asfor ~~follows:~~the comparable period of the prior year. The increase in income from operations from the prior year resulted primarily from lower operating and interest expense in the current year.

	Three months ended				Nine months ended
	March 31,				March 31,
(In thousands)	2009		2008		2009		2008
Net sales	$	—	$	—	$	—	$	142
Gross profit		—		—		—		79
Selling, general and administrative		—		—		—		47
Research and development		—		—		—		11
Income tax provision		—		—		—		8
Gain from discontinued operations, net of tax	$	—	$	—	$	—	$	13

Net income was $423,000, or $0.17 per basic and diluted share for the three months ended September 30, 2009 and included a gain on sale of discontinued product line of $21,000, net of tax. Net income was $158,000, or $0.06 per basic and diluted share for the first quarter of the prior fiscal year.

~~8. Income Taxes~~Overview

~~The~~Zareba ~~Company adopted the provisions of FASB Interpretation 48~~Systems, ~~Accounting for Uncertainty in Income Taxes (Interpretation 48), on July 1, 2007~~Inc. ~~Previously~~designs, ~~the~~manufactures ~~Company~~and ~~had~~markets ~~accounted~~electronic ~~for~~perimeter ~~tax contingencies~~fence inand ~~accordance with Statement of Financial Accounting Standards 5, Accounting for~~access ~~Contingencies.~~control ~~As required by Interpretation 48~~systems, ~~which~~operating ~~clarifies~~in ~~Statement~~one ~~109,~~world-wide ~~Accounting~~business for Income Taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an auditsegment. ~~For~~Zareba ~~tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that~~ has atwo ~~greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date~~subsidiaries, ~~the Company applied Interpretation 48 to all tax positions for which the statute of~~Zareba ~~limitations~~Systems ~~remained~~Europe ~~open.~~Limited Asand aZareba ~~result of the implementation of Interpretation 48~~Security, the Company recognized an increase of approximately $175,000 in the liability for unrecognized income tax benefits, which was accounted for as a reduction to the July 1, 2007 balance of retained earningsInc.

~~Upon~~Incorporated ~~adoption~~in 1960, the ~~increase~~Company inmore ~~the~~recently ~~liability~~evolved ~~for~~into ~~unrecognized income tax benefits is~~ the ~~result~~leading supplier of electric ~~the~~fencing ~~Company’s~~systems ~~de-recognition~~in ofNorth ~~certain~~America ~~positions~~and ~~taken~~the inUK ~~prior~~primarily ~~years~~through ~~that~~business ~~management~~acquisitions. ~~no longer~~The ~~believes~~acquisition ~~are~~of ~~more~~North ~~likely~~Central ~~than~~Plastic, ~~not~~Incorporated ofin ~~being~~fiscal ~~sustained~~2002 ~~upon~~enabled ~~examination.~~the AtCompany ~~March 31,~~to ~~2009,~~expand ~~the~~its ~~balance~~electric offencing ~~unrecognized~~systems ~~tax~~distribution ~~benefits~~and isproduct ~~$187,000.~~offerings ~~The~~in ~~March 31,~~North ~~2009,~~America. ~~balance~~The ofacquisition ~~unrecognized tax~~of ~~benefits,~~Rutland ifElectric ~~ultimately~~Fencing ~~recognized~~Company, ~~will~~Ltd. ~~reduce~~expanded the Company’s ~~annual~~presence ~~effective~~into ~~tax~~Europe ~~rate~~and established the Company in the security products market.

The Company ishas ~~subject~~also launched organic growth initiatives to ~~income~~leverage ~~taxes~~both inits ~~the~~distribution Uchannels and electric fencing systems technology.S. ~~Federal~~In ~~jurisdiction,~~the ~~Minnesota~~first quarter of calendar year 2005, ~~and~~the Company introduced two new product lines within the ~~United~~Zareba Systems division, perimeter security systems and ~~Kingdom~~electric gate opener systems and accessories. ~~Tax~~The ~~regulations~~perimeter ~~within~~security ~~each~~system ~~jurisdiction~~is ~~are~~designed ~~subject~~to deter, detect, delay, assess and respond to ~~the~~intrusions ~~interpretation~~or ofescapes ~~the~~in ~~related~~a wide range of applications ~~tax~~including ~~laws~~utilities, airports, correctional facilities and ~~regulations~~other commercial and ~~require~~government properties. ~~significant~~The ~~judgment~~Company tocompleted ~~apply.~~initial ~~With~~systems ~~few~~deliveries ~~exceptions,~~of ~~the~~its Guard Tower® perimeter fence ~~Company~~security issystem noin ~~longer~~fiscal ~~subject~~2006 toand Uinitial deliveries of its patent-pending rapid pulse energizer system in fiscal 2007.S. ~~federal,~~The ~~state~~Company orcontinues ~~local~~to ~~income~~work ~~tax~~to ~~examinations~~establish byits ~~tax~~non-lethal electric fencing ~~authorities~~and ~~for~~its ~~the~~patented ~~fiscal~~Guard ~~years~~Tower® ~~ended~~product ~~before~~lines ~~June 30~~in targeted market applications, ~~2006~~primarily through its US and UK sales channels.

~~The~~Products ~~Company~~comprising ~~recognizes~~the ~~interest~~automatic ~~and~~gate ~~penalties~~opener ~~accrued~~systems ~~related~~and toaccessories ~~unrecognized~~targeting ~~tax~~the ~~benefits in~~Do-It-Yourself ~~income~~market ~~tax~~are ~~expense~~sold ~~for~~through ~~all~~existing ~~periods~~retail ~~presented.~~channels ~~The~~in ~~Company~~North ~~accrued~~America ~~approximately~~and ~~$12~~the UK,~~000~~ ~~for~~often to the same ~~payment~~customer that purchased products of ~~interest~~the ~~and~~Zareba ~~penalties~~product asline. ofDuring ~~July 1,~~the second half of fiscal 2007, the ~~date~~Company began shipping a new family of ~~adoption,~~professional ~~and~~series ~~accrued~~automatic ~~interest~~gate openers (PS ~~and~~AGO) ~~penalties~~available atto ~~March 31~~the professional installer distribution channels, ~~2009~~targeting market growth opportunities. In response to changing market and competitive conditions, the Company discontinued the sales of the PS AGO products in June ~~30,~~2008 and sold substantially all of the related assets to a third party in October 2008. ~~totaled~~This ~~approximately~~decision ~~$24,000~~allows the Company to focus more on the Company’s core products and ~~$28~~established distribution channels,~~000,~~ while continuing to evaluate and develop its ~~respectively~~perimeter security products initiative.

Zareba Systems, Inc. Form 10-Q, ~~March~~September 3130, 2009 page 1110

Item 2.Table Management’s Discussion and Analysis of Financial Condition and Results of Operations. Contents

~~The~~On ~~following~~September 10, ~~discussion~~2009, of the Company’s ~~results~~announced ofthat ~~operations~~its ~~and~~Board financial condition should be read together with the other financial information and Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended June 30, 2008. The results of ~~operations~~Directors ~~relate~~decided to ~~continuing operations unless noted. This~~explore ~~discussion~~strategic ~~contains~~alternatives ~~forward-looking~~to ~~statements~~enhance ~~that~~shareholder ~~involve risks and uncertainties~~value. ~~Our actual~~ results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in Part I, Item 1A Risk Factors, on our Annual Report on Form 10-K for the year ended June 30, 2008.

~~Executive~~Zareba ~~Summary~~Systems’ business is seasonal, with peak customer demand occurring in the late spring, summer and early autumn months. Backlog is not significant in either of the Company’s operating units since most orders are filled within days after receipt of a customer’s order. As a result of Zareba Systems seasonality, there is a resulting variability in sales, manufacturing fixed overhead absorption and a further resulting impact on gross margin, working capital and cash flow during the Company’s fiscal year.

~~Zareba~~Results Systems, Inc. (“Zareba”, “Zareba Systems” or the “Company”) net sales were $6.7 million and $20.5 million for the three and nine months ended March 31, 2009, respectively, versus net sales of ~~$7.0 million~~ ~~and~~Continuing ~~$22.4 million for the comparable periods in the prior year. Sales in British~~Operations pound sterling by our UK subsidiary for the three and nine month periods ended March 31, 2009 were relatively flat as compared to the prior year periods. However, the strengthening of the US dollar against the British pound sterling caused sales by our UK subsidiary to be translated at lower rates in US dollars, resulting in lower reported sales in US dollars for our UK operation for the third quarter and nine month periods versus the prior year. Third quarter fiscal 2009 sales in North America improved marginally over the prior year, but year-to-date sales remained below prior year levels.

~~Loss~~Net ~~from~~sales ~~continuing~~for ~~operations~~the ~~was~~three months ended September 30, 2009 were $337.7 million,~~000,~~ orcompared to $09.010 million ~~per~~for ~~basic~~the ~~and~~comparable ~~diluted~~period ~~share~~in ~~and~~the ~~$354,000,~~prior ~~or $0~~year.14 ~~per~~Approximately ~~basic~~$1 million ~~and~~of ~~diluted~~the ~~share~~decrease ~~for~~in sales ~~the~~year-to-year ~~third~~resulted ~~quarter~~primarily ~~and~~from ~~nine~~a ~~months~~general ~~ended~~softness ~~March 31,~~in ~~2009~~sales in our primary markets, ~~respectively.~~North ~~This~~America ~~compares~~and tothe ~~loss~~UK, ~~from~~brought ~~continuing~~about ~~operations~~by ofthe ~~$376,000,~~prolonged oreconomic ~~$0.15~~downturn ~~per~~in ~~basic~~those ~~and~~markets. The ~~diluted~~Company ~~share~~believes ~~and~~that ~~$959,000,~~the orsales ~~$0.39~~pattern ~~per~~of ~~basic~~its ~~and~~products ~~diluted~~is ~~share~~consistent inwith the ~~respective~~sales ~~comparable~~patterns ~~periods~~experienced ofby ~~the~~its ~~prior~~customers ~~year.~~within ~~The~~the ~~decrease~~electric infencing ~~loss~~product ~~from~~category ~~operations~~during ~~from~~ the ~~prior~~period, ~~year resulted~~and ~~primarily~~thus ~~from~~is ~~lower~~reflective ~~operating~~of ~~and~~its ~~interest~~customers’ ~~expense~~business inpatterns ~~the~~and ~~current~~inventory ~~year.~~management ~~Additionally~~practices, aand ~~large~~not ~~percentage~~indicative of ~~the~~a ~~product~~change ~~costs~~in ~~and~~its ~~operating~~competitive ~~expenses~~position ofor ~~our~~overall UKmarket ~~subsidiary~~share ~~are~~within ~~paid~~its ~~in British~~primary ~~pound sterling~~markets. ~~Similar~~The toremaining ~~the~~$0.3 million ~~impact~~of onthe ~~sales,~~decrease ~~the~~in ~~current~~net ~~exchange~~sales ~~rate~~resulted ~~causes~~from ~~these~~the ~~expenses~~translation toof besales ~~translated~~from atBritish ~~lower~~pound ~~rates~~sterling ~~into~~to US dollars, ~~thereby~~at ~~reducing~~lower ~~reported~~exchange ~~expenses~~rates ~~and~~in ~~providing~~fiscal ~~a natural~~2010 ~~hedge~~than ~~for the UK operations~~2009.

~~Net~~The ~~income~~Company ~~was~~continues ~~$78,000,~~to ormonitor ~~$0.03 per basic and diluted share and net loss was $250,000, or $0.10 per basic and diluted share for~~ the ~~three~~current ~~and~~economic ~~nine~~climate ~~months~~in ~~ended~~its ~~March 31,~~primary ~~2009, respectively, and included a gain on sale of discontinued product line of $111,000, net of tax~~markets. ~~Net~~A ~~loss was~~continued ~~$489,000,~~downturn orin ~~$0.20~~the ~~per~~economy ~~basic~~may ~~and~~adversely ~~diluted~~impact ~~share~~sales and ~~net~~inhibit ~~income~~the ~~was~~Company’s ~~$1.3 million,~~sales orgrowth ~~$0.53 per basic~~ and profitability ~~diluted~~though ~~share for~~ the ~~third~~remainder ~~quarter and first nine months~~ of the ~~prior~~current fiscal year~~, respectively~~. ~~The gain on sale of subsidiary in the first quarter of the prior year generated the~~ ~~net income for the corresponding nine month period.~~

OnIn ~~July 24~~addition, ~~2007,~~recent ~~the~~exchange ~~Company~~rates ~~entered~~of ~~into~~the aBritish ~~Stock~~pound ~~Purchase~~sterling ~~Agreement~~ to ~~sell~~ the ~~Company’s Waters~~US ~~Medical~~dollar ~~Systems,~~are ~~Inc. (WMS) subsidiary to a third party. The WMS subsidiary, a provider of~~more ~~medical~~reflective ~~products was initially formed on June 30, 2005, when all the assets~~ of the ~~WMS~~exchange ~~division~~rates ~~of Zareba~~experienced ~~were~~during ~~transferred to~~ the ~~newly-formed~~final ~~subsidiary,~~three ~~and~~quarters ~~has operated in a separate business segment~~ of ~~the~~fiscal ~~Company~~2009. Accordingly, ~~all results of operations and assets and liabilities of WMS for all periods presented prior to~~ the ~~transaction~~Company ~~date~~would ~~have~~expect ~~been~~less ~~restated~~variance ~~and classified as discontinued operations. The sale of WMS was completed on August 1, 2007 for $5 million cash, resulting~~ in acomparative ~~gain,~~ net ofsales ~~tax,~~year-to-year ~~of approximately $2.5 million. Cash proceeds from the sale were~~going ~~used~~forward, toif ~~reduce~~exchange ~~borrowing~~rates ~~under~~remain ~~the~~consistent ~~Company’s~~with ~~prior~~recent ~~Wells Fargo credit facility~~levels.

OnGross ~~August 29,~~margin ~~2007,~~for the ~~Company~~three ~~entered~~months ~~into~~ended aSeptember 30, $2009 was 37.6 ~~million~~% ~~secured~~compared ~~revolving~~to ~~credit~~32.1% ~~facility~~for ~~with~~the ~~JPMorgan~~comparable ~~Chase~~prior ~~Bank,~~year Nperiod.A. ~~Proceeds~~Gross ~~from~~margin in the ~~facility~~current ~~will~~year beperiod ~~used~~benefited ~~for~~primarily ~~general working capital~~from ~~purposes~~customer and ~~were~~product ~~used~~mix tocomparisons, ~~repay~~as ~~the~~well ~~prior~~as ~~Wells~~from ~~Fargo~~improved ~~Business~~manufacturing ~~Credit facility, totaling approximately $1~~efficiencies.~~1 million.~~

~~On October 22~~Selling, ~~2008,~~general ~~the~~and ~~Company~~administrative ~~sold~~expenses ~~substantially~~were ~~all~~$2.0 million offor the ~~assets~~three ofmonths ~~its~~ended ~~professional series~~September ~~automatic~~30, ~~gate~~2009, ~~operator~~compared ~~product line~~ to ~~Amazing~~$2.2 million ~~Gates of America, LLC (Buyer)~~ for ~~$739,000, plus~~ the ~~assumption~~comparable ofperiod ~~certain~~in ~~outstanding inventory purchase obligations of~~ the ~~Company~~prior year. The ~~purchase~~year-to-year ~~price~~decrease ~~was~~resulted ~~payable~~from inreduced ~~cash~~direct ofselling ~~$200,000~~expenses atassociated ~~the closing,~~ with ~~the~~lower ~~balance~~sales, toas bewell ~~paid~~as ~~in installments by December 2010. The purchase price is evidenced by promissory notes receivable from~~ the ~~Buyer~~ ~~which~~impact ~~are~~of ~~secured by assets sold to Buyer. Payment activity on~~ the ~~notes~~translation ~~and~~of ~~the~~expenses ~~assumption by the Buyer~~ of ~~all~~our ~~remaining~~UK ~~inventory~~operations ~~purchase~~from ~~obligations,~~British ~~along~~pound ~~with~~sterling ~~valuation~~to ~~assessments by Company~~US ~~management~~dollars ~~resulted~~at inlower aexchange ~~gain~~rates ~~on sale, net of tax of $0.1 million~~ in ~~the~~fiscal ~~third~~2010 ~~quarter~~than ~~of fiscal~~ 2009. ~~Future payment activity and valuation assessments by Company management may result in an~~ ~~additional gain on the sale of the product line being realized in future periods.~~

~~Zareba~~Research ~~Systems,~~and ~~Inc.~~development ~~Form~~expenses ~~10-Q~~were $170,000 ~~March~~for 31the three months ended September 30, 2009, versus ~~page~~$242,000 12for the comparable period in the prior year. Current year expenditures are directed toward cost reduction initiatives and product enhancements of existing electric fencing systems products. The Company’s investments in research and development are designed to protect and enhance our future financial performance.

~~Overview~~Interest expense was $32,000 for the three months ended September 30, 2009, compared to $71,000 for the comparable period in the prior year. The decrease in current year expense resulted from the decrease in outstanding debt and lower interest rates in the current year.

~~Zareba~~Income ~~Systems~~from continuing operations was $402,000, ~~Inc~~or $0.16 ~~designs,~~per ~~manufactures~~basic and ~~markets~~diluted ~~electronic~~share ~~perimeter~~for ~~fence~~the ~~and access~~first ~~control~~quarter ~~systems~~ended September 30, ~~operating~~2009. inThis ~~one~~compares ~~world-wide~~to ~~business~~income ~~segment.~~from ~~Zareba~~continuing ~~has~~operations ~~three~~of ~~subsidiaries~~$164,000, ~~Zareba~~or ~~Systems~~$0.07 ~~Europe~~per ~~Limited,~~basic ~~Zareba~~and ~~Security,~~diluted ~~Inc.~~share ~~and~~for ~~Zareba~~the ~~Systems~~respective ofcomparable ~~Canada~~period ~~LTD~~in the prior year.

~~Originally~~Results ~~a medical products company serving small niche markets, the Company expanded primarily through business acquisitions and evolved into the leading supplier~~ of ~~electric~~Discontinued ~~fencing systems in North America and the UK. The acquisition of North Central Plastic~~Operations, ~~Incorporated~~Gain ~~(NCP) in~~from ~~fiscal 2002 enabled~~ the ~~Company~~Sale ~~to expand its electric fencing systems distribution and product offerings in North America. The acquisition~~ of ~~Rutland~~Discontinued ~~Electric~~Product ~~Fencing~~Line ~~Company, Ltd. expanded the Company’s presence into Europe~~ and ~~established the Company in the security products market.~~Net Income

~~The~~Loss ~~Company~~from ~~has~~discontinued ~~also~~operations, ~~launched~~net ~~organic growth initiatives to leverage both its distribution channels and electric fencing systems technology. In the first quarter~~ of ~~calendar~~tax ~~year~~was ~~2005~~$6, ~~the Company introduced two new product lines within the Zareba Systems division~~000, ~~perimeter~~or ~~security~~$0.00 ~~systems~~per ~~and electric~~basic ~~gate opener systems~~ and ~~accessories.~~diluted ~~The perimeter security system is designed to deter,~~share ~~detect,~~for ~~delay,~~the ~~assess~~three ~~and~~months ~~respond~~ended ~~to intrusions or escapes in a wide range of applications including utilities~~September 30, ~~airports~~2008, ~~correctional~~reflecting ~~facilities~~the ~~and~~net ~~other~~results ~~commercial and government properties. The Company completed initial systems deliveries~~ of ~~its~~the ~~Guard~~PS ~~Tower®~~AGO ~~perimeter fence~~operations ~~security~~for ~~system~~the inprior ~~fiscal 2006 and initial deliveries of its patent-pending rapid pulse energizer system in fiscal 2007~~year. ~~The Company continues to work to establish its non-lethal electric fencing~~ ~~and its patented Guard Tower® product lines in targeted market applications, primarily through its UK sales channel.~~

~~Products~~Gain ~~comprising~~from ~~the~~sale ~~automatic~~of ~~gate~~discontinued ~~opener~~product ~~systems and accessories targeting the Do-It-Yourself market are sold through existing retail channels in North America and the UK~~line, ~~often~~net ~~to the same customers that purchase the Zareba electric fencing products. During the second half~~ of ~~fiscal 2007,~~tax ~~the~~was ~~Company began shipping a new family of professional series automatic gate openers (PS AGO) available to the professional installer distribution channels~~$21,000, ~~targeting~~or ~~market growth opportunities~~$0.01 Inper ~~response~~basic ~~to changing market~~ and ~~competitive conditions, the Company discontinued~~diluted ~~the~~share ~~sales~~for of the PSthree ~~AGO~~months ~~products~~ended ~~in June~~September ~~2008~~30, ~~and commenced efforts to sell the product line. This decision has allowed the Company to focus more on the Company’s core products and established distribution channels~~2009, ~~while~~resulting ~~continuing~~from tonet ~~evaluate~~cash ~~and~~proceeds ~~develop~~from ~~its perimeter security products initiative. On October 22, 2008,~~ the ~~Company sold substantially all~~ sale of the ~~assets~~PS ofAGO ~~its professional series automatic gate operator~~ product line.

InZareba ~~August 2007, the Company completed the sale of the Company’s Waters Medical~~ Systems, Inc. ~~(WMS) subsidiary~~Form 10-Q, ~~exiting~~September ~~the medical products market. In the years prior to the sale~~30, ~~WMS~~2009 ~~had represented~~page a diminishing portion of the Company’s total business and accounted for less than 10% of the Company’s revenue. WMS was no longer compatible with the strategic direction of the Company and the divestiture provided the Company cash while allowing the Company to focus on its single core segment. 11

ZarebaTable Systems’ business is seasonal, with peak customer demand occurring in the late spring, summer and early autumn months. Backlog is not significant in either of the Company’s operating units since most orders are filled within days after receipt of a customer’s order. As a result of Zareba Systems seasonality, there is a resulting variability in sales, manufacturing fixed overhead absorption and a further resulting impact on gross margin, working capital and cash flow during the Company’s fiscal year. Contents

~~Results~~Net income for the first quarter of ~~Continuing~~fiscal ~~Operations~~2010 was $423,000, or $0.17 per basic and diluted share versus a net income of $158,000, or $0.06 per basic and diluted share for the first quarter fiscal 2009.

~~Net~~Liquidity ~~sales for the three~~ and ~~nine~~Capital ~~months ended March 31, 2009 were $6.7 million and $20.5 million,~~Resources respectively, compared to $7.0 million and $22.4 million for the comparable periods in the prior year. The decrease in sales year-to-year for the third quarter and first nine months resulted primarily from the combination of the following factors:

	•		Sales in the United Kingdom in British pound sterling were relatively flat for both the three and nine month periods ended March 31, 2009 versus the prior year. However, when we translate those sales into US dollars, the strengthening of the US dollar compared to the British pound sterling resulted in a decrease in net sales of approximately $0.6 million for the quarter and $1.2 million through the first nine months.
	•		Sales to our North American electric fencing customers increased in the third quarter of fiscal 2009 versus the prior year by $0.3 million, but were below prior year-to-date sales by $0.9 million.

The Company’s cash and working capital balances at September 30, 2009 were $0.3 million and $5.4 million, respectively, as compared to $0.2 million and $6.9 million at June 30, 2009. The decrease in working capital resulted primarily from use of cash proceeds from operations to reduce long-term debt during the first three months of fiscal 2010.

~~The~~Accounts ~~Company~~receivable ~~expects~~decreased ~~that~~to ~~the~~$4.6 million ~~continued~~at ~~strength~~September 30, of2009 ~~the~~from US$7.3 million ~~dollar~~at ~~versus~~June 30, 2009 reflecting the ~~British~~seasonality ~~pound~~of ~~sterling, if~~our itsales. ~~remains~~Inventories increased to $5.6 million at ~~recent~~September 30, ~~levels~~2009, ~~will~~versus ~~adversely~~$4.9 million ~~affect~~at ~~year~~June 30, to2009, ~~year~~reflecting ~~net~~purchasing ~~sales~~patterns ~~comparisons~~for ~~through~~projected ~~the~~inventory ~~remainder~~requirements ofat ~~fiscal~~the ~~2009~~respective ~~and~~period ~~into fiscal 2010~~ends.

~~Zareba~~Capital ~~Systems,~~expenditures ~~Inc~~were $0.2 million ~~Form~~in ~~10-Q~~the first three months of fiscal 2010 and $11,000 ~~March~~for 31the same period in the prior year, ~~2009~~and ~~page~~were 13used primarily for manufacturing equipment and purchases of new product tooling. The Company expects total capital expenditures for fiscal 2010 to be less than $0.5 million.

~~However,~~The aCompany ~~large~~received ~~portion~~cash ofpayments ~~the product costs and operating expenses~~ of ~~the~~$67,000 ~~UK subsidiary are also incurred~~ in ~~British~~the ~~pound~~first ~~sterling,~~quarter ~~thereby creating~~of afiscal ~~natural~~2010 ~~currency~~from ~~hedge for our UK subsidiary operations. Sales in~~ the UKsale ~~accounted for nearly 30%~~ of the Company’s ~~net~~PS ~~sales~~AGO inproduct ~~fiscal~~line which was completed in October 2008.

~~Additionally~~On August 29, 2007, the Company ~~continues~~entered tointo ~~monitor~~a ~~the~~secured ~~current~~revolving ~~economic~~credit ~~climate~~facility inwith ~~its~~JPMorgan Chase ~~primary~~Bank, ~~markets~~N. A. ~~protracted~~(Chase) ~~downturn~~(the “Chase Facility”). The Chase facility, as amended, provides for a $6.0 million secured revolving credit facility (the “Credit Facility”), with the option to increase borrowings in additional $500,000 increments with the ~~economy~~consent of the Lender, up to a total of $7.5 million. Amounts under the facility may ~~adversely~~be ~~impact~~borrowed, ~~sales~~repaid and ~~inhibit~~re-borrowed from time to time until its maturity on August 29, 2010. Loans under the ~~Company’s~~Credit ~~sales~~Facility will bear interest at ~~growth~~either a base rate plus 0.0% to 0.5% based upon financial performance, or a Eurocurrency rate equal to the London Inter-Bank Offered Rate (“LIBOR”) for the relevant term plus 1.5% to 3% based upon financial performance. The outstanding balance under this revolving credit facility at September 30, 2009 was $0.3 million. The effective interest rate at September 30, 2009 was 3.25%, and ~~profitability~~the average ~~though~~effective interest rate for the ~~remainder~~three ofmonths then ended was 3.37% versus 4.0% for the respective ~~current~~period ~~fiscal~~in the prior year. Unused availability under the Credit Facility at September 30, 2009 totaled $3.8 million.

~~Gross~~The ~~margins~~Chase ~~for~~Credit ~~the~~Facility ~~three~~is ~~and~~collateralized ~~nine~~by ~~months~~substantially ~~ended~~all ~~March 31,~~of ~~2009~~the ~~were~~Company’s ~~29.2%~~US ~~and~~based ~~30.6%,~~assets ~~respectively,~~and ~~compared~~is subject to ~~30.1%~~certain ~~and~~restrictive 29covenants.3% ~~for~~Line ~~the~~of ~~comparable~~credit ~~prior~~borrowings ~~year~~are ~~periods.~~limited ~~Margins~~to ~~in the~~eligible ~~current~~accounts ~~year~~receivable ~~periods benefited from sales price increases implemented beginning in late fiscal 2008~~ and ~~third quarter margins also reflected customer mix differences year-to year~~inventory.

~~Selling~~Also, ~~general~~in ~~and administrative expenses were $1.7~~September ~~million~~2004, ~~and~~Zareba ~~$5.7 million~~Systems ~~for~~Europe ~~the~~secured ~~three~~a ~~and nine months ended March 31~~£2, ~~2009~~214,000 ~~respectively,~~term ~~compared~~loan to(approximately $24.2 0 million) ~~and~~from ~~$6.8 million~~the ~~for~~Bank ~~the comparable~~of ~~periods~~Scotland (BoS) in the ~~prior~~United ~~year.~~Kingdom ~~The year-to-year decrease~~ for the ~~third~~Rutland ~~quarter~~acquisition. ~~resulted~~Under ~~from~~the ~~cost~~terms ~~reduction~~of ~~initiatives~~the ~~implemented~~BoS ~~late~~credit infacility ~~fiscal~~agreement, ~~2008~~interest ~~and~~is ~~during~~charged ~~fiscal~~on ~~2009,~~outstanding asbalances ~~well~~at as the rate ~~impact~~ of ~~the~~two ~~translation~~and ofone ~~expense~~eighth ofpercent ~~our~~(or UK2.125 percent) ~~operations~~above atthe ~~lower~~base ~~rates~~rate ~~from~~with ~~British~~a ~~pound~~five-year term. ~~sterling~~The toaverage USeffective ~~dollar.~~interest ~~The~~rate ~~year-to-date~~for ~~decrease~~the ~~for~~three ~~fiscal~~months ~~2009~~ended ~~also~~September 30, ~~resulted~~2009 ~~from~~was ~~reduced~~2.7% ~~direct~~versus ~~selling~~7.26% ~~expenses~~for ~~associated~~the ~~with~~prior ~~lower sales revenue~~year. The ~~Company~~BoS ~~will~~term ~~continue~~loan tomatured ~~scrutinize expenses~~on ~~and~~September 27, ~~implement~~2009 ~~expense~~and ~~reduction~~the ~~initiatives~~balance aswas ~~they~~paid in ~~are identified~~full.

~~Research~~On ~~and development expenses were $213,000 and $692,000 for the three and nine months ended March~~September 3110, 2009, ~~respectively, versus $246,000 and $773,000 for~~ the ~~comparable~~Company ~~periods~~announced ~~in the prior year. Prior year amounts included agency registration costs for products under development~~ that ~~have~~ ~~since~~its ~~been~~Board ~~completed. Current year expenditures are directed toward cost reduction initiatives and product enhancements~~ of ~~existing~~Directors ~~electric~~decided ~~fencing~~to ~~systems products. The Company’s~~explore ~~investments~~strategic inalternatives ~~research and development are designed~~ to ~~protect and~~ enhance ~~our~~shareholder ~~future financial performance~~value.

~~Interest~~The ~~expense, principally related to the~~ Company’s ~~debt~~believes tothat ~~finance~~its ~~the~~existing ~~Rutland acquisition~~funds, ~~was $49,000~~additional ~~and~~cash ~~$185,000~~generated ~~for~~from ~~the three months and nine months ended March 31~~operations, ~~2009, respectively,~~and ~~compared~~borrowings tounder ~~$86,000 and $297,000 for~~ the ~~comparable~~Company’s ~~periods~~Credit inFacility ~~the~~will ~~prior~~be ~~year.~~adequate ~~The~~to ~~decrease~~meet ~~in current year expense resulted from~~ the ~~decrease~~Company’s ~~in outstanding debt following repayment of debt~~foreseeable ~~from~~operating ~~the~~activities ~~proceeds~~and ofoutlays ~~the~~for ~~sale~~capital ofexpenditures ~~WMS,~~for ~~and~~at ~~lower~~least ~~interest rates in~~ the ~~current~~next ~~year~~twelve months.

~~Loss~~Critical ~~from~~Accounting ~~continuing operations was $33,000, or $0.01 per basic and diluted share and $354,000, or~~Policies $0.14 per basic and diluted share for the third quarter and nine months ended March 31, 2009, respectively. This compares to loss from continuing operations of $376,000, or $0.15 per basic and diluted share and $959,000, or $0.39 per basic and diluted share for the respective comparable periods in the prior year. Lower operating and interest expenses offset the impact of the decreased gross profit from lower sales in the current year periods as compared to fiscal 2008.

~~Results~~The ofCompany’s ~~Discontinued~~critical ~~Operations,~~accounting ~~Gain~~polices ~~from~~are ~~the~~discussed ~~Sale of Subsidiary and Net Income~~below.

~~Loss~~Revenue ~~from discontinued operations, net of tax was $7,000, or $0.00 per basic and diluted share for~~Recognition the nine months ended March 31, 2009, versus a loss of $113,000 and $283,000, or $0.05 and $0.12 per basic and diluted share for the three and nine months ended March 31, 2008, respectively, reflecting the net results of the PS AGO operations in the current year and the results of the WMS and PS AGO operations for the prior year.

~~Gain~~The ~~from~~Company ~~sale~~recognizes ofrevenue ~~discontinued~~when ~~product~~the ~~line,~~four ~~net~~basic criteria are met: (i) persuasive evidence of ~~tax~~a ~~was~~customer ~~$111,000,~~arrangement exists; (ii) the price is fixed or ~~$0.04~~determinable; ~~per~~(iii) collectability ~~basic~~is reasonably assured; and (iv) product delivery has occurred or services have been rendered. Sales ~~diluted~~are ~~share~~not ~~for~~conditional ~~the~~based ~~three~~on ~~and~~customer ~~nine~~acceptance ~~months~~provisions ~~ended~~or ~~March 31,~~installation ~~2009~~obligations. The Company ~~gain~~primarily ~~resulted~~utilizes ~~from~~independent ~~the~~manufacturers’ representatives to facilitate sales orders ~~receipt~~(with no right of ~~cash~~return ~~payments~~or ~~and~~other ~~assumption~~Company ofobligation), ~~previous~~as ~~purchase~~well ~~obligations~~as ofhaving ~~the~~direct sales for key accounts or product lines. The Company byrecognizes revenue as products are shipped based on FOB shipping point terms when title passes to the customer. Customer rebate programs are offered based ~~Buyer~~upon ~~during~~purchasing volume, on a percentage of sales basis. The Company accounts for customer rebates as a reduction to net sales on the ~~quarter~~accrual basis, in ~~accordance~~the ~~with~~period of the ~~October 22~~corresponding sale, ~~2008~~when they ~~asset~~are ~~purchase~~probable ~~agreement~~and can be estimated. The Company estimates and accrues for sales returns based upon historical experience.

~~Gain~~Zareba ~~from sale of subsidiary~~Systems, ~~net~~Inc. ofForm ~~tax was $2.5 million~~10-Q, orSeptember ~~$1.04 per basic and diluted share for the nine months ended March 31~~30, ~~2008,~~2009 ~~reflecting~~page ~~the sale of the WMS subsidiary on August 1, 2007.~~ 12

NetTable income for the third quarter of fiscal 2009 was $78,000, or $0.03 per basic and diluted share versus a net loss of $489,000, or $0.20 per basic and diluted share, respectively, for the third quarter fiscal 2008. Net loss was $250,000, or $0.10 per basic and diluted share for the nine months ended March 31, 2009, versus net income of $1.3 million, or $0.53 per basic and diluted share for the nine months ended March 31, 2008, reflecting the differences in results from continuing and discontinued operations and the gains from the sale of WMS and the PS AGO product line. Contents

~~Zareba~~Allowance ~~Systems,~~for ~~Inc.~~Doubtful ~~Form 10-Q, March 31, 2009 page 14~~Accounts

~~Liquidity~~The ~~and~~Company ~~Capital~~maintains ~~Resources~~an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The ~~Company’s~~allowance ~~cash~~for ~~and~~doubtful ~~working~~accounts ~~capital~~is ~~balances~~an atestimate ~~March 31,~~based ~~2009~~on ~~were~~specifically $0identified accounts.~~1 million~~ ~~and~~The Company ~~$6.7~~evaluates specific accounts where information that the customer may have an inability to ~~million~~meet its financial obligations is known. In these cases, ~~respectively~~management uses its judgment, asbased ~~compared~~on the best available facts and circumstances, and records a specific reserve for that customer against amounts due to $0reduce the receivable to the amount that is expected to be collected.~~6 million~~ These specific reserves are re-evaluated and $7adjusted as additional information is received that impacts the amount reserved.~~2 million~~ atIf ~~June 30~~circumstances change, ~~2008.~~the ~~The~~Company’s ~~decrease~~estimates of the recoverability of amounts indue ~~working~~could ~~capital~~be ~~resulted~~reduced ~~primarily~~or ~~from~~increased ~~use~~by ofa ~~cash~~material ~~proceeds~~amount. ~~from~~Such ~~operations~~a tochange ~~reduce~~in ~~long-term~~estimated recoverability ~~debt~~would ~~during~~be accounted for in the ~~first~~period ~~nine~~in ~~months~~which ofthe ~~fiscal~~facts ~~2009~~that give rise to the change become known.

~~Accounts~~Valuation ~~receivable decreased to $4.3 million at March 31, 2009 from $8.0 million at June 30, 2008 reflecting the seasonality~~ of ~~our sales.~~ Inventories ~~decreased to $5.6 million at March 31, 2009,~~ ~~versus $6.1 million at June 30, 2008, reflecting the projected seasonal inventory requirements at the respective period ends.~~

~~Capital~~Our ~~expenditures~~inventories ~~were~~are ~~$0.2 million~~stated inat ~~each~~the lower of ~~the~~cost ~~first~~or ~~nine~~market ~~months~~and ofinclude ~~fiscal~~materials, ~~2009~~labor and overhead. ~~2008~~Cost is determined by the first-in, first-out (“FIFO”) method. Provisions to reduce ~~and~~inventories ~~were~~to ~~used~~the ~~primarily~~lower ~~for~~of ~~manufacturing~~cost ~~and~~or ~~computer~~market ~~equipment~~are made based on a review of excess and ~~purchases~~obsolete inventories through an examination of ~~new~~historical component consumption, current market demands and shifting product technology. Significant assumptions with respect to market trends are utilized to ~~tooling~~formulate our provision methods. ~~The~~Sudden ~~Company~~or ~~expects~~downward ~~total~~changes ~~capital~~in ~~expenditures~~markets ~~for~~we ~~fiscal~~serve ~~2009~~may cause us to record beadditional ~~less~~inventory ~~than~~revaluation $0charges in future periods.5 ~~million.~~

OnAmortization ~~October 22, 2008, the Company closed on the sale~~ of ~~the~~Intangible ~~PS AGO product line, receiving an~~Assets initial payment of $0.2 million at closing, and receiving $0.2 million in the third quarter of fiscal 2009 through the combination of cash payments on the notes receivable and assumption of purchase obligations. On August 1, 2007, the Company completed the sale of the WMS subsidiary, receiving $5 million cash, which was used to reduce the outstanding debt with Wells Fargo Business Credit (WF).

OnCustomer ~~August 29,~~relationships ~~2007,~~agreements ~~the~~are ~~Company~~amortized ~~entered~~on ~~into~~ a ~~secured~~straight-line ~~revolving~~basis ~~credit~~over ~~facility~~seven ~~with JPMorgan Chase Bank, N~~years.~~A. (Chase) (the “2007 Credit Facility”), subsequently terminating the Wells Fargo~~ ~~Business~~Intangible ~~Credit~~assets ~~(WF) facility~~are ~~and~~amortized ~~paying in full all outstanding balances under the WF facility, totaling approximately $1.1 million~~ on ~~August 30, 2007. The Chase facility provides for~~ a ~~$6 million~~basis ~~secured~~that ~~revolving~~corresponds ~~credit facility, with the option~~ to ~~increase borrowings in additional $500,000 increments with~~ the ~~consent~~Company’s ofprojections ~~the Lender, up to a total~~ of ~~$7.5 million. Amounts under~~future ~~the~~cash ~~facility~~flows ~~may~~directly berelated ~~borrowed, repaid and reborrowed from time~~ to ~~time~~these ~~until~~intangible ~~its maturity on August 29, 2010~~assets. ~~Loans~~The ~~under~~estimates ~~the~~that ~~2007~~are ~~Credit~~included ~~Facility,~~in ~~as amended, will bear interest at either a base~~its ~~rate~~projection ~~minus~~of ~~1.0 percent~~future tocash ~~0 percent~~flows ~~(amended~~are ~~to base rate plus 0 percent to plus 0.50 percent),~~ based ~~upon~~on ~~financial performance, or a Eurocurrency rate equal to~~ the ~~London~~best ~~Inter-Bank~~available ~~Offered Rate~~information (“LIBOR”) for the relevant term plus 1.5 percent to 2.5 percent (amended to plus 1.5 percent to plus 3.0 percent), based upon financial performance. The outstanding balance under this revolving credit facility at ~~March 31, 2009 was $3.4 million. The effective interest rate at March 31, 2009 was 3.50 percent, and~~ the ~~average~~time ~~effective~~of ~~interest rate for~~ the ~~three and nine months~~ ~~then~~determination ~~ended~~of ~~was~~useful ~~3.63~~life and 3amortization method.~~98 percent,~~ ~~respectively,~~A ~~versus~~change ~~5.22~~in ~~and~~circumstances ~~6.23 percent~~could ~~for~~result ~~the~~in ~~respective~~a ~~periods~~determination inthat the ~~prior~~related ~~year.~~assets ~~The~~are ~~Company~~impaired and ~~Chase~~impairment ~~entered~~charges ~~into amendments~~ to reduce the ~~2007 Credit~~carrying ~~Facility~~value onof ~~September 30,~~intangible ~~2008~~assets ~~and~~may ~~October 22,~~be ~~2008~~necessary.

Also, in September 2004, Zareba Systems Europe secured a £2,214,000 term loan (approximately $4.0 million) from the Bank of Scotland (BoS) in the United Kingdom for the Rutland acquisition. Under the terms of the BoS credit facility agreement, interest is charged on outstanding balances at the rate of two and one eighth percent (or 2.125 percent) above the base rate with a fiveStock-~~year~~based ~~term. On~~Compensation March 31, 2009, the effective interest rate was 2.76 percent and the average effective interest rate for the three and nine months then ended was 3.49 percent and 5.58 percent, respectively, versus 7.51 percent and 7.74 percent for the respective periods in the prior year. The BoS term loan matures on September 27, 2009, with monthly principal and interest payments of £49,355 (approximately $71,000). The balance outstanding under this facility at March 31, 2009 was £0.3 million, or approximately $0.4 million.

~~Both~~The ~~the~~Company ~~Chase~~recognizes compensation expense for all share-based payment awards made to employees and ~~the~~directors ~~BoS~~including ~~credit~~employee ~~facilities~~stock ~~are~~options ~~collateralized~~based byon ~~substantially~~fair ~~all~~values. Management’s determination of ~~the~~fair ~~assets~~ value of share-based payment awards is based on the ~~Company~~date ~~and~~of ~~Zareba~~grant ~~Systems~~using ~~Europe,~~an option-pricing inmodel ~~their~~which ~~respective~~incorporates ~~localities~~a number of highly complex and subjective variables. These variables include, but are ~~subject~~not limited to, ~~certain~~the Company’s expected stock price volatility over the ~~restrictive~~two ~~covenants.~~year ~~Line~~period prior to the grant date of ~~credit~~the ~~borrowings~~awards ~~are~~and ~~limited~~estimates toregarding ~~eligible~~projected ~~accounts~~employee stock ~~receivable~~option exercise behaviors and forfeitures. The Company recognizes the expense related to the ~~inventory~~fair value of the award straight-line over the vesting period.

~~The Company believes that its existing funds, additional cash generated from operations, and~~Contingencies ~~borrowings under the Company’s bank debt facility will be adequate to meet the Company’s foreseeable operating activities and outlays for capital expenditures for at least the next twelve months.~~

~~Critical~~We ~~Accounting~~are ~~Policies~~subject to the possibility of various loss contingencies, including legal claims, in the normal course of business. We accrue for loss contingencies when a loss is probable and can be estimated.

~~The~~Forward-Looking ~~Company’s~~Statements ~~critical~~and ~~accounting~~Risk ~~polices are discussed below.~~Factors

~~Revenue~~Certain ~~Recognition~~statements in this Report are forward-looking statements that involve a number of risks and uncertainties that may cause the Company’s future operations and results of operations to differ materially from those anticipated. Specifically, these include statements relating to (a) the sufficiency and adequacy of capital, including existing funds, additional cash generated from operations, and borrowings under the Company’s bank debt facility, which depends on the Company successfully maintaining adequate levels of bank financing, the Company meeting its expenses and revenue projections and the success of the Company’s new products, which further depend on the management’s ability to realize desired sales synergies, the impact new Zareba Systems’ products have on the traditional seasonality of sales, as well as general competitive, market and economic conditions; (b) the Company’s expectation that its capital expenditures will be less than $0.5 million in fiscal 2010, which depends on the Company’s development efforts, demand for the Company’s products, and the availability of funds for capital expenditures; (c) the Company’s expectation that there will be less variance in comparative net sales year-to-year going forward if exchange rates of the British pound sterling to the US dollar remain consistent with recent levels, which depends upon the actual exchange rates and net sales; (d) the potential gain on the sale of the professional series automatic gate operator product line being realized in future periods, which depends upon the

~~The~~Zareba ~~Company~~Systems, ~~recognizes revenue in accordance with the Securities Exchange Commission’s Staff Accounting Bulletin No~~Inc. ~~104~~ ~~(SAB104)~~Form ~~Revenue~~10-Q, ~~which~~September ~~requires~~30, ~~that~~2009 ~~four~~page basic criteria be met before revenue can be recognized: (i) persuasive evidence of a customer arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) product delivery has occurred or services have been rendered. Sales are not conditional based on customer 13

ZarebaTable Systems,of Inc. Form 10-Q, March 31, 2009 page 15Contents

~~acceptance provisions or installation obligations. The~~ Company ~~primarily~~actually ~~utilizes~~receiving ~~independent~~payments ~~manufacturers’ representatives~~under tothe ~~facilitate~~notes ~~sales~~issued ~~orders~~by ~~(with~~Amazing noGates ~~right~~ of ~~return or other Company obligation)~~America, LLC asfor ~~well~~the aspurchase ~~having~~of ~~direct~~this ~~sales~~line ~~for~~and ~~key~~management’s ~~accounts~~valuation orassessments ~~product~~relating ~~lines.~~to ~~The~~the ~~Company~~line; ~~recognizes~~and ~~revenue as~~(e) ~~products~~the ~~are~~Company’s ~~shipped~~expectation ~~based~~that ona ~~FOB~~protracted ~~shipping~~downturn ~~point~~in ~~terms when title passes to~~ the ~~customer.~~economy ~~Customer rebate~~may ~~programs~~adversely ~~are~~impact ~~offered~~sales ~~based upon purchasing volume, on a~~and ~~percentage~~inhibit ofthe ~~sales basis. The~~ Company’s ~~accounts~~sales ~~for~~growth ~~customer~~and ~~rebates~~profitability asthough athe ~~reduction~~remainder toof ~~net sales on~~ the ~~accrual~~current ~~basis~~fiscal year, inwhich ~~the~~depends ~~period~~upon ofconditions in the ~~corresponding~~economy ~~sale,~~generally ~~when~~and ~~they~~those ~~are~~affecting ~~probable~~the ~~and can be~~Company’s ~~estimated.~~customers ~~The~~specifically, ~~Company~~as ~~estimates~~well ~~and~~as ~~accrues~~demand for ~~sales~~the ~~returns~~Company’s ~~based upon historical experience~~products.

~~Allowance~~Item 4. ~~for~~Controls ~~Doubtful~~and ~~Accounts~~Procedures

~~The~~Disclosure ~~Company maintains an allowance for doubtful accounts for estimated losses resulting from the~~Controls inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The ~~allowance~~Company ~~for~~maintains ~~doubtful~~disclosure ~~accounts~~controls isand anprocedures ~~estimate~~(as ~~based~~defined onin ~~specifically~~Rules 13a-15(e) ~~identified~~and 15d-15(e) ~~accounts.~~under ~~The Company~~the ~~evaluates~~Securities ~~specific~~Exchange ~~accounts~~Act ~~where~~of ~~information~~1934) that ~~the~~are ~~customer~~designed ~~may~~to ~~have~~ensure anthat ~~inability~~information required to ~~meet~~ ~~its~~be ~~financial~~disclosed ~~obligations~~by isthe ~~known.~~Company Inin ~~these~~reports ~~cases,~~that ~~management~~it ~~uses~~files ~~its~~or ~~judgment,~~submits ~~based~~under on the ~~best~~ ~~available~~Exchange ~~facts~~Act is ~~and~~(i) recorded, ~~circumstances~~processed, summarized and ~~records~~reported awithin ~~specific reserve for that customer against amounts due to reduce~~ the ~~receivable~~time toperiods ~~the~~specified ~~amount~~in ~~that~~SEC ~~is expected to be collected. These specific~~rules ~~reserves~~and ~~are~~forms ~~re-evaluated~~ and ~~adjusted~~(ii) accumulated asand ~~additional~~communicated ~~information~~to ~~is received that impacts~~ the ~~amount~~ ~~reserved. If circumstances change, the~~ Company’s ~~estimates~~management, ofincluding ~~the recoverability of amounts~~its ~~due~~principal ~~could~~executive beofficer ~~reduced~~and orprincipal ~~increased~~financial byofficer, aas ~~material~~appropriate ~~amount.~~to ~~Such~~allow ~~a change in estimated recoverability~~timely ~~would~~decisions beregarding ~~accounted~~required ~~for in the period in which the facts that give rise to the change become known~~disclosure.

~~Valuation~~In connection with the filing of ~~Inventories~~this Form 10-Q, management evaluated, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2009. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2009.

~~Our~~Change ~~inventories are stated at the lower of cost or market and include materials, labor and overhead. Cost is determined by the first-~~in, ~~first-out~~Internal ~~(“FIFO”) method. Provisions to reduce~~Controls inventories to the lower of cost or market are made based on a review of excess and obsolete inventories through an examination of historical component consumption, current market demands and shifting product technology. Significant assumptions with respect to market trends are utilized to formulate our provision methods. Sudden or downward changes in markets we serve may cause us to record additional inventory revaluation charges in future periods.

~~Amortization~~There ofhave ~~Intangible~~been ~~Assets~~no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

~~Customer~~Zareba ~~relationships~~Systems, ~~agreements~~Inc. ~~are~~Form ~~amortized on a straight~~10-~~line~~Q, ~~basis~~September ~~over~~30, ~~seven~~2009 ~~years. Intangible~~page assets are amortized on a basis that corresponds to the Company’s projections of future cash flows directly related to these intangible assets. The estimates that are included in its projection of future cash flows are based on the best available information at the time of the determination of useful life and amortization method. A change in circumstances could result in a determination that the related assets are impaired and impairment charges to reduce the carrying value of intangible assets may be necessary. 14

ImpairmentTable of Long-Lived Assets Contents

~~The~~PART ~~Company~~II: ~~evaluates~~OTHER ~~the carrying value of long-lived assets, including identifiable intangibles,~~INFORMATION for impairment annually, or when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the assets, the carrying value is reduced to the estimated fair value as measured by the associated discounted cash flows.

~~Under SFAS No.~~Item ~~142, the Company currently evaluates goodwill and indefinite lived intangible assets (trademarks) for impairment using a two-step test based upon a fair value approach~~1A. ~~The~~Risk ~~first step~~Factors is used to identify a potential impairment through an estimate of the fair value of certain reporting units (as defined by SFAS No. 142), while the second step calculates the amount of impairment, if any. Additionally, goodwill shall be tested for impairment between annual tests if an event occurs or circumstances change that would reduce the fair value of an entity below its carrying value.

~~The~~In ~~Company~~addition ~~evaluates~~to ~~goodwill~~the ~~for~~other ~~impairment~~information ~~using~~set ~~the~~forth ~~method~~elsewhere ~~described~~ in ~~the~~this ~~preceding~~report, ~~paragraph and~~you ~~determines~~should carefully consider the ~~fair~~“Risk ~~value~~Factors” ofdiscussed ~~its~~in ~~reporting~~Part I, ~~units~~Item 1A by(Risk ~~application~~Factors) of athe ~~discounted cash flow analysis. The~~ Company’s ~~makes~~Form ~~estimates that are included in its discounted cash flow analyses based~~10-K ~~upon~~for the ~~best~~fiscal ~~available~~year ~~information~~ended atJune 30, ~~the time of the fair value determination~~2009. IfThose ~~circumstances change~~factors, ~~the~~if ~~estimates~~they ofwere ~~fair~~to ~~value~~occur, ~~will also change and~~ could ~~necessitate~~cause ~~additional impairment~~our ~~charges~~actual ~~that~~results ~~reduce~~to ~~the~~differ ~~carrying~~materially ~~value~~from ofthose ~~indefinite~~expressed ~~lived~~in ~~intangible~~our ~~assets.~~forward-looking Atstatements ~~June 30,~~in ~~2007,~~this ~~the~~report, ~~Company completed its annual impairment tests for acquired goodwill~~ and ~~indefinite~~materially ~~lived intangible~~adversely ~~assets~~affect ~~using~~our ~~methodologies~~financial ~~consistent~~condition ~~with~~or ~~those~~future ~~applied~~results. ~~for~~Although ~~its~~we ~~transitional impairment~~are ~~tests~~not ~~performed~~aware as of ~~July 1,~~any ~~2002.~~other ~~Such~~factors ~~testing~~that ~~resulted~~we incurrently noanticipate ~~impairment~~will ~~charge.~~cause ~~After~~our ~~completing~~forward-looking ~~step~~statements ~~one~~to ofdiffer ~~the~~materially ~~annual~~from ~~impairment~~our ~~test~~future asactual ~~of June 30~~results, ~~2008,~~or ~~the~~materially ~~Company~~affect ~~determined that~~ the ~~estimated~~ ~~fair value of the~~ Company’s financial ~~was~~condition ~~less~~or ~~than~~future ~~the net book value~~results, ~~requiring~~additional ~~the~~risks ~~completion~~and ~~of the~~uncertainties ~~second~~not ~~step~~currently ofknown ~~the~~to ~~impairment test. Based on the step two of the analysis prepared as of June~~us ~~30,~~or ~~2008,~~that ~~the~~we ~~Company~~currently ~~determined~~deem ~~that~~to ~~the~~be ~~entire~~immaterial ~~amount~~might ofmaterially ~~goodwill~~adversely ~~was~~affect ~~impaired.~~our ~~Accordingly,~~actual ~~the~~business, ~~Company~~financial ~~reduced~~condition ~~goodwill~~and/or tooperating ~~zero in the fourth quarter of fiscal 2008~~results.

~~Zareba Systems, Inc~~Item 6. ~~Form 10-Q, March 31, 2009 page 16~~Exhibits

Stock-based Compensation


31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~Effective~~* ~~July 1,~~Filed 2006, the Company adopted SFAS 123(R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options based on fair values. Management’s determination of fair value of share-based payment awards is based on the date of grant using an option-pricing model which incorporates a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the two year period prior to the grant date of the awards and estimates regarding projected employee stock option exercise behaviors and forfeitures. The Company recognizes the expense related to the fair value of the award straight-line over the vesting period. herewith

~~Contingencies~~ Zareba Systems, Inc. Form 10-Q, September 30, 2009 page 15

WeTable are subject to the possibility of various loss contingencies, including legal claims, in the normal course of business. We accrue for loss contingencies when a loss is probable and can be estimated. Contents

~~Forward-Looking Statements and Risk Factors~~SIGNATURES

~~Certain~~Pursuant ~~statements in this Report are forward-looking statements that involve a number of risks and uncertainties that may cause the Company’s future operations and results of operations~~ to ~~differ materially from those anticipated. Specifically, these include statements relating to (a)~~ the ~~sufficiency~~ ~~and~~requirements ~~adequacy~~ of ~~capital, including existing funds, additional cash generated from operations, and borrowings under~~ the ~~Company’s~~Securities ~~bank~~Exchange ~~debt~~Act ~~facilities, which depends on the Company successfully maintaining adequate levels~~ of ~~bank financing~~1934, the ~~Company~~Registrant ~~meeting~~has ~~its~~duly ~~expenses and~~caused ~~revenue~~this ~~projections~~report ~~and the success of the Company’s new products, which further depend on the management’s ability~~ to ~~realize~~be ~~desired~~signed ~~sales synergies, the impact new Zareba Systems’ products have~~ on ~~the traditional seasonality of sales, as well as general competitive, market and economic conditions; (b) the Company’s expectation that~~ its ~~capital~~behalf expenditures will be less than $0.5 million in fiscal 2009, which depends on the Company’s development efforts, demand for the Company’s products, and the availability of funds for capital expenditures; (c) the Company’s expectation that the continued strength of the US dollar versus the British pound sterling, if it remains at recent levels, will adversely affect year to year net sales comparisons through the remainder of fiscal 2009 and into fiscal 2010, which depends upon the actual exchange rates during such periods; (d) the potential gain on the sale of the professional series automatic gate operator product line being realized in future periods, which depends upon the Company actually receiving payments under the notes issued by ~~Amazing Gates of America, LLC for~~ the ~~purchase~~undersigned ofthereunto ~~this~~duly line and management’s valuation assessments relating to the line; and (e) the Company’s expectation that a protracted downturn in the economy may adversely impact sales and inhibit the Company’s sales growth and profitability though the remainder of the current fiscal year, which depends upon conditions in the economy generally and those affecting the Company’s customers specifically, as well as demand for the Company’s productsauthorized.

~~Item~~November 4.10, ~~Controls and Procedures~~2009

~~Disclosure~~Zareba ~~Controls~~ Systems, Inc. By: /s/ Dale A. Nordquist Dale A. Nordquist President and Chief Executive Officer (Principal executive officer) By: /s/ Jeffrey S. Mathiesen Jeffrey S. Mathiesen Chief Financial Officer (Principal financial officer and principal accounting officer)

~~The~~Zareba ~~Company~~Systems, ~~maintains~~Inc. ~~disclosure~~Form ~~controls and procedures (as defined in Rules 13a~~10-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recordedQ, ~~processed,~~September ~~summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to the Company’s management~~30, ~~including~~2009 ~~its principal~~page ~~executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.~~ 16

In connection with the filing of this Form 10-Q, management evaluated, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2009. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2009.

Change in Internal Controls

There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect internal control over financial reporting.

Zareba Systems, Inc. Form 10-Q, March 31, 2009 page 17

PART II: OTHER INFORMATION

Item 1A. Risk Factors

In addition to the other information set forth elsewhere in this report, you should carefully consider the “Risk Factors” discussed in Part I, Item 1A (Risk Factors) of the Company’s Form 10-K for the period ended June 30, 2008. Those factors, if they were to occur, could cause our actual results to differ materially from those expressed in our forward-looking statements in this report, and materially adversely affect our financial condition or future results. Although we are not aware of any other factors that we currently anticipate will cause our forward-looking statements to differ materially from our future actual results, or materially affect the Company’s financial condition or future results, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition and/or operating results.

Item 6. Exhibits

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith

Zareba Systems, Inc. Form 10-Q, March 31, 2009 page 18

SIGNATURES

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

May 8, 2009

Zareba Systems, Inc. By: /s/ Dale A. Nordquist Dale A. Nordquist President and Chief Executive Officer (Principal executive officer) By: /s/ Jeffrey S. Mathiesen Jeffrey S. Mathiesen Chief Financial Officer (Principal financial officer and principal accounting officer)

Zareba Systems, Inc. Form 10-Q, March 31, 2009 page 19

Filing Compare · ZAREBA SYSTEMS INC