Stoss,I see the situation differently than you. Please correct...

Stoss,

I see the situation differently than you. Please correct me if I am wrong. I greatly value your opinion.

If you look at the annual report that came out in sept of 2006. On page 29 I see the top section starting with sale of goods and services ending with Gross Profit. At this point things look great. Revenue increased by 16,197,000 and gross profit increased 7,876,000. This is very, very, very good!

Now for the bad. The next set of numbers starting with marketing and ending with impairment, all these expenses increased by $8,579,000. Ouch.

The way that i look at the situation, and please correct me if I am wrong, the company had to spend a great deal of money to win future contracts. The existing systems installed are doing well, but to win more business the company has to spend money.

How long does it take to win a contract? What I mean is, how much investment does Redflex and others have to invest and what time peroid does this take place? They travel around and meet with political leaders and so forth. All this costs money.

They won 26 new contracts in the latter half of last year. That is equal to the entire year before. So far this year they are on pace to winning a city a week. this is a rate double that of the 1st half for 2007 year. The rate for the 1st half of 2007 was double that of the entire year for 2006.

My point is that they are picking up steam and the extra money spent on marketing and administrative expenses is justified. I really do not understand 'depreciation on fee for service contracts.' I suppose if taken literally, we had to pay people to get us these contracts. If these are one time fees depreciated out then that is ok. How long are they depreciated out? How much are they? Once we have paid a fee for the system then after that we just have to maintain and manage the system.

I am seeing a picture where the marketing and fees will be spread out over increasingly more systems. It is very good to see that the "program management costs" only went up slightly. Cost of sales and cost of fee for service contracts went up, but the margins stayed the same or better.

Please let me know where is the fault in my logic. This company has won a great deal of contracts in the past 6 months. There will be expenses involved in that. Also, the climate has changed in the U.S. Hopefully it will be easier going forward. Many thanks in advance.