Quarterly Report for Quarter Ending August 31, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Information in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Form 10-Q that does not consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing, words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements and, as such, are not a guarantee of future performance. These statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others: reductions in capital budgets by our customers and potential customers; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products; the kind, frequency and intensity of natural disasters that affect demand for the Company's products; and other factors, many or all of which are beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. Except as may be required by law, the Company disclaims any obligation to release publicly any updates or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based.

Results of Operations

A summary of the period-to-period changes in the principal items included in the condensed consolidated statements of income is shown below:

Summary comparison of the three months ended August 31, 2025 and 2024
		Increase /
		(Decrease)
Sales, net		$(1,700,000)
Cost of goods sold		$(635,000)
Research and development costs		$ 12,000
Selling, general and administrative expenses		$(417,000)
Other income		$ 7,000
Income before provision for income taxes		$(653,000)
Provision for income taxes		$(176,000)
Net income		$(477,000)

Sales under certain fixed-price contracts, in which the product has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date, inclusive of profit, are recognized over time whereby revenues are based on estimates of completion prepared on a ratio of cost to total estimated cost basis. Costs include all material and direct and indirect charges related to specific contracts.

Adjustments to cost estimates are made periodically and any losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. However, any profits expected on contracts in progress are recognized over the life of the contract.

For financial statement presentation purposes, the Company nets progress billings against the total costs incurred and estimated earnings recognized on uncompleted contracts. The asset, "costs and estimated earnings in excess of billings," represents revenues recognized in excess of amounts billed. The liability, "billings in excess of costs and estimated earnings," represents billings in excess of revenues recognized.

For the three months ended August 31, 2025 (All figures discussed are for the three months ended August 31, 2025 as compared to the three months ended August 31, 2024).

	Three months ended August 31		Change
	2025	2024	Amount		Percent
Sales, net	$9,918,000	$11,618,000	$(1,700,000)		-15%
Cost of goods sold	5,479,000	6,114,000	(635,000)		-10%
Gross profit	$4,439,000	$5,504,000	$(1,065,000)		-19%
… as a percentage of net revenues	45%	47%

The Company's consolidated results of operations showed a 15% decrease in net revenues and an 18% decrease in net income. Revenues recorded in the quarter ended August 31, 2025 for long-term projects were 23% lower than the level recorded in the prior year. The Company had 25 long-term projects in process during the quarter ended August 31, 2025 as compared to 23 during the same period last year. Revenues recorded in the quarter ended August 31, 2025 for other-than long-term projects were 2% lower than the level recorded in the prior year. Total sales within the U.S. during the quarter ended August 31, 2025 decreased 9% from the same period last year. Total sales to Asia during the quarter ended August 31, 2025 decreased 44% from the same period of the prior year. The change in domestic and international sales concentration from the prior year is attributed to normal fluctuations in structural project activity. Sales decreases were recorded over the same period last year to customers in aerospace / defense (26%) and industrial customers (19%) with an increase to customers involved in construction of buildings and bridges (11%).

The gross profit as a percentage of net revenue of 45% in the quarter ended August 31, 2025 is two percentage points lower than the same period of the prior year (47%).

Sales of the Company's products are made to three general groups of customers: industrial, structural and aerospace / defense. A breakdown of sales to the three general groups of customers is as follows:

	Three months ended August 31
	2025	2024
Industrial	11%	12%
Structural	38%	29%
Aerospace / Defense	51%	59%

At August 31, 2024, the Company had 118 open sales orders in our backlog with a total sales value of $28.4 million. At August 31, 2025, the Company had 127 open sales orders in our backlog, with a total sales value of $27.9 million. The Company expects to recognize revenue for the majority of the backlog during the current fiscal year.

The Company's backlog, revenues, gross profits, and net income fluctuate from period to period. The changes in the quarter ended August 31, 2025 compared to the same period in the prior year are not necessarily representative of future results.

Net revenue by geographic region, as a percentage of total net revenue for the three-month periods ended August 31, 2025 and 2024, is as follows:

	Three months ended August 31
	2025	2024
US	83%	78%
Asia	9%	14%
Other	8%	8%

Research and Development Costs

	Three months ended August 31		Change
	2025	2024	Amount		Percent
R & D	$ 81,000	$ 69,000	$ 12,000		17%
… as a percentage of net revenues	0.8%	0.6%

Research and development costs increased $12,000 during the quarter ended August 31, 2025, from the same period in the prior year.

Selling, General and Administrative Expenses

	Three months ended August 31		Change
	2025	2024	Amount		Percent
S G & A	$ 2,113,000	$ 2,530,000	$ (417,000)		-16%
… as a percentage of net revenues	21%	22%

Selling, general and administrative expenses during the quarter ended August 31, 2025 decreased 16% from the same period in the prior year. This change is primarily due to lower employee incentive compensation accruals.

Operating Income

Operating income was $2,245,000 for the three-month period ended August 31, 2025, lower than the $2,905,000 in the same period of the prior year. The decrease in operating income was attributed to lower gross margin associated with reduced revenue.

Other Income

Other income was $384,000 for the three-month period ended August 31, 2025, a 2% increase from the same period of the prior year. This increase was driven by short-term investment interest income.

Liquidity and Capital Resources

The Company's primary liquidity requirements depend on its working capital needs. Working capital consists primarily of cash and short-term investments, inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued expenses and billings in excess of costs and estimated earnings. The Company's primary source of liquidity has been excess cash flow from operations.

Capital expenditures for the three months ended August 31, 2025 were $185,000 compared to $247,000 in the same period of the prior year. As of August 31, 2025, the Company has commitments for capital expenditures totaling $2,751,000 during the next twelve months. The Company is evaluating additional capital expenditures to expand capacity.

Inventory and Maintenance Inventory

	August 31, 2025		May 31, 2025		Increase /(Decrease)
Raw materials	$794,000		$627,000		$167,000		27%
Work-in-process	7,452,000		7,223,000		229,000		3%
Finished goods	259,000		263,000		(4,000)		-2%
Inventory	8,505,000	88%	8,113,000	88%	392,000		5%
Maintenance and other inventory	1,208,000	12%	1,108,000	12%	100,000		9%
Total	$9,713,000	100%	$9,221,000	100%	$492,000		5%
Inventory turnover	2.3		2.7

NOTE: Inventory turnover is annualized for the three-month period ended August 31, 2025.

Inventory, at $8,505,000 as of August 31, 2025, is $392,000 higher than the prior year-end level of $8,113,000. Approximately 88% of the inventory as of August 31, 2025 was work-in-process, 3% was finished goods, and 9% was raw materials.

Maintenance and other inventory represent stock that is estimated to have a product life cycle in excess of twelve months. This stock represents certain items the Company is required to maintain for service of products sold and items that are generally subject to spontaneous ordering. This inventory is particularly sensitive to technological obsolescence in the near term due to its use in industries characterized by the continuous introduction of new product lines, rapid technological advances and product obsolescence. Management of the Company has recorded an allowance for potential inventory obsolescence. The provision for potential inventory obsolescence was zero for both the three-month periods ended August 31, 2025 and 2024.

Accounts Receivable, Costs and Estimated Earnings in Excess of Billings ("CIEB"), and Billings in Excess of Costs and Estimated Earnings ("BIEC")

	August 31, 2025		May 31, 2025		Increase /(Decrease)
Accounts receivable	$4,524,000		$5,600,000		$(1,076,000)		-19%
CIEB	4,704,000		5,360,000		(656,000)		-12%
Less: BIEC	2,865,000		4,382,000		(1,517,000)		-35%
Net	$6,363,000		$6,578,000		$(215,000)		-3%
Number of an average day's sales outstanding in accounts receivable

The Company combines the totals of accounts receivable, the current asset, CIEB, and the current liability, BIEC, to determine how much cash the Company will eventually realize from revenue recorded to date. As the accounts receivable figure rises in relation to the other two figures, the Company can anticipate increased cash receipts within the ensuing 30-60 days.

Accounts receivable of $4,524,000 as of August 31, 2025 includes $484,000 of an allowance for estimated credit losses ("Allowance"). The accounts receivable balance as of May 31, 2025 of $5,600,000 included an Allowance of $564,000. The decrease to the Allowance was due to collections against an overdue structural project balance. After discussions with the customer regarding payment of this balance, the overdue balance has been reduced from $751,000 at prior year end to $591,000 at August 31, 2025. The number of an average day's sales outstanding in accounts receivable ("DSO") increased from 32 days at May 31, 2025 to 41 days at August 31, 2025. The DSO is a function of (1) the level of sales for an average day (for example, total sales for the past three months divided by 90 days) and (2) the level of accounts receivable at the balance sheet date. The Company expects to collect the net accounts receivable balance during the next twelve months.

As noted above, CIEB represents revenues recognized in excess of amounts billed. Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill, and collect from the customer, payments in advance of shipments. Unfortunately, these contract provisions are often not possible to obtain. The $4,704,000 balance in CIEB at August 31, 2025 is 12% lower than the prior year-end balance. This decrease is the result of normal flow of the long-term projects through production with billings to the customers as permitted in the related contracts. 36% of the CIEB balance as of the end of the last fiscal quarter, May 31, 2025, was billed to those customers in the quarter ended August 31, 2025. The remainder will be billed as the projects progress, in accordance with the terms specified in the various contracts.

The balances in CIEB are comprised of the following components:

	August 31, 2025		May 31, 2025
Costs	$ 7,176,000		$ 8,514,000
Estimated Earnings	4,791,000		9,289,000
Less: Billings to customers	7,263,000		12,443,000
CIEB	$ 4,704,000		$ 5,360,000
Number of projects in progress

As noted above, BIEC represents billings to customers in excess of revenues recognized. The $2,865,000 balance in BIEC at August 31, 2025 is down 35% from the $4,382,000 balance at the end of the prior year. The balance in BIEC fluctuates in the same manner and for the same reasons as the CIEB, discussed above. Final delivery of product under these contracts is expected to occur during the next twelve months.

The balances in BIEC are comprised of the following components:

	August 31, 2025		May 31, 2025
Billings to customers	$13,516,000		$12,253,000
Less: Costs	5,299,000		3,985,000
Less: Estimated Earnings	5,352,000		3,886,000
BIEC	$2,865,000		$4,382,000
Number of projects in progress

Summary of factors affecting the balances in CIEB and BIEC:

	August 31, 2025		May 31, 2025
Number of projects in progress
Aggregate percent complete	74%		65%
Average total sales value of projects in progress	$1,455,000		$1,846,000
Percentage of total value invoiced to customer	65%		64%

The Company's backlog of sales orders at August 31, 2025 is $27.9 million, up from $27.1 million at the end of the prior year. Of the Company's backlog as of August 31, 2025, $9.5 million was on projects already in progress.

Other Balance Sheet Items

Accounts payable, at $1,032,000 as of August 31, 2025, is 8% lower than the prior year-end. Accrued expenses decreased 47% from the prior year-end, to $2,143,000, due to the payout of fiscal year 2025 incentive compensation. The Company expects the accrued amounts to be paid or applied during the next twelve months.