What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-12-06 compared with 2023-08-18 · 186 added, 129 removed, 189 unchanged (63% of the section changed)

83 unchanged sentences

as under-absorption of factory overhead decreases profits.

Our revenues are principally determined

by orders from our customers for the delivery of product – which we call releases – against LTA’s with those customers.

These long-term agreements generally have fixed prices for product with negotiated increases to reflect a portion of the impact of inflation,

though over the term of LTAs prices often increase and not all of the increase is covered by agreed upon price protection clauses in our

Our revenues are principally

determined by orders from our customers for the delivery of product – which we call releases – against LTA’s with those

These long-term agreements generally have fixed prices for product with negotiated increases to reflect a portion of the impact

of inflation, though over the term of LTAs prices often increase and not all of the increase is covered by agreed upon price protection

clauses in our agreements.

Our direct costs of production include costs for material, labor, and significant factory overhead;

all of these costs may

vary based on the efficiency of our factory operations.

Our gross profit is highly variable due to the mix of products sold, and by sales

volume, which can lead to the over absorption or under absorption of factory overhead costs.

these costs may vary based on the efficiency of our factory operations.

Our gross profit is highly variable due to the mix of products

sold, and by sales volume, which can lead to the over absorption or under absorption of factory overhead costs.

Beyond these direct costs

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of sales

2 unchanged sentences

Other income, net

Provision/(Benefit) from income taxes

Provision for income taxes

$ (1,299,000 )

$ (2,312,000 )

Balance Sheet Data:

September 30,

Working capital

1 unchanged sentence

Results of Operations for the three months

ended June 30, 2023

Consolidated net sales for the

three months ended June 30, 2023 were $13,205,000, a decrease of $803,000, or 5.7%, compared with $14,008,000 for the three months ended

June 30, 2022.

The decrease in net sales was primarily due to the timing of shipment of certain larger components.

ended September 30, 2023

Consolidated net sales for the three months ended September

30, 2023 were $12,293,000, a decrease of $985,000, or 7.4%, compared with $13,278,000 for the three months ended September 30, 2022.

The decrease in net sales was primarily due to the timing of certain shipments of large high dollar components and a supply chain issue

related to securing raw material for a specific product.

As indicated in the table

below, three customers represented 62.7% and 66.2% of total sales for the three months ended June 30, 2023 and June 30, 2022, respectively.

below, three customers represented 60.8% and two customers represented 63.9% of total sales for the three months ended September 30, 2023

and September 30, 2022, respectively.

Percentage of Sales

Sikorsky Aircraft

Collins Aerostructures

Goodrich Landing Gear Systems

United States Department of Defense

Customer was less than 10% of sales for the three months September

Customer was less than 10% of sales for the three months September 30, 2022

Gross Profit:

For the three months ended June

30, 2022, substantially all of the inventory value was estimated using a gross profit percentage based on the annual gross profit percentage

Adjustments to reconcile the Company’s books to the annual physical inventory were recorded in the fourth quarter of 2022.

For the three months ended June 30, 2023 inventory and gross profit percentage were determined by the Company’s perpetual inventory

Consolidated gross profit for

the three months ended June 30, 2023 was $2,170,000, a decrease of $252,000, or 10.4%, as compared to gross profit of $2,422,000 for the

three months ended June 30, 2022.

Consolidated gross profit as a percentage of sales was 16.4% and 17.3% for the three months ended June

30, 2023 and 2022, respectively.

The decrease in the gross profit percentage was attributable to lower sales and the mix of products sold

Operating Expenses:

the three months ended September 30, 2023 was $1,228,000, a decrease of $1,014,000, or 45.2%, as compared to gross profit of $2,242,000

for the three months ended September 30, 2022.

Consolidated gross profit as a percentage of sales was 10.0% and 16.9% for the three months

ended September 30, 2023 and 2022, respectively.

The decrease in gross profit percentage was attributable to lower sales which led to

the under absorption of manufacturing overhead.

The decrease in sales for the quarter was primarily the result of a delay in the receipt

of raw materials from one of our suppliers related to a specific product which delayed production.

Additionally, during 2023 the mix of

product that was sold had lower margins than what was sold during 2022.

Operating Expense

Consolidated operating expenses

for the three months ended June 30, 2023 totaled $2,098,000 and decreased $74,000 or 2.3% compared to $2,172,000 for the three months

ended June 30, 2022.

for the three months ended September 30, 2023 totaled $2,024,000 and decreased by $49,000 or 2.4% compared to $2,073,000 for the three

months ended September 30, 2022.

The decrease was caused by reductions in compensation and shipping expense.

These decreased costs were partially

offset by increases in stock compensation expense and an increase in amounts spent on information technology.

These decreased costs were

partially offset by an increase in amounts spent on information technology.

Interest and Financing Costs

Interest and financing costs

for the three months ended June 30, 2023 were $480,000 an increase of $191,000 or 66.1% compared to $289,000 for the three months ended

June 30, 2022.

This increase was related to increase in debt related to new equipment and higher interest rates charged during the period.

The average interest rate charges were 7.51% and 3.60% for the three month periods ended June 30, 2023 and 2022, respectively.

Net (Loss) Income:

for the three months ended September 30, 2023 were $516,000, an increase of $193,000 or 59.8% compared to $323,000 for the three months

ended September 30, 2022.

This increase was related to increase in debt related to new equipment and higher interest rates charged during

The average interest rate charged was 7.78% and 4.70% for the three months ended September 30 2023 and 2022, respectively.

Net loss for the three months

ended June 30, 2023 was $395,000, compared a to net loss of $7,000 for the three months ended June 30, 2022 due to the reasons stated

Results of Operations for the six months ended June 30, 2023

Consolidated net sales for the

six months ended June 30, 2023 were $25,754,000, a decrease of $316,000, or 1.2%, compared with $26,070,000 for the six months ended June

The decrease in net sales was primarily due to the timing of shipment of certain larger components.

As indicated in the table

below, three customers represented 54.5% and four customers represented 77.9% of total sales for the six months ended June 30, 2023 and

June 30, 2022, respectively.

ended September 30, 2023 was $1,299,000, compared to a net loss of $142,000 for the three months ended September 30, 2022 due to the reasons

stated above.

Results of Operations for the nine months ended

September 30, 2023

Consolidated net sales for

the nine months ended September 30, 2023 were $38,047,000, a decrease of $1,301,000, or 3.3%, compared with $39,348,000 for the nine months

ended September 30, 2022.

The decrease in net sales was primarily due to the timing of certain shipments of large high dollar components

and a supply chain issue related to securing raw material for a specific product.

As indicated in the table below, four customers

represented 62.6% and three customers represented 68.9% of total sales for the nine months ended September 30, 2023 and September 30,

2022, respectively.

Percentage of Sales

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United States Department of Defense

was less than 10% of sales for the six months June 30, 2023

Customer was less than 10% of sales for the six months June 30, 2022

Customer was less than 10% of sales for the nine months September

Customer was less than 10% of sales for the nine months September 30, 2022

Gross Profit:

For the six months ended June

30, 2022, substantially all of the inventory value was estimated using a gross profit percentage based on the annual gross profit percentage

Adjustments to reconcile the Company’s books to the annual physical inventory were recorded in the fourth quarter of 2022.

For the six months ended June 30, 2023 inventory and gross profit percentage were determined by the Company’s perpetual inventory

Consolidated gross profit for the six months ended June 30, 2023 was $4,050,000,

a decrease of $450,000, or 10.0%, as compared to gross profit of $4,500,000 for the six months ended June 30, 2022.

Consolidated gross

profit as a percentage of sales was 15.7% and 17.3% for the six months ended June 30, 2023 and 2022, respectively Consolidated gross profit

for the first six months of 2023 was negatively impacted by sales of several lower margin products due to increased costs in processing

these products in the first quarter of 2023.

Consolidated gross profit from

operations for the nine months ended September 30, 2023 was $5,278,000, a decrease of $1,464,000, or 21.7%, as compared to gross profit

of $6,742,000 for the nine months ended September 30, 2022.

Consolidated gross profit as a percentage of sales was 13.9% and 17.1% for

the nine months ended September 30, 2023 and 2022, respectively.

The decrease in gross profit percentage was attributable to lower sales

which led to the under absorption of manufacturing overhead.

The decrease in sales in 2023 was partially the result of a delay in the

receipt of raw materials from one of our suppliers related to a specific product which delayed production.

Additionally, during 2023 the

mix of product that was sold had lower margins than what was sold during 2022.

Operating Expenses

Consolidated operating expenses

for the six months ended June 30, 2023 totaled $4,136,000 and increased by $93,000 or 2.3% compared to $4,043,000 for the six months ended

June 30, 2022.

The increase was caused by increases in stock compensation expense and an increase in amounts spent on information technology.

for the nine months ended September 30, 2023 totaled $6,160,000 and increased by $44,000 or 0.7% compared to $6,116,000 for the nine months

ended September 30, 2022.

The increase was caused by increases in stock compensation expense and an increase in amounts spent on information

These increased costs were partially offset by decreases in compensation and shipping expense.

1 unchanged sentence

Interest and financing costs

for the six months ended June 30, 2023 were $956,000 an increase of $344,000 or 56.2% compared to $612,000 for the six months ended June

This increase was related to increase in debt related to new equipment and higher interest rates charged during the period.

The average interest rate was 7.27% and 3.55% for the six month periods ending June 30, 2023 and 2022, respectively.

Net loss for the six months

ended June 30, 2023 was $1,013,000, compared to net loss of $35,000 for the six months ended June 30, 2022, for the reasons stated above.

for the nine months ended September 30, 2023 were $1,472,000 an increase of $537,000 or 57.4% compared to $935,000 for the nine months

ended September 30, 2022.

This increase was related to increase in debt related to new equipment and higher interest rates charged during

The average interest rate was 7.44% and 3.94% for the nine month periods ending September 30, 2023 and 2022, respectively

Net Loss for the nine months

ended September 30, 2023 was $2,312,000, compared to net loss of $177,000 for the nine months ended September 30, 2022, for the reasons

discussed above.

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

are for debt service, capital expenditures and funding working capital/operating costs.

As of June 30, 2023, we have

debt service requirements related to:

As of September 30, 2023,

we have debt service requirements related to:

Our Webster Facility of $13,719,000 consisting of a Revolving Loan of $8,444,000 and a term loan in the amount of $5,275,000.

During the remainder of our fiscal 2023, we are required to pay $473,000 of the principal due under the term loan.

During the remainder of fiscal 2023, we are required to pay $236,000 of principal under the term loan.

Related party debt consisting of convertible subordinated note payables of $4,812,000 and subordinated note payables of $1,350,000.

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Under the Webster Facility we are permitted to make principal payments against this debt in the amount of $250,000 per quarter, as long as certain conditions are met.

Various equipment leases and contractual obligations related to our normal business.

We have historically met our

cash requirements with funds provided by a combination of cash generated from operating activities and cash generated from equity and

debt financing transactions.

Based on our current revenue visibility and strength of our backlog, we believe that we have sufficient liquidity

to meet our short-term cash requirements over the next twelve months out of cash flow from operations.

On May 17, 2022, we entered into

the Fourth Amendment to the Loan and Security Agreement with Webster Bank (“Webster”).

The purpose of the amendment was to

increase the Term Loan to $5,000,000, reduce the monthly principal installments to be made in respect to the term loan and establish a

capital expenditure line of credit in the amount of $2,000,000 which we can draw upon from time to time to finance purchases of machinery

and equipment, thereby increasing the amount of capital expenditures we may make each year.

During December 2022 we borrowed $878,000

for a capital expenditure and again in January 2023 we borrowed $739,500 for an additional capital expenditure.

Various equipment leases

and contractual obligations related to our normal business, including advances under the facility with Connecticut Green Bank for the installation of solar energy systems including the replacement of the existing roof at our Sterling Facility.

We meet our cash requirements with funds provided by a combination

of cash generated from operating activities and from our Webster credit facility.

Based on our current revenue visibility and strength

of our backlog, we believe that we have sufficient liquidity to meet our short-term cash requirements over the next twelve months.

May 17, 2022, we entered into the Fourth Amendment to the Loan and Security Agreement with Webster Bank (“Webster”).

of the amendment was to increase the Term Loan to $5,000,000, reduce the monthly principal installments to be made in respect to the term

loan and establish a capital expenditure line of credit in the amount of $2,000,000 which we can draw upon from time to time to finance

purchases of machinery and equipment, thereby increasing the amount of capital expenditures we may make each year.

During December 2022,

we borrowed $878,000 for a capital expenditure and again in January 2023 we borrowed $739,500 for an additional capital expenditure.

For so long as the Webster

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Additionally,

the Fifth Amendment increased the amount of purchase money secured debt the Company is allowed to have outstanding at any time to $2,000,000.

the Fifth Amendment increased the amount of purchase money secured debt (finance leases) the Company is allowed to have outstanding at

any time to $2,000,000.

In connection with these changes, we paid an amendment fee of $10,000.

Because we believe that our

sales in 2023 will be comparable to those of 2022, we believe our liquidity will remain stable, though our borrowing costs have increased

and likely would increase further if prevailing interest rates increased or we failed to meet our covenant in the Webster Facility.

a result of recent increases in the federal funds borrowing rate, interest rates and related expense under our Webster Facility increased

in 2023 compared to 2022 and if rates remain stable or increase in 2023, our interest expense will further increase in 2023 due to the

timing of rate increases in 2022.

November 20, 2023, we entered into the Sixth Amendment to the Webster Facility (“Sixth Amendment”).

The amendment waived the

default caused by the failure to achieve the required Fixed Charge Coverage Ratio for the Fiscal Quarter ended September 30, 2023 and

the fact that our Capital Expenditures were in excess of the amount permitted in the Webster Facility.

The Sixth Amendment allows for

the Fixed Charge Coverage Ratio to be calculated on a rolling basis ( w)

for the Fiscal Quarter Ending December 31, 2023, three month basis, (x) for the Fiscal Quarter Ending March 31, 2024, six month basis,

(y) for the Fiscal Quarter Ending June 30, 2024, nine month basis, and (z) for all other Fiscal Quarters, twelve month basis.

Additionally,

the Fixed Charge Coverage Ratio shall not be less than (i) 0.95 to 1.00 for the Fiscal Quarters ending June 30, 2023, September 30, 2023,

and December 31, 2023, (ii) 1.10 to 1.00 for the Fiscal Quarter ending March 31, 2024, (iii) 1.20 to 1.00 for the Fiscal Quarter ending

June 30, 2024, and (iv) 1.25 to 1.00 for all other Fiscal Quarters.

The Sixth Amendment has increased the Capital Expenditure limit to

$2,500,000 in any Fiscal Year.

In connection with these changes, the Company paid an amendment for of $20,000.

As a result of recent increases

in the federal funds and prime borrowing rates, interest rates and related expense under our Webster Facility increased in 2023 compared

to 2022 and if rates remain stable or increase in 2023, our interest expense will further increase in 2023 due to the timing of rate increases

However, such increases are not expected to materially impact our liquidity.

Nevertheless, our liquidity

may be adversely impacted by various risks and uncertainties, including, but not limited to future and current impacts of global events

such as a widespread health crisis, the continuation of the war in the Ukraine, the outbreak of another conflict and the ongoing tensions

between the United States and China, increases in inflation, disruptions in the labor market and other risks detailed in Part 1, Item

1A of our 2022 Annual Report on Form 10-K.

Nevertheless, our liquidity may be adversely impacted

by various risks and uncertainties, including, but not limited to future and current impacts of global events such as a widespread health

crisis, the continuation of the war in the Ukraine, or the conflict in Israel, the outbreak of another conflict or the expansion of the

conflict in Israel to other countries, the ongoing tensions between the United States and China, the Russian Federation and certain countries

in the Middle East, increases in inflation, disruptions in the labor market and other risks detailed in Part 1, Item 1A of our 2022 Annual

Report on Form 10-K.

Navigating the current business

landscape poses significant challenges.

Accurately projecting future financial periods and ensuring covenant compliance has become extremely

We are grappling with supply chain issues, particularly in securing critical inventory essential for fulfilling specific orders.

Additionally, the recent Middle East war has heightened geopolitical instability that we expect will cause fluctuations in our future

business results.,

Our future liquidity may be adversely

impacted by various risks and uncertainties, including but not limited to the ongoing wars in Ukraine and Israel, other geopolitical

volatility, deterioration in the financial markets or defense industries and other macroeconomic events.

While we are presently in full

compliance with our Webster Facility, we have failed to meet our covenants, as amended, during two out of three of the last fiscal quarters.

Additionally, it is possible, that we may not meet our financial covenants in one of the upcoming fiscal quarters over the next twelve

months due to either future losses and /or raising interest rates.

Therefore, due to the aforementioned issues, we have classified the

term loan that expires on December 30, 2025 as current as of September 30, 2023, in accordance with the guidance in ASC 470-10-45 related

to the classification of callable debt.

Failure to meet the revised covenants in future periods and secure any necessary waivers raises

substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance date of this report.

The Company is required to maintain a collection account with Webster Bank into which substantially all of the Company’s cash receipts

are remitted.

If Webster were to cease lending and keep the funds remitted to the collection account, the Company would lack the funds

to continue its operations.

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability

and classification of recorded assets or the classification of liabilities that might be necessary should the Company be unable to continue

as a going concern.

In addition to our loan with

3 unchanged sentences

statements included in this report.

Changes in our cash flow are

discussed further below.

Changes in our cash flow are discussed

further below.

The following table summarizes

our net cash flow from operating, investing and financing activities for the periods indicated below (in thousands):

Six months ended

Nine months ended

September 30,

Cash provided by (used in)

2 unchanged sentences

Financing activities

Net increase in cash

Cash Provided by Operating Activities

Cash provided by operating

activities primarily consists of our net loss adjusted for certain non-cash items and changes to working capital items.

For the six months ended June

30, 2023, our net loss of $(1,013,000) was offset by $1,910,000 of non-cash items consisting primarily of depreciation of property and

equipment of $1,239,000, employee and director stock compensation expense of $340,000 and amortization of right-of-use assets of $295,000

Net increase (decrease) in cash

Cash Provided by (Used in) Operating Activities

Cash provided by (used in)

operating activities primarily consists of our net loss adjusted for certain non-cash items and changes to working capital items.

For the nine months ended

September 30, 2023, our net loss of $2,312,000 was offset by $2,784,000 of non-cash items consisting primarily of depreciation of property

and equipment of $1,853,000, employee and director stock compensation expense of $422,000 and amortization of right-of-use assets of $449,000

which were partially offset by a deferred gain on the sale of real estate in the amount of $29,000.

Operating assets and liabilities

provided cash in the net amount of $509,000 consisting primarily of net decreases in accounts receivable, prepaid expense and deposits

in the amounts of $1,303,000, $85,000 and $33,000, respectively, and a net increase in accounts payable and accrued expense in the amount

of $726,000, which were partially offset by an increase in inventory in the amount of $946,000, and decreases in operating lease liabilities

and customer deposits in the amounts of $377,000 and $314,000, respectively.

provided cash during the nine months ended September 30 in the net amount of $6,621,000 consisting primarily of net decreases in accounts

receivable, inventory and prepaid expense in the amounts of $4,224,000, $473,000 and $72,000, respectively, and a net increase in customer

deposits in the amount of $2,695,000, which were partially offset by an increase in deposits in the amount of $20,000, and decreases in

operating lease liabilities and accounts payable and accrued expenses in the amounts of $572,000 and $251,000, respectively.

in customer deposits is related to an advance payment by a customer to be used for the procurement of long lead time raw materials this

amount will be disbursed during the remainder of 2023 and early 2024.

Cash Used in Investing Activities

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consists of capital expenditures for property and equipment.

For the six months ended June

30, 2023, cash used in investing activities was $1,383,000.

This was for the purchase of state-of-the-art machinery.

Cash Provided by Financing Activities

Cash provided by financing

activities consists of the borrowing and repayments under our credit facilities with our senior lender, Webster, increases in and repayments

of finance obligations and other notes payable.

For the six months ended June

30, 2023, cash provided by financing activities was $533,000.

This was comprised of increased borrowings on our Webster term loan and

our Webster revolving loan in the amounts of $740,000 and $486,000, respectively, partially offset by net payments on our Webster term

loan in the amount of $640,000, and payments of $49,000 and $4,000 on our financing lease obligations and loan payable – financed

asset, respectively.

For the nine months ended

September 30, 2023, cash used in investing activities was $1,867,000.

This was primarily for the purchase of state-of-the-art machinery.

Cash Used in Financing Activities

Cash used in financing activities

consists of the borrowing and repayments under our credit facilities with our senior lender, Webster, increases in and repayments of finance

obligations and other notes payable.

For the nine months ended

September 30, 2023, cash used in financing activities was $4,767,000.

This was comprised of net payments on our Webster revolving loan

in the amounts of $4,908,000 and payments of $876,000 on our Webster term loan, $84,000 on our financing lease obligations and $7,000

on our loan payable – financed asset, partially offset by borrowings of $740,000 on our Webster term loan and advances totaling

$393,000 on our financing agreement from CT Green Bank.

OFF-BALANCE SHEET ARRANGEMENTS

We did not have any off-balance

sheet arrangements as of June 30, 2023.

sheet arrangements as of September 30, 2023.

Critical Accounting Policies and Estimates

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GAAP”), and all applicable U.S.

GAAP accounting standards effective as of June 30, 2023 have been taken into consideration in preparing

the condensed consolidated financial statements.

The preparation of condensed consolidated financial statements requires estimates and

assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

Some of those estimates

are subjective and complex, and, consequently, actual results could differ from those estimates.

The following accounting policies and

estimates have been highlighted as significant because changes to certain judgments and assumptions inherent in these policies could affect

our condensed consolidated financial statements:

GAAP accounting standards effective as of September 30, 2023 have been taken into consideration

in preparing the condensed consolidated financial statements.

The preparation of condensed consolidated financial statements requires

estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

those estimates are subjective and complex, and, consequently, actual results could differ from those estimates.

The following accounting

policies and estimates have been highlighted as significant because changes to certain judgments and assumptions inherent in these policies

could affect our condensed consolidated financial statements:

Inventory Valuation, which includes the estimates and methodology used in accounting for the transition of production costs to inventory costs.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis