What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-27 compared with 2025-04-15 · 138 added, 143 removed, 170 unchanged (62% of the section changed)

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with existing customers and cultivating new ones.

Fiscal 2024 marked a year of overall progress and positioning for growth.

Looking forward

to fiscal 2025, our business strategy is geared towards achieving sustainable and profitable business growth.

We are firmly focused on

securing new contract awards, improving operations and successful execution.

With total unfilled contract values amounting

to $271.3 million (including our $117.9 million in backlog and all potential orders against LTA agreements previously awarded to us),

as of December 31, 2024, we are confident in our ability to boost sales in 2025, attain profitability and improve our financial position.

Looking forward to fiscal 2026, we are focused on securing new contract awards, improving

operations and successful completion of the Merger Agreement (as discussed elsewhere in this filing).

As of December 31, 2025, we have total unfilled

contract values amounting to $270.1 million (including our $136.8 million in backlog and all potential orders against LTA agreements previously

awarded to us).

RESULTS OF OPERATIONS

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Percentage of

Percent Change

$ (7,187,000 )

Cost of sales

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Other income, net

Provision for income taxes

Benefit from income taxes

$ (1,305,000 )

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Balance Sheet Data:

Percent Change

Working capital

$ (6,532,000 )

Total stockholders’ equity

Comparison of Fiscal 2025 to 2024

Net sales in 2024 were $55,108,000, an increase of $3,592,000 or 7.0%,

compared with $51,516,000 that we achieved in 2023.

The year-over-year increase in net sales was primarily driven by the impact of the

Company’s enhanced sales and marketing initiatives which contributed to higher shipment volumes against our expanding backlog.

Additionally,

there have been changes in customer mix and production requirements for other key platforms and programs.

Net sales in 2025 were

$47,921,000, a decrease of $7,187,000 or 13.0%, compared with $55,108,000 that we achieved in 2024.

The year-over-year decrease in net

sales was primarily due to timing and overall changes in the mix of products requested and delivered in response to customer orders.

The composition of customers that exceeded 10%

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Lockheed Martin

RTX includes Collins Landing Systems and Collins Aerostructures

(A) RTX includes Collins Landing Systems

and Collins Aerostructures

The composition of our net sales by platform or program profiles for

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UH-60 Black Hawk Helicopter

F-35 Lightning II

CH-53 Helicopter

F-35 Lightning II

All other platforms

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Gross profit for the

year ended December 31, 2024, amounted to $8,932,000, an increase from the $7,428,000 achieved in 2023.

year ended December 31, 2025, amounted to $8,187,000, a decrease from the $8,932,000 achieved in 2024.

Our gross profit percentage in

fiscal 2025 increased to 17.1% from the 16.2% we achieved in 2024.

This improvement can be attributed to our increase in sales, changes

in sales across our major platforms, shifts in product mix, and overall operating efficiencies.

This improvement can be attributed to changes in sales across our major

platforms, shifts in product mix, and cost reductions implemented during the period.

Operating Expenses :

In fiscal 2025,

operating expenses totaled $8,473,000, higher than the $7,723,000 recorded in 2023.

As a percentage of consolidated net sales, operating

expenses rose to 15.4%, compared to the 15.0% achieved in fiscal 2023.

The increase in both dollars and percentage was primarily driven

by higher professional fees and costs associated with the improvement of our information technology system and hardening our cyber-security

We continue to look for ways to reduce our costs and improve our operating performance and financial results.

operating expenses totaled $8,525,000, an increase of $52,000, from $8,473,000 recorded in 2024.

As a percentage of consolidated net sales,

operating expenses rose to 17.8%, compared to 15.4% in fiscal 2024.

The dollar increase was due primarily to stock compensation expense

and information technology expenses offset by lower personnel costs.

We continue to look for ways to reduce our operating expenses.

Interest Expense:

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(which includes amortization of deferred financing costs) was $1,841,000 in fiscal 2025, a decrease of $52,000 or 2.8% from $1,893,000

The decrease is primarily attributable to a decrease in the average amount outstanding under our Current Credit Facility.

average interest rate on our Current Credit Facility increased to 7.66% in 2024 as compared to 7.55% in 2023.

The decrease is primarily attributable to lower levels of subordinated debt during a portion of the year and a decrease in the

average interest rate on debt outstanding pursuant to our Current Credit Facility which decreased to 6.72% in 2025 as compared to 7.66%

Net loss for the year

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Outstanding indebtedness under our Current Credit Facility of $23,473,000 (consisting of a Revolving Loan of $17,618,000 and a Term Loan in the amount of $5,855,000).

This debt matures on December 30, 2025, and requires us to make monthly payments of approximately $68,000 in 2025.

This debt matures on September 30, 2026, and requires us to make monthly payments of approximately $87,000 in 2026.

Related Party Notes of approximately $4,871,000.

This debt matures

on July 1, 2026.

Pursuant to the Current Credit Facility we are permitted to make principal payments against this debt with money raised

pursuant to the sale of our securities under our Registration Statement on Form S-3 declared effective December 19, 2024.

to December 31, 2024 we repaid approximately $1,291,000 of this debt out of proceeds of such sales.

Various equipment leases and contractual obligations related to our

normal business, including advances under our Solar Facility for the installation of solar energy systems including the replacement of

the existing roof at our Sterling Facility.

This debt matures on October 1, 2026.

Various equipment leases and contractual obligations related to our business, including advances under our Solar Facility for the installation of solar energy systems including the replacement of the existing roof at our Sterling Facility.

The Current Credit Facility

and Related Party Subordinated are classified as current liabilities on the consolidated balance sheet as of December 31, 2025.

of the due dates of this debt, there is substantial doubt about our ability to continue as a going concern for the twelve months following

the date of filing of these consolidated financial statements.

Webster Bank has advised us that it will not renew our Current Credit Facility.

In addition to discussions with our lenders, as discussed in our Current Report on Form 8-K filed February 17, 2026, we entered into a

Merger Agreement with Tenax.

To support current operations and strategic initiatives, beginning

in December 2024 we raised capital through public market sales of our common stock and believe we can continue to access equity markets

in future periods, though there is no assurance as to our ability to do so or as to the price and terms under which we could issue equity

During the year ended December 31, 2025, the Company sold 1,213,593 shares of common stock in the public market and generated

gross proceeds of $4,869,000, of which approximately $3,930,000 is restricted for the benefit of the Current Credit Facility lender.

initiating the sales in December 2024, we have sold a total of 1,330,444 shares for gross proceeds of $5,375,000.

In light of ongoing

negotiations with our lenders and in accordance with the Merger Agreement with Tenax, we have temporarily paused all equity raising activity

while evaluating the most effective capital structure going forward.

Under the terms of the Current Credit Facility,

as amended, we are required to achieve prescribed levels of EBITDA (as defined in the Current Credit Facility) at the end of each Fiscal

Quarter on a rolling basis, for the Fiscal Quarters ending September 30, 2024 and December 31, 2024.

Beginning with the Fiscal Quarter

ending March 31, 2025 we are required to meet a prescribed Fixed Charge Coverage Ratio (as defined) that is determined at the end of each

fiscal quarter.

This ratio is a financial metric that we use to measure our ability to cover fixed charges such as interest and lease

expenses as divided by EBITDA (as defined in the Current Credit Facility) which represents net income (loss) before interest, taxes, depreciation

as amended, we are required to meet a prescribed Fixed Charge Coverage Ratio (as defined) that is determined at the end of each fiscal

This ratio is a financial metric that we use to measure our ability to cover fixed charges such as interest and lease expenses

as divided by EBITDA (as defined in the Current Credit Facility) which represents net income (loss) before interest, taxes, depreciation

and amortization.

For the twelve months cumulative period ending December 31, 2024, we achieved an EBITDA of $3,640,000 as compared to

the required $2,800,000.

As of December 31, 2024, we met all the financial

and business covenants required under the terms of the Current Credit Facility which included a minimum EBITDA on a twelve-month basis

of $2.8 million.

In the past, we have not met our financial and business covenants, most recently as of March 31, 2024, and therefore

historically classified the term loan at December 31, 2023 in accordance with the guidance in Accounting Standards Codification (“ASC”)

“Debt – Other Presentation Matters”, related to the classification of callable debt.

The Current Credit Facility expires on December

We are also required to meet other business and financial covenants.

As of December 31, 2025, we were in compliance

with all financial and business covenants contained in the Current Credit Facility.

The Current Credit Facility expires on September

In addition, we are required to maintain a collection account with our lender into which substantially all cash receipts are

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The Current Credit Facility expiration date and the rights

granted to the lender, combined with the reasonable possibility that the we might fail to meet covenants in the future, raise substantial

granted to the lender, combined with the reasonable possibility that we might fail to meet covenants in the future, raise substantial

doubt about our ability to continue as a going concern for the one year commencing as of the date of filing this report.

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amendments to the Current Credit Facility (all of which have been filed with the SEC):

On August 4, 2023, we entered into a Fifth Amendment that waived a default caused by our failure to meet the required Fixed Coverage Charge Ratio for the fiscal quarter ended March 31, 2023.

Additionally, the amendment provided for a revised Fixed Coverage Charge Ratio for the fiscal quarters ending June 30, 2023 and September 30, 2023 and increased the amount of purchase money secured debt (or finance leases) we are allowed to have outstanding at any time to $2,000,000.

In connection with this amendment, we paid a fee of $10,000.

On November 20, 2023, we entered into a Sixth Amendment that waived defaults caused by the failure by us to achieve the Fixed Charge Coverage Ratio of the Fifth Amendment and because we purchased capital expenditures (as defined) in excess of permitted amounts.

This amendment further revised the Fixed Charge Coverage Ratio by requiring it to be calculated on a rolling period basis and not be less than, (a) 1.10x (as calculated on a six-months basis) for the fiscal quarter ending March 31, 2024, (b) 1.20x (as calculated on a nine-months basis) for the fiscal quarter ending June 30, 2024, and (c) 1.25 (as calculated on a twelve-months basis) for all fiscal quarters beginning with September 30, 2024, until the Current Credit Facility expires.

This amendment also increased our ability to make additional capital expenditures up to a limit of $2,500,000 in any fiscal year.

In connection with this amendment, we paid a fee of $20,000.

On May 31, 2024, we entered into a Seventh Amendment that waived the default caused by our failure to achieve the required Fixed Charge Coverage Ratio of the Sixth Amendment.

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

On January 30, 2025, we entered into an Eighth Amendment to provide for an additional Term Loan in the amount of $1,640,000 for the acquisition of additional equipment.

The monthly principal installments on this additional Term Loan are $19,524 This amendment further revised our Financial Covenants.

For the rolling twelve-month period ending March 31, 2025 and June 30, 2035, we are required to achieve a Fixed Charge Coverage Ratio of 1.05x.

Beginning with the rolling twelve-month period ending September 30, 2025 and going forward the Company is required to achieve a Fixed Charge Coverage Ratio of 1.25x.

● On January 30, 2025, we entered into an Eighth

Amendment to provide for an additional Term Loan in the amount of $1,640,000 for the acquisition of additional equipment.

principal installments on this additional Term Loan are $19,524 This amendment further revised our Financial Covenants.

For the rolling

twelve-month period ending March 31, 2025 and June 30, 2035, we are required to achieve a Fixed Charge Coverage Ratio of 1.05x.

with the rolling twelve-month period ending September 30, 2025 and going forward the Company is required to achieve a Fixed Charge Coverage

Ratio of 1.25x.

All other covenants remain unchanged.

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

Although navigating the current business landscape

remains challenging and it is difficult to predict period-to-period financial performance, we believe we will be able to meet our financial

obligations for the foreseeable future.

However, if we are unable to obtain a waiver from our lender and they were to cease lending, we

would not be able meet our financial obligations.

As of December 31, 2024, we have borrowing capacity of approximately $7,095,000 under

the Revolving Loan.

In addition to required Term Loan payments of

approximately $1,011,000 in fiscal 2025, we may have to make additional payments.

For so long as the Term Loan under the Current Credit

Facility remains outstanding, if Excess Cash Flow (as defined) is a positive amount for any fiscal year, we are obligated to pay an amount

equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow and (ii) the outstanding principal balance of the Term Loan.

Such payment shall be applied to the outstanding principal balance of the Term loan, on or prior to the April 15 immediately following

such fiscal year.

For the fiscal year ended December 31, 2024, based on the calculation there is a $43,500 Excess Cash Flow payment required.

● On September 10, 2025, we entered into a Ninth Amendment where it agreed that the $3,930,000 of the proceeds from its ATM Offering would be maintained in an interest bearing account.

The funds in this account serve as additional security for its obligations under the Current Credit Facility.

● On December 15, 2025, we entered into a Tenth Amendment which waived the defaults caused by the failure to achieve the required fixed charge coverage ratio for the fiscal quarter ended June 30, 2025, and for exceeding the permitted amount of capital expenditures for the fiscal year ending December 31, 2025.

Additionally, the maturity date of the revolving credit and term loans were extended to March 31, 2026, and amended the capital expenditure covenant.

We paid an amendment fee of $40,000.

● On February 26, 2026, we entered into an Eleventh Amendment which extended the maturity date of the revolving credit and term loans to September 30, 2026.

In connection with this Amendment, we paid an amendment fee of $25,000 and agreed to pay $150,000 when the loans are satisfied.

If we are unable to close the merger with Tenax

contemplated by the Merger Agreement or obtain a new lender to replace the Current Credit Facility we may not be able meet our financial

As of December 31, 2025, we have borrowing capacity of approximately $2,382,000 under the Revolving Loan.

In addition to required Term Loan payments we

may have to make additional payments under the Current Credit Facility.

For so long as the Term Loan under the Current Credit Facility

remains outstanding, if Excess Cash Flow (as defined) is a positive amount for any fiscal year, we are obligated to pay an amount equal

to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow and (ii) the outstanding principal balance of the Term Loan.

payment shall be applied to the outstanding principal balance of the Term loan, on or prior to the April 15 immediately following such

For the fiscal year ended December 31, 2025, based on the calculation there is no Excess Cash Flow payment required.

In addition to the outstanding indebtedness under

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which we service in the ordinary course out of our cash flow from operations.

Our material cash requirements are for debt service,

capital expenditures and funding working capital.

We have historically met these 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 cash requirements for our operations.

we must pay or refinance large portions of our

indebtedness prior to December 30, 2025, and July 1, 2026.

Further, as a condition to refinancing our Current Credit Facility prior to

December 31, 2025, our lender may require that the holders of our Related Party Notes extend or otherwise modify the subordination agreements

they have given in favor of the lender.

Since it is not likely that we will be able to pay this debt, we have initiated steps to satisfy

portions and refinance the balance.

These steps included entering an At The Market Offering Agreement dated December 13, 2024, with

Craig-Hallum Capital Group LLC pursuant to which, as of March 31, 2025, we have sold 326,791 shares of our common stock for gross proceeds

of $1,412,000 of which $1,291,000 has been used to satisfy portions of the Related Party Notes.

We expect to engage in discussions during 2025 with our lender under

the Current Credit Facility and related party note holders to explore potential extensions or refinancing of our obligations.

our indebtedness may require us to pay higher interest rates than we currently pay, agree to more restrictive business or financial covenants

or involve the issuance of debt, equity and/or new securities convertible into or exercisable or exchangeable for our common stock.

failure to refinance our existing debt or obtain additional working capital when required would have a material adverse effect on our

business and financial condition.

Our material cash requirements are for debt service, capital expenditures

and funding working capital.

We have historically met these 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, strength of our backlog,

and availability under our Current Credit Facility, we believe that we have sufficient liquidity to meet our day-to-day cash requirements

for our operations.

However, we must pay or refinance large portions of our indebtedness prior to September 30, 2026, and October 1, 2026.

Further, as a condition to refinancing our Current Credit Facility prior to September 30, 2026, our lender or a new lender may require

that the holders of our Related Party Notes extend or otherwise modify the subordination agreements they have given in favor of the lender.

If we do not close the contemplated Merger, it

is unlikely we will be able to pay existing debt and will need to refinance our Current Credit Facility and Related Party Notes.

engaged in discussions with Webster Bank and the holders of our Related Party Notes to explore potential extensions or refinancings of

our obligations.

Webster Bank has advised us that it will not extend our Current Credit Facility.

Refinancing our indebtedness with other

parties may require us to pay higher interest rates than we currently pay, agree to more restrictive business or financial covenants or

involve the issuance of debt, equity and/or new securities convertible into or exercisable or exchangeable for our common stock.

to refinance our existing debt or obtain additional working capital when required would have a material adverse effect on our business

and financial condition.

The following table summarizes our net cash flow

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Financing activities

Net increase (decrease) in cash

Cash Provided By Operating Activities

For the year ended December 31, 2024, we generated

cash flows from operations of $324,000 as compared to $4,862,000 for fiscal 2023.

The decrease in cash flows was primarily due to

the use of a portion, $2,442,000, of customer deposits which had been advanced prior to 2024 for the procurement of long lead time raw

materials expected to be utilized in 2024.

Net increase in cash

Cash (Used in) Provided By Operating Activities

For the year ended December 31, 2025, our operations absorbed $1,352,000

of cash as compared to generating $324,000 of cash in fiscal 2024.

The use of cash was due to an increase in inventory of $5,450,000,

reflecting material and production costs incurred for product to be delivered in 2026.

This was partially offset by non-cash expenses

of depreciation and stock-based compensation in the amounts of $2,499,000 and $1,047,000, respectively, and by a reduction in accounts

receivable of $1,761,000.

For the year ended December 31, 2024, we generated cash flows from

operations of $324,000 as compared to $4,862,000 for fiscal 2023.

The decrease in cash flows was primarily due to the use of a portion,

$2,442,000, of customer deposits which had been advanced prior to 2024 for the procurement of long lead time raw materials expected to

be utilized in 2024.

Cash Used In Investing Activities

We continue to make significant investments to

enhance our competitiveness and market position.

During 2025 we continued to make significant investments to enhance

our competitiveness and market position.

Cash used in investing activities of $3,122,000 and $2,285,000, in 2025 and 2024, respectively,

was for new property and equipment.

We continue to make strategic investments in capital

equipment to enhance our competitiveness.

The investments in 2024 and 2023 increased production efficiency and speed, while maintaining

closer tolerances.

The investments in 2025 and 2024 increased production efficiency and speed, while maintaining closer tolerances.

They also expanded the size of products we can manufacture.

We expect to invest approximately $1,600,000 in 2025 for

new or upgraded equipment.

Cash Provided by (Used In) Financing

Any investment in 2026 will be at a much lower level.

Cash Provided by Financing Activities

For the year ended December 31, 2025, cash provided

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During fiscal 2025, we increased borrowings under our Current Credit Facility by $5,343,000 (consisting

of a net increase in Revolving Loan borrowings of $4,713,000 and a net increase of $630,000 against the Term Loan).

We also sold an aggregate

of 1,213,593 shares of common stock to the public for net proceeds of $4,638,000.

We used cash by paying $1,291,000 of the Related Party

We also made payments of $223,000 pursuant to financing lease obligations and $8,000 on a loan payable.

For the year ended December 31, 2024, cash provided

by financing activities was $2,368,000.

During fiscal 2024, we increased borrowings under our Current Credit Facility by $2,238,000 (consisting

of a net increase in Revolving Loan borrowings of $2,101,000 and a net increase of $137,000 against the Term Loan) and received advances

of $8,000 against the Solar Facility.

We also made payments of $196,000 pursuant to financing lease obligations and $9,000 on a loan

For the year ended December 31, 2023, cash used

in financing activities was $2,685,000.

During fiscal 2023, we reduced borrowings under our Current Credit Facility by $2,921,000 (consisting

of net reduction in Revolving Loan borrowings of $2,548,000 and a net decrease of $373,000 against the Term Loan).

We also made payments

of $123,000 pursuant to financing lease obligations and $9,000 on a loan payable.

During fiscal 2023, we also took advances of $393,000

against the Solar Facility including origination fees of $25,000.

We also sold an aggregate of 116,851 shares of common stock to the public for net proceeds of $327,000.

Additionally, we made payments of $196,000 pursuant to financing lease obligations and $9,000 on a loan payable.

OFF-BALANCE SHEET ARRANGEMENTS

We did not have any off-balance sheet arrangements

as of December 31, 2025 and 2024.

Critical Accounting Estimates

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statements and the reported amounts of revenues and expenses during the reporting period.

The financial statements include estimates based

on currently available information and our judgment as to the outcome of future conditions and circumstances.

Significant estimates in

these financial statements include, inventory valuation and income tax provision.

Changes in the status of certain facts or circumstances

could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ

from the estimates and assumptions.

The financial statements in this Report include

estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances.

estimates in these financial statements include, inventory valuation and income tax provision.

Changes in the status of certain facts

or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results

could differ from the estimates and assumptions.

Below is a description of our critical accounting estimates:

Inventory Valuation, which includes the estimates

and methodology used in accounting for the transition of production costs to inventory costs.

In our consolidated financial statements,

inventory is reflected at the lower of cost or net realizable value.

The Company periodically evaluates inventory items not secured by

backlog and establishes write-downs to estimated net realizable value for excess quantities, slow-moving goods (defined as goods which

do not have an open order and have not had movement for two years), obsolescence and for other impairments of value.

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

In our consolidated financial statements, inventory is reflected at the lower of cost or net realizable value.

We periodically evaluate inventory items not secured by backlog and establishes write-downs to estimated net realizable value for excess quantities, slow-moving goods (defined as goods which do not have an open order and have not had movement for two years), obsolescence and for other impairments of value.

Income Taxes.

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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-K

Item 7. Management’s Discussion and Analysis