What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-12 compared with 2020-08-14 · 81 added, 79 removed, 90 unchanged (64% of the section changed)

20 unchanged sentences

In particular, the aerospace sector, for which we rely on a significant part of our business, has been faced with significant reductions to its business due to lack of air travel.

Due to the timing of the COVID-19 outbreak, the Company’s new order levels during the first half of 2020 and into the third quarter of 2020 have seen substantial reductions which have materially and adversely affected revenues commencing in our second quarter of 2020, and is anticipated to continue towards the end of 2020.

While the financial results for the Company’s first quarter of 2020 reflected the initial impact of COVID-19, and the second quarter of 2020 reflected a substantial effect, we are unable to predict the extent of the impact the pandemic will have on our financial position and operating results for the remainder of 2020 and into 2021 due to numerous uncertainties, but the impact could be material during any future period affected either directly or indirectly by this pandemic.

Due to the timing of the COVID-19 outbreak, the Company’s new order levels during the first nine months of 2020 and into the fourth quarter of 2020 have seen substantial reductions which have materially and adversely affected revenues commencing in our second quarter of 2020, and is anticipated to continue towards the end of 2020.

While the financial results for the Company’s first quarter of 2020 reflected the initial impact of COVID-19, and the nine months ended September 30, 2020 reflected a substantial adverse effect, we are unable to predict the extent of the impact the pandemic will have on our financial position and operating results for the remainder of 2020 and into 2021 due to numerous uncertainties, but the impact could be material during any future period affected either directly or indirectly by this pandemic.

The longer-term impacts from the outbreak are highly uncertain and cannot be predicted.

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of revenue

10 unchanged sentences

Loss before income tax

Income tax expense (benefit)

Net (loss) income

Three Months Ended June 3 0 , 20 20 vs.

June 3 0 , 201 9

Our revenue for the three months ended June 30, 2020 was $3.7 million compared to $4.9 million for the three months ended June 30, 2019, a decrease of $1.2 million or 24.4%.

This was primarily attributable to decreased revenue of $.9 million from our CVD Equipment segment related to spare parts and equipment sales, and $.3 million decrease in our SDC segment.

The revenue contributed for the three months ended June 30, 2020, by the CVD Equipment segment, of $2.3 million, which totaled 61.3% of our overall revenue, was (28.6%) or ($.9 million) lower than the segment’s $3.2 million contribution made in the prior year, which totaled 64.9% of our overall revenue.

This revenue decrease is the result of an increase of $.7 million and a decrease of ($1.6 million) from spare parts and equipment sales, respectively.

Revenue for our SDC segment was $1.0 million in three months ended June 30, 2020 as compared to $1.3 million in three months ended June 30, 2019, a decrease of $.3 million.

This decrease was due to the timing of orders delivered, as a large order primarily completed in the three months ended March 31, 2020.

Revenues for our CVD Materials segment were $.4 million in the three months ended June 30, 2020 as compared to $.4 million for the three months ended June 30, 2019.

Gross profit for the three months ended June 30, 2020 amounted to $.6 million, with a gross profit margin of 16.2%, compared to a gross profit of $.5 million and a gross profit margin of 10.0% for the three months ended June 30, 2019.

We achieved improvements in our operating efficiencies with certain repeat orders, lowered our costs mostly due to the effects of certain furloughed employees during the three months ended June 30, 2020, as a result of Coronavirus mandates imposed, and achieved improved mix of product revenues resulting in our gross profit margin percentage improvement.

Income tax benefit

Three Months Ended September 3 0 , 20 20 vs.

September 3 0 , 201 9

Our revenue for the three months ended September 30, 2020 was $4.0 million compared to $5.7 million for the three months ended September 30, 2019, a decrease of $1.7 million or 30.0%.

This was primarily attributable to decreased revenue of $2.1 million from our CVD Equipment segment related to spare parts and equipment sales and $.1 million decrease in our SDC segment, offset, in part by, an increase of $.5 million in our CVD Materials segment.

The revenue contributed for the three months ended September 30, 2020 by the CVD Equipment segment of $2.3 million, which totaled 57.8% of our overall revenue, was (47.2%) or ($2.1 million) lower than the segment’s $4.4 million contribution made in the prior year, which totaled 76.7% of our overall revenue.

This revenue decrease is the result of decreases of $1.0 million and $1.1 million, from spare parts and equipment sales, respectively.

Revenue for our SDC segment was $.8 million in three months ended September 30, 2020 as compared to $.9 million in three months ended September 30, 2019, a decrease of $.1 million.

Revenues for our CVD Materials segment were $.9 million in the three months ended September 30, 2020 as compared to $.4 million for the three months ended September 30, 2019.

This increase of $.5 million was the result of increased Tantaline® related revenue of $.4 million and $.1 million in MesoScribe product revenue.

Gross profit for the three months ended September 30, 2020 amounted to $.4 million, with a gross profit margin of 10.9%, compared to a gross profit of $1.4 million and a gross profit margin of 24.5% for the three months ended September 30, 2019.

The reduction in gross profit and gross profit margin, was the result of the impact of $1.7 million in decreased sales, while costs overall remained at levels to support increased sales, as well as the mix of product sales.

Research and D evelopment, S elling and G eneral and A dministrative E xpenses

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When they are not working on a customer project, they work in our Application Laboratory and their costs are charged to research and development.

For the three months ended June 30, 2020, our research and development expenses totaled $96,000 compared to $177,000 for the three months ended June 30, 2019, a decrease of $81,000, primarily due to the effects of certain furloughed employees during the three months ended June 30, 2020, as a result of Coronavirus mandates imposed.

Selling expenses were $.1 million or 3.5 % of the revenue for the three months ended June 30, 2020 as compared to $.2 million or 4.6% for the three months ended June 30, 2019.

The decrease was primarily the result of reduced employee related costs, including the effects of certain furloughed employees during the three months ended June 30, 2020, as a result of Coronavirus mandates imposed, and lower trade show expenses.

For the three months ended September 30, 2020, our research and development expenses totaled $90,000 compared to $113,000 for the three months ended September 30, 2019, a decrease of $23,000.

Selling expenses were $.1 million or 3.6 % of the revenue for the three months ended September 30, 2020 as compared to $.2 million or 3.1% for the three months ended September 30, 2019.

The decrease was primarily the result of reduced employee and employee related costs, during the three months ended September 30, 2020.

General and Administrative

General and administrative expenses for the three months ended June 30, 2020 were $1.5 million or 40.5% of revenue compared to $1.6 million or 33.2% for the three months ended June 30, 2019, a decrease of $.1 million.

The decrease in these expenses is primarily the result of decreased stock compensation costs of $109,000, due to less equity grants, and decreased outside systems and finance consulting costs of $40,000, due to the completion of the Company’s system migration and finance consulting costs in 2019.

These decreases were offset, in part by, an $80,000 bad debt provision related to one customer.

Operating income (l oss )

With improved gross profit margins, resulting from improved product mix, and reduced expenses, our operating loss was ($1.1 million) in the three months ended June 30 2020, compared with an operating loss of ($1.5 million) in the three months ended June 30, 2019.

General and administrative expenses for the three months ended September 30, 2020 were $1.6 million or 39.9% of revenue compared to $1.4 million or 23.8% for the three months ended September 30, 2019, an increase of $.2 million.

The increase in these expenses is primarily the result of increased depreciation of its 555 facility in the amount of $86,000 and a $40,000 bad debt provision related to one customer.

Operating l oss

As a result of reduced gross profit margins and increased general and administrative expenses, our operating loss was ($1.4 million) in the three months ended September 30 2020, compared with an operating loss of ($.3 million) in the three months ended September 30, 2019.

Other income (expenses)

Other income (expenses) were ($1,126) and ($84,207) for the three months ended June 30, 2020 and 2019, respectively.

This decrease in net other expenses is primarily the result of subleasing a portion of our CVD Materials facility and receiving $107,880 in rental income during the three months ended June 30, 2020, as compared to none in three months ended June 30, 2019.

As a result of lower interest rates, interest income decreased $36,585, to $5,478 for the three months ended June 30, 2020 as compared to $42,063 in 2019.

In addition, Interest expense decreased $11,786 to $114,484 in the three months ended June 30, 2020, as compared to $126,270 in 2019.

For the three months ended June 30, 2020, we recorded an income tax expense of $1,049 related to certain state minimum taxes as compared to an income tax benefit of $234,697 for the three months ended June 30, 2019.

As of June 30, 2020 and December 31, 2019, the Company has provided a full valuation allowance against all of the net deferred tax assets.

Other income (expenses) were $101,012 and $109,562 for the three months ended September 30, 2020 and 2019, respectively.

Other income was $174,705 and $207,237 for the three months ended September 30, 2020 and 2019, respectively, from subleasing a portion of our CVD Materials facility.

The decrease of $32,532 was the result of lower rent in 2020.

Interest income of $30,348 for the three months ended September 30, 2020, included interest income of $28,000 related to the income tax refund received during the quarter.

As a result of lower interest rates, interest income (excluding the amount related to the income tax refund) decreased $24,426, to $2,348 for the three months ended September 30, 2020 as compared to $26,774 in 2019.

In addition, Interest expense decreased $20,408 to $104,041 in the three months ended September 30, 2020, as compared to $124,449 in 2019.

For the three months ended September 30, 2020, there was no income tax expense as compared to an income tax benefit of $1,000 for the three months ended September 30, 2019.

As of September 30, 2020 and December 31, 2019, we have provided a full valuation allowance against all of the net deferred tax assets.

This was based on management’s assessment, including the last two years of operating losses, that it is more likely than not that the net deferred tax assets may not be realized in the future.

We continue to evaluate for potential utilization of the Company’s deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections and timing of orders, the commencement of operations of our CVD Materials segment and cost containment measures.

For the three months ended June 30, 2019 our tax rate was primarily affected by permanent differences resulting in an effective tax rate of 14.4%.

Net income (loss)

As a result of the foregoing factors, we reported a net loss of ($1.1 million), or ($0.17) per basic and diluted share, for the three months ended June 30, 2020, as compared to a net loss of ($1.4 million), or ($0.21) per basic and diluted share for the three months ended June 30, 2019.

Six Months Ended June 3 0 , 20 20 vs.

June 30 , 201 9

Our revenue for the six months ended June 30, 2020 was $9.8 million compared to $8.4 million for the six months ended June 30, 2019, an increase of $1.4 million or 16.2%.

This was primarily attributable to increased revenue of $1.2 million from our CVD Equipment segment related to spare parts and equipment sales, $.3 million increase in our SDC segment and a ($.1 million) decrease in our CVD Materials segment.

The revenue contributed for the six months ended June 30, 2020, by the CVD Equipment segment, of $6.4 million, which totaled 65.4% of our overall revenue, was 22.3% or $1.2 million more than the segment’s $5.2 million contribution made in the prior year, which totaled 62.1% of our overall revenue.

This revenue increase is the result of an increase of $2.5 million and a decrease of ($1.3 million) from spare parts and equipment sales, respectively.

Revenue for our SDC segment was $2.7 million in the six months ended June 30, 2020 as compared to $2.3 million in the six months ended June 30, 2019, an increase of $.4 million.

This increase was due to the timing of one large order primarily completed in the six months ended June 30, 2020.

Revenues for our CVD Materials segment were $.7 million in the six months ended June 30, 2020 as compared to $.9 million for the six months ended June 30, 2019, a decrease of $.2 million.

Gross profit for the six months ended June 30, 2020 amounted to $2.5 million, with a gross profit margin of 26.0%, compared to a gross profit of $105,098 and a gross profit margin of 1.3% for the six months ended June 30, 2019.

In addition to the higher level of sales during the six months ended June 30, 2020 increasing our gross profit, we achieved improvements in our operating efficiencies with certain repeat orders, lowered our costs mostly due to the effects of certain furloughed employees during the period, as a result of Coronavirus mandates imposed, and achieved improved mix of product revenues resulting in our gross profit margin percentage improvement.

We continue to evaluate for potential utilization of our deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections and timing of orders, the commencement of operations of our CVD Materials segment and cost containment measures.

For the three months ended September 30, 2019 our tax rate was primarily affected by permanent differences resulting in an effective tax rate of .7%.

As a result of the foregoing factors, we reported a net loss of ($1.3 million), or ($0.19) per basic and diluted share, for the three months ended September 30, 2020, as compared to a net loss of ($.1 million), or ($0.02) per basic and diluted share for the three months ended September 30, 2019.

Nine Months Ended September 3 0 , 20 20 vs.

September 30 , 201 9

Our revenue for the nine months ended September 30, 2020 was $13.8 million compared to $14.1 million for the nine months ended September 30, 2019, a decrease of $.3 million or 2.5%.

This was primarily attributable to decreased revenue of $.9 million from our CVD Equipment segment related to spare parts and equipment sales, offset, in part by, increased sales of $.2 million in our SDC segment and $.4 million in our CVD Materials segment.

The revenue contributed for the nine months ended September 30, 2020, by the CVD Equipment segment, of $8.7 million, which totaled 63.2% of our overall revenue, was 9.4% or $.9 million less than the segment’s $9.6 million contribution made in the prior year, which totaled 68.0% of our overall revenue.

This revenue decrease is the result of an increase in revenues from spare parts of $1.5 million, offset by a decrease of $2.4 million, in equipment sales.

Revenue for our SDC segment was $3.5 million in the nine months ended September 30, 2020 as compared to $3.3 million in the nine months ended September 30, 2019, an increase of $.2 million.

Revenues for our CVD Materials segment were $1.6 million in the nine months ended September 30, 2020 as compared to $1.3 million for the nine months ended September 30, 2019, an increase of $.4 million primarily the result of increased Tantaline® related revenue.

Gross profit for the nine months ended September 30, 2020 amounted to $3.0 million, with a gross profit margin of 21.6%, compared to a gross profit of $1.5 million and a gross profit margin of 10.7% for the nine months ended September 30, 2019.

The increase in our gross profit and gross profit margin was the result of improvements in our operating efficiencies with certain repeat orders, as well as lowered costs mostly due to the effects of certain furloughed employees during the period, as a result of Coronavirus mandates imposed, and achieved improved mix of product revenues resulting in our gross profit margin percentage improvement.

Research and Development, Selling and General and Administrative Expenses

2 unchanged sentences

When they are not working on a customer project, they work in our Application Laboratory and their costs are charged to research and development.

For the six months ended June 30, 2020, our research and development expenses totaled $210,000 compared to $341,000 for the six months ended June 30, 2019, primarily due to the effects of certain furloughed employees during the six months ended June 30, 2020, as a result of Coronavirus mandates imposed.

Selling expenses were $.3 million or 3.0 % of the revenue for the six months ended June 30, 2020 as compared to $.5 million or 6.0% for the six months ended June 30, 2019.

The decrease was primarily the result of reduced employee related costs, including the effects of certain furloughed employees during the six months ended June 30, 2020, as a result of Coronavirus mandates imposed, and lower trade show expenses.

For the nine months ended September 30, 2020, our research and development expenses totaled $300,000 compared to $454,000 for the nine months ended September 30, 2019, primarily due to the effects of employee furloughs during the nine months ended September 30, 2020, as a result of Coronavirus mandates imposed.

Selling expenses were $.4 million or 3.2 % of the revenue for the nine months ended September 30, 2020 as compared to $.7 million or 4.8% for the nine months ended September 30, 2019.

The decrease was primarily the result of reduced employee related costs, including the effects of employee furloughs during the nine months ended September 30, 2020, as a result of Coronavirus mandates imposed, and lower trade show expenses.

General and Administrative

General and administrative expenses for the six months ended June 30, 2020 were $3.1 million or 31.3% of revenue compared to $3.4 million or 40.1% for the six months ended June 30, 2019, a decrease of $.3 million.

The decrease in these expenses is primarily the result of decreased stock compensation costs of $236,000, due to less equity grants, and decreased outside systems and finance consulting costs of $161,000, due to the completion of the Company’s system migration and finance consulting costs in 2019.

These decreases were offset, in part by, an $80,000 bad debt provision related to one customer.

Operating income (l oss )

As a result of the increased revenues, improved gross profit margins and reduced expenses, we recorded an operating loss of ($1.0 million) for the six months ended June 30, 2020 as compared to an operating loss of ($4.1 million) for the six months ended June 30, 2019.

General and administrative expenses for the nine months ended September 30, 2020 were $4.7 million or 33.8% of revenue compared to $4.7 million or 33.5% for the nine months ended September 30, 2019.

While stock compensation costs decreased by $270,000, due to less equity grants, and outside systems and finance consulting costs decreased by $152,000, due to the completion of the Company’s system migration and finance consulting costs in 2019, these decreases were offset primarily by depreciation of our 555 facility in the amount of $252,000 and a $120,000 bad debt provision related to one customer.

Operating l oss

As a result of the improved gross profit margins and reduced expenses, we recorded an operating loss of ($2.4 million) for the nine months ended September 30, 2020 as compared to an operating loss of ($4.4 million) for the nine months ended September 30, 2019.

Other income (expenses)

Other income (expenses) were $19,000 and ($152,000) for the six months ended June 30, 2020 and 2019, respectively.

This increase in income is primarily the result of subleasing a portion of our CVD Materials facility and receiving $219,000 in rental income during the six months ended June 30, 2020, as compared to none in six months ended June 30, 2019.

As a result of lower interest rates, interest income decreased $59,000, to $30,000 for the six months ended June 30, 2020 as compared to $89,000 in 2019.

In addition, interest expense decreased $10,000 to $231,000 for the six months ended June 30, 2020, as compared to $241,000 in 2019.

For the six months ended June 30, 2020, we recorded an income tax benefit of $1.5 million as compared to $691,000 for the six months ended June 30, 2019.

The income tax benefit recorded during the six months ended June 30, 2020 was the result of a change in the tax laws pursuant to the CARES Act.

Other income (expenses) were $119,559 and ($42,375) for the nine months ended September 30, 2020 and 2019, respectively.

Net other income was $394,938 and $207,237 for the nine months ended September 30, 2020 and 2019, respectively, from subleasing a portion of our CVD Materials facility.

The increase of $187,701 was the result of approximately four months of rental in 2019 (commencing June 2019) as compared to nine months in 2020.

Interest income of $60,728 for the nine months ended September 30, 2020, included interest income of $28,000 related to the income tax refund received during the quarter.

As a result of lower interest rates, interest income decreased $82,915, to $32,728 for the nine months ended September 30, 2020 as compared to $115,643 in 2019.

In addition, interest expense decreased $29,148 to $336,107 in the nine months ended September 30, 2020, as compared to $365,255 in 2019.

For the nine months ended September 30, 2020, we recorded an income tax benefit of $1.5 million as compared to $692,000 for the nine months ended September 30, 2019.

The income tax benefit recorded during the nine months ended September 30, 2020 was the result of a change in the tax laws pursuant to the CARES Act.

The Company recorded the deferred tax benefit as a discrete item on March 27, 2020, the date the CARES Act was signed into law.

As of June 30, 2020 and December 31, 2019, the Company has provided a full valuation allowance against all of the net deferred tax assets.

As of September 30, 2020 and December 31, 2019, the Company has provided a full valuation allowance against all of the net deferred tax assets.

This was based on management’s assessment, including the last two years of operating losses, that it is more likely than not that the net deferred tax assets may not be realized in the future.

As a result of the enactment of the CARES Act, net operating losses (“NOL’s”) can now be carried back for five years and resulted in the Company recognizing approximately $1.5 million of a tax receivable.

As a result of the enactment of the CARES Act, net operating losses (“NOL’s”) can now be carried back for five years and resulted in the Company recognizing approximately a $1.5 million income tax benefit, of which $.8 million was a receivable at September 30, 2020.

We continue to evaluate for potential utilization of the Company’s deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections and timing of orders, the commencement of operations of the CVD Materials segment and cost containment measures.

For the six months ended June 30, 2019 our tax rate was primarily affected by permanent differences resulting in an effective tax rate of 16.2%.

Net income (loss)

As a result of the foregoing factors, we reported net income of $.5 million, or $0.08 per basic and diluted share, for the six months ended June 30, 2020, as compared to a net loss of ($3.6 million), or ($0.55) per basic and diluted share for the six months ended June 30, 2019.

For the nine months ended September 30, 2019 our tax rate was primarily affected by permanent differences resulting in an effective tax rate of 15.7%.

As a result of the foregoing factors, we reported a net loss of ($.8 million), or ($0.12) per basic and diluted share, for the nine months ended September 30, 2020, as compared to a net loss of ($3.7 million), or ($0.57) per basic and diluted share for the nine months ended September 30, 2019.

Liquidity and Capital Resources

As of June 30, 2020, we had aggregate working capital of $11.3 million compared to aggregate working capital of $8.8 million at December 31, 2019.

Our cash and cash equivalents at June 30, 2020 and December 31, 2019 were $9.4 million and $8.7 million, respectively.

As of September 30, 2020, we had aggregate working capital of $9.9 million compared to aggregate working capital of $8.8 million at December 31, 2019.

Our cash and cash equivalents at September 30, 2020 and December 31, 2019 were $8.2 million and $8.7 million, respectively.

Net cash used in operating activities was ($1.2 million).

This is the result of net income, adjusted for non-cash items, of $1.3 million, a decrease in accounts receivable of $.7 million due to timing of collections, a $.1 million decrease in inventory, and other sources of $.3 million.

These amounts were more than offset, in part by, an increase in taxes receivable of $1.5 million as a result of the March 27, 2020 CARES Act enactment allowing the carryback of NOL’s five years.

In addition, contract assets increased $.4 million, contract liabilities decreased $.4 million, accrued expenses decreased $.5 million related to the payment of vacation and other accrued expenses, and a $.1 million decrease in deferred revenue.

This is the result of net loss, adjusted for non-cash items, of $.6 million, a decrease in accounts receivable of $.8 million due to timing of collections, decreased other current assets of $.3 million and decreased inventory of $.3 million.

These amounts were reduced by an increase in taxes receivable of $.7 million as a result of the March 27, 2020 CARES Act enactment allowing the carryback of NOL’s five years resulting in a receivable of $1.5 million, of which $.8 million was collected in the nine months ended September 30, 2020.

In addition, contract assets increased $.5 million, contract liabilities decreased $.8 million, accrued expenses decreased $.4 million related to the payment of vacation and other accrued expenses, and a $.7 million decrease in deferred revenue, as well as decreased accounts payable of $.1 million.

Long term debt increased by $1.9 million, the result of a new loan from the Paycheck Protection Program of $2.4 million and a ($.5 million) decrease from principal payments on the mortgages related to our two facilities in Central Islip, NY, including our investment in the CVD Materials building purchased on November 30, 2017.

We have continued to invest in activities primarily related to preparing CVD Materials for larger scale operations.

Our total capital invested in the six months ended June 30, 2020 was $.9 million, primarily related to building improvements and machinery, and during the six months ended June 30, 2020 we received rental income of approximately $219,000.

Our total capital invested in the nine months ended September 30, 2020 was $1.2 million, primarily related to building improvements and machinery, and during the nine months ended September 30, 2020 we received rental income of approximately $395,000.

We have a loan agreement with HSBC USA, N.A.

1 unchanged sentence

The loan is payable in 120 consecutive equal monthly installments of $25,000 in principal plus interest and a final balloon payment upon maturity in March 2022.

The balances as of June 30, 2020 and December 31, 2019 were approximately $2.3 million and $2.4 million respectively.

Interest accrues on the loan, at our option, at the variable rate of LIBOR plus 1.75% or Prime less 0.5% (1.93% and 3.49% at June 30, 2020 and December 31, 2019, respectively).

The balances as of September 30, 2020 and December 31, 2019 were approximately $2.1 million and $2.4 million respectively.

Interest accrues on the loan, at our option, at the variable rate of LIBOR plus 1.75% or Prime less 0.5% (1.90% and 3.49% at September 30, 2020 and December 31, 2019, respectively).

On November 30, 2017, we purchased the premises located at 555 North Research Place, Central Islip, NY which is intended to house the CVD Materials segment.

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The Note is payable in 60 consecutive equal monthly installments of $62,481, including interest.

The balances as of June 30, 2020 and December 31, 2019 were approximately $9.5 million and $9.7 million respectively.

The balances as of September 30, 2020 and December 31, 2019 were approximately $9.4 million and $9.7 million respectively.

The Note bears interest for each Interest Period (as defined in the Note), at the fixed rate of 3.9148%.

1 unchanged sentence

As a condition of the Bank making the Loan, we were required to guaranty Assignee’s obligations under the Loan.

On August 5, 2019, the Company entered into a Mortgage Modification Agreement which replaced the former covenant with a Minimum Liquid Assets covenant.

The Company is in compliance with its obligations under the mortgage at June 30, 2020.

On August 5, 2019, the Company entered into a Mortgage Modification Agreement which replaced the former covenant with a Minimum Liquid Assets (“MLC”) covenant, and on October 22, 2020, the Company entered into a Second Mortgage Modification Agreement modifying certain MLC balances.

The Company is in compliance with its financial covenant under the mortgage at September 30, 2020.

The Company has been actively monitoring the coronavirus ("COVID-19") outbreak and its impact globally.

4 unchanged sentences

In particular, the aerospace sector, for which we rely on a significant part of our business, has been faced with significant reductions to its business due to lack of air travel.

While the financial results for the Company’s first quarter of 2020 reflected the initial impact of COVID-19, and the nine months ended September 30, 2020 reflected a substantial adverse effect, we are unable to predict the extent of the impact the pandemic will have on our financial position and operating results for the remainder of 2020 and into 2021 due to numerous uncertainties, but the impact could be material and adverse during any future period affected either directly or indirectly by this pandemic.

The longer-term impacts from the outbreak are highly uncertain and cannot be predicted.

2 unchanged sentences

During these unprecedented times we are continuing to evaluate our staffing levels to support the continued operations, including the level of current and expected orders.

As of September 30, 2020, our active employee headcount has been reduced to approximately 125, a 28% reduction as compared to December 31, 2019.

On April 21, 2020, the Company entered into a loan agreement (the “Loan Agreement”) with HSBC Bank USA, National Association pursuant to which the Company was granted a loan in the principal amount of $2,415,970, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted by the United States Congress on March 27, 2020.

2 unchanged sentences

Under the terms of the PPP, all or a portion of the Loan may be forgiven, based upon payments made in the first twenty-four weeks following receipt of the proceeds, related to payroll costs, continue group health care benefits, utilities and mortgage interest on other debt obligations incurred before February 15, 2020.

As a result of the March 27, 2020 CARES Act enactment allowing the carryback of NOL’s five years, the Company recognized a $1.5 million tax benefit, and expects to receive these funds during the second half of 2020.

Due to the timing of the COVID-19 outbreak, our new orders during the first half of 2020, and into the beginning of the third quarter 2020 have decreased substantially which have resulted in substantial reductions in revenues resulting in operating losses commencing in our second quarter of 2020.

As a result of the March 27, 2020 CARES Act enactment allowing the carryback of NOL’s five years, the Company recognized a $1.5 million tax benefit.

The Company has collected $.8 million in the third quarter ended September 30, 2020 and anticipates receiving the balance of $.7 million during its fourth quarter ended December 31, 2020.

Due to the timing of the COVID-19 outbreak, our new orders during the first nine months of 2020, and into the beginning of the fourth quarter 2020 have decreased substantially which have resulted in substantial reductions in revenues resulting in operating losses commencing in our second quarter of 2020.

The ongoing impact that COVID-19 has had on our business has made the conditions to operate very challenging.

8 unchanged sentences

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