Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Cautionary Statement
The Private Securities Litigation Reform Act
of 1995 provides a "safe harbor" for forward-looking statements. Information in this Item 2, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and elsewhere in this 10-Q and its Exhibits that does not
consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing,
words such as "may," "will," "should," "believes," "expects," "intends,"
"plans," "projects," "estimates," "predicts," "potential," "outlook,"
"forecast," "anticipates," "presume," and "assume" constitute forward-looking statements
and, as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties, the impact or
occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks
and uncertainties can include, among others, reductions in capital budgets by our customers and potential customers; changing product
demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for
the Company's products; the kind, frequency and intensity of natural disasters that affect demand for the Company’s products;
and other factors, many or all of which are beyond the Company's control. Consequently, investors should not place undue reliance
on forward-looking statements as predictive of future results. The Company disclaims any obligation to release publicly any updates
or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto,
or any changes in events, conditions or circumstances on which any such statement is based.
Results of Operations
A summary of the period to period changes in
the principal items included in the condensed consolidated statements of income is shown below:
Summary comparison of the six months ended November 30, 2020 and 2019
|
|
|
Increase /
|
|
|
(Decrease)
|
Sales, net
|
|
$
|
(2,934,000
|
)
|
Cost of goods sold
|
|
$
|
(740,000
|
)
|
Selling, general and administrative expenses
|
|
$
|
(207,000
|
)
|
Income before provision for income taxes
|
|
$
|
(570,000
|
)
|
Provision for income taxes
|
|
$
|
(120,000
|
)
|
Net income
|
|
$
|
(450,000
|
)
|
Sales under certain fixed-price contracts,
in which the product has no alternative use to the Company and the Company has enforceable rights to payment for progress completed
to date, inclusive of profit, are accounted for under the percentage-of-completion method of accounting whereby revenues are recognized
based on estimates of completion prepared on a ratio of cost to total estimated cost basis. Costs include all material and direct
and indirect charges related to specific contracts.
Adjustments to cost estimates are made periodically
and any losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined.
However, any profits expected on contracts in progress are recognized over the life of the contract.
For financial statement presentation purposes,
the Company nets progress billings against the total costs incurred on uncompleted contracts. The asset, "costs and estimated
earnings in excess of billings," represents revenues recognized in excess of amounts billed. The liability, "billings
in excess of costs and estimated earnings," represents billings in excess of revenues recognized.
For
the six months ended November 30, 2020 (All figures discussed are for the six months ended November 30, 2020 as compared
to the six months ended November 30, 2019).
|
|
Six months ended November 30
|
|
Change
|
|
|
2020
|
|
2019
|
|
Amount
|
|
Percent
|
Net Revenue
|
|
$
|
10,477,000
|
|
|
$
|
13,411,000
|
|
|
$
|
(2,934,000
|
)
|
|
|
-22
|
%
|
Cost of sales
|
|
|
8,346,000
|
|
|
|
9,086,000
|
|
|
|
(740,000
|
)
|
|
|
-8
|
%
|
Gross profit
|
|
$
|
2,131,000
|
|
|
$
|
4,325,000
|
|
|
$
|
(2,194,000
|
)
|
|
|
-51
|
%
|
… as a percentage of net revenues
|
|
|
20
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
The
Company's consolidated results of operations showed a 22% decrease in net revenues and a decrease in net income of 35%. Revenues
recorded in the current period for long-term construction projects (“Project(s)”) were 56% less than the level
recorded in the prior year. We had 29 Projects in process during the current period compared with 33 during the same period last
year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 30% more than
the level recorded in the prior year. Total sales within the U.S. decreased 37% from the same period last year. Total sales to
Asia increased 106% from the same period of the prior year. Sales decreases were recorded over the same period last year to customers
involved in construction of buildings and bridges (44%) as well as in sales to industrial customers (7%). There was an increase
in sales to customers in aerospace / defense (16%). The significant decrease in domestic sales is primarily from the reduction
in sales to construction customers. Many prospective customers in the construction field have been delaying orders for several
months as they consider the potential effects of the current COVID pandemic on the economy.
The gross profit as a percentage of net revenue
of 20% in the current period is significantly lower than the 32% recorded in the same period of the prior year. The decrease in
gross profit as a percentage of revenue is primarily due to the significant reduction in domestic sales to construction customers.
Sales of the Company’s products are made
to three general groups of customers: industrial, construction and aerospace / defense. A breakdown of sales to the three general
groups of customers is as follows:
|
|
Six months ended November 30
|
|
|
2020
|
|
2019
|
Industrial
|
|
|
9
|
%
|
|
|
8
|
%
|
Construction
|
|
|
43
|
%
|
|
|
60
|
%
|
Aerospace / Defense
|
|
|
48
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
At
November 30, 2019, the Company had 132 open sales orders in our backlog with a total sales value of $17.1 million. At November
30, 2020, the Company has 107 open sales orders in our backlog, and the total sales value is $15.4 million.
The Company's backlog, revenues, commission
expense, gross margins, gross profits, and net income fluctuate from period to period. The changes in the current period, compared
to the prior period, are not necessarily representative of future results.
Net
revenue by geographic region, as a percentage of total net revenue for the six month periods ended November 30, 2020 and November
30, 2019 is as follows:
|
|
Six months ended November 30
|
|
|
2020
|
|
2019
|
|
USA
|
|
|
|
68
|
%
|
|
|
84
|
%
|
|
Asia
|
|
|
|
23
|
%
|
|
|
9
|
%
|
|
Other
|
|
|
|
9
|
%
|
|
|
7
|
%
|
Selling, General and Administrative Expenses
|
|
Six months ended November 30
|
|
Change
|
|
|
2020
|
|
2019
|
|
Amount
|
|
Percent
|
Outside Commissions
|
|
$
|
373,000
|
|
|
$
|
605,000
|
|
|
$
|
(232,000
|
)
|
|
|
-38
|
%
|
Other SG&A
|
|
|
2,236,000
|
|
|
|
2,211,000
|
|
|
|
25,000
|
|
|
|
1
|
%
|
Total SG&A
|
|
$
|
2,609,000
|
|
|
$
|
2,816,000
|
|
|
$
|
(207,000
|
)
|
|
|
-7
|
%
|
… as a percentage of net revenues
|
|
|
25
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
decreased by 7% from the prior year. Outside commission expense decreased by 38% from last year's level due to lower levels of
commissionable sales. Other selling, general and administrative expenses increased 1% from last year to this year.
The
above factors resulted in an operating loss of $478,000 for the six months ended November 30, 2020, as compared to operating
income of $1,508,000 in the same period of the prior year.
Other
income during the period includes $1,462,000 of income due to the forgiveness of the loan by the Small Business Administration
(SBA) under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security (CARES) Act, discussed below.
A summary of the period to period changes in
the principal items included in the condensed consolidated statements of income is shown below:
Summary comparison of the three months ended November 30, 2020 and 2019
|
|
|
Increase /
|
|
|
(Decrease)
|
Sales, net
|
|
$
|
(2,985,000
|
)
|
Cost of goods sold
|
|
$
|
(919,000
|
)
|
Selling, general and administrative expenses
|
|
$
|
(280,000
|
)
|
Income before provision for income taxes
|
|
$
|
(342,000
|
)
|
Provision for income taxes
|
|
$
|
(70,000
|
)
|
Net income
|
|
$
|
(272,000
|
)
|
Sales under certain fixed-price contracts,
in which the product has no alternative use to the Company and the Company has enforceable rights to payment for progress completed
to date, inclusive of profit, are accounted for under the percentage-of-completion method of accounting whereby revenues are recognized
based on estimates of completion prepared on a ratio of cost to total estimated cost basis. Costs include all material and direct
and indirect charges related to specific contracts.
Adjustments to cost estimates are made periodically
and any losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined.
However, any profits expected on contracts in progress are recognized over the life of the contract.
For financial statement presentation purposes,
the Company nets progress billings against the total costs incurred on uncompleted contracts. The asset, "costs and estimated
earnings in excess of billings," represents revenues recognized in excess of amounts billed. The liability, "billings
in excess of costs and estimated earnings," represents billings in excess of revenues recognized.
For
the three months ended November 30, 2020 (All figures discussed are for the three months ended November 30, 2020 as
compared to the three months ended November 30, 2019).
|
|
Three months ended November 30
|
|
Change
|
|
|
2020
|
|
2019
|
|
Amount
|
|
Percent
|
Net Revenue
|
|
$
|
4,717,000
|
|
|
$
|
7,702,000
|
|
|
$
|
(2,985,000
|
)
|
|
|
-39
|
%
|
Cost of sales
|
|
|
4,141,000
|
|
|
|
5,060,000
|
|
|
|
(919,000
|
)
|
|
|
-18
|
%
|
Gross profit
|
|
$
|
576,000
|
|
|
$
|
2,642,000
|
|
|
$
|
(2,066,000
|
)
|
|
|
-78
|
%
|
… as a percentage of net revenues
|
|
|
12
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
The
Company's consolidated results of operations showed a 39% decrease in net revenues and a decrease in net income of 30%. Revenues
recorded in the current period for long-term construction projects (“Project(s)”) were 69% less than the level
recorded in the prior year. The Company had 21 Projects in process during the current period as compared to 26 during the same
period last year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 12%
more than the level recorded in the prior year. Total sales within the U.S. decreased 52% from the same period last year. Total
sales to Asia increased 167% from the same period of the prior year. Sales increases were recorded over the same period last year
to customers in aerospace / defense (4%), as well as to industrial customers (4%). There was a decrease in sales to customers involved
in construction of buildings and bridges (68%). The significant decrease in domestic sales is primarily from the reduction in sales
to construction customers. Many prospective customers in the construction field have been delaying orders for several months as
they consider the potential effects of the current COVID pandemic on the economy.
The gross profit as a percentage of net revenue
of 12% in the current period is significantly less than the same period of the prior year (34%). The decrease in gross profit as
a percentage of revenue is primarily due to the significant reduction in domestic sales to construction customers.
Sales of the Company’s products are made
to three general groups of customers: industrial, construction and aerospace / defense. A breakdown of sales to the three general
groups of customers is as follows:
|
|
Three months ended November 30
|
|
|
2020
|
|
2019
|
Industrial
|
|
|
11
|
%
|
|
|
7
|
%
|
Construction
|
|
|
31
|
%
|
|
|
59
|
%
|
Aerospace / Defense
|
|
|
58
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
Net
revenue by geographic region, as a percentage of total net revenue for the three month periods ended November 30, 2020 and November
30, 2019, is as follows:
|
|
Three months ended November 30
|
|
|
2020
|
|
2019
|
|
USA
|
|
|
|
70
|
%
|
|
|
88
|
%
|
|
Asia
|
|
|
|
16
|
%
|
|
|
4
|
%
|
|
Other
|
|
|
|
14
|
%
|
|
|
8
|
%
|
Selling, General and Administrative Expenses
|
|
Three months ended November 30
|
|
Change
|
|
|
2020
|
|
2019
|
|
Amount
|
|
Percent
|
Outside Commissions
|
|
$
|
130,000
|
|
|
$
|
353,000
|
|
|
$
|
(223,000
|
)
|
|
|
-63
|
%
|
Other SG&A
|
|
|
1,116,000
|
|
|
|
1,173,000
|
|
|
|
(57,000
|
)
|
|
|
-5
|
%
|
Total SG&A
|
|
$
|
1,246,000
|
|
|
$
|
1,526,000
|
|
|
$
|
(280,000
|
)
|
|
|
-18
|
%
|
… as a percentage of net revenues
|
|
|
26
|
%
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
decreased by 18% from the prior year. Outside commission expense decreased by 63% from last year's level. Other selling, general
and administrative expenses decreased 5% from last year to this.
The
above factors resulted in an operating loss of $670,000 for the three months ended November 30, 2020, as compared to operating
income of $1,115,000 in the same period of the prior year.
Other
income during the period includes $1,462,000 of income due to the forgiveness of the loan by the SBA under the Paycheck
Protection Program of the CARES Act, discussed below.
Stock Options
The Company has a stock option plan which provides
for the granting of nonqualified or incentive stock options to officers, key employees and non-employee directors. Options granted
under the plan are exercisable over a ten year term. Options not exercised at the end of the term expire.
The
Company expenses stock options using the fair value recognition provisions of the FASB ASC. The Company recognized $50,000 and
$55,000 of compensation cost for the six month periods ended November 30, 2020 and 2019.
The fair value of each stock option grant has
been determined using the Black-Scholes model. The model considers assumptions related to exercise price, expected volatility,
risk-free interest rate, and the weighted average expected term of the stock option grants. Expected volatility assumptions used
in the model were based on volatility of the Company's stock price for the thirty month period ending on the date of grant. The
risk-free interest rate is derived from the U.S. treasury yield. The Company used a weighted average expected term.
The following assumptions were used in the
Black-Scholes model to estimate the fair market value of the Company's stock option grants:
|
|
November
2020
|
|
November
2019
|
Risk-free interest rate:
|
|
|
1.750
|
%
|
|
|
1.750
|
%
|
Expected life of the options:
|
|
|
3.9 years
|
|
|
|
3.8 years
|
|
Expected share price volatility:
|
|
|
34
|
%
|
|
|
30
|
%
|
Expected dividends:
|
|
|
zero
|
|
|
|
zero
|
|
|
|
|
|
|
|
|
|
|
These assumptions resulted in estimated fair-market value per stock option:
|
|
$
|
2.88
|
|
|
$
|
2.84
|
|
The ultimate value of the options will depend
on the future price of the Company's common stock, which cannot be forecast with reasonable accuracy.
A summary of changes in the stock options outstanding
during the six month period ended November 30, 2020 is presented below:
|
|
|
|
Weighted-
|
|
|
Number of
|
|
Average
|
|
|
Options
|
|
Exercise Price
|
Options outstanding and exercisable at May 31, 2020:
|
|
|
252,250
|
|
|
$
|
11.52
|
|
Options granted:
|
|
|
17,250
|
|
|
$
|
10.05
|
|
Less: Options exercised:
|
|
|
3,000
|
|
|
$
|
8.52
|
|
Options outstanding and exercisable at November 30, 2020:
|
|
|
266,500
|
|
|
$
|
11.46
|
|
Closing value per share on NASDAQ at November 30, 2020:
|
|
|
|
|
|
$
|
10.54
|
|
Capital Resources and Long-Term Debt
The Company's primary liquidity is dependent
upon the working capital needs. These are mainly inventory, accounts receivable, costs and estimated earnings in excess of billings,
accounts payable, accrued commissions, and billings in excess of costs and estimated earnings. The Company's primary source of
liquidity has been operations.
Capital expenditures for the six months ended
November 30, 2020 were $721,000 compared to $317,000 in the same period of the prior year. As of November 30, 2020, the Company
has commitments for capital expenditures totaling $200,000 during the next twelve months.
During 2020, the Company received a loan totaling
$1,462,000 from the SBA under the Paycheck Protection Program of the CARES Act, in response to the Coronavirus pandemic described
below. The CARES Act permits that a loan may be forgiven if certain criteria are met. The Company has been notified by our bank
that the SBA has approved our application to forgive the entire amount of the debt.
The Company believes it is carrying adequate
insurance coverage on its facilities and their contents.
Inventory and Maintenance Inventory
|
|
|
November 30, 2020
|
|
May 31, 2020
|
|
Increase /(Decrease)
|
Raw materials
|
|
$
|
580,000
|
|
|
|
|
|
|
$
|
658,000
|
|
|
|
|
|
|
$
|
(78,000
|
)
|
|
|
-12
|
%
|
Work-in-process
|
|
|
7,845,000
|
|
|
|
|
|
|
|
8,586,000
|
|
|
|
|
|
|
|
(741,000
|
)
|
|
|
-9
|
%
|
Finished goods
|
|
|
443,000
|
|
|
|
|
|
|
|
863,000
|
|
|
|
|
|
|
|
(420,000
|
)
|
|
|
-49
|
%
|
Inventory
|
|
|
8,868,000
|
|
|
|
89
|
%
|
|
|
10,107,000
|
|
|
|
92
|
%
|
|
|
(1,239,000
|
)
|
|
|
-12
|
%
|
Maintenance and other inventory
|
|
|
1,129,000
|
|
|
|
11
|
%
|
|
|
879,000
|
|
|
|
8
|
%
|
|
|
250,000
|
|
|
|
28
|
%
|
Total
|
|
$
|
9,997,000
|
|
|
|
100
|
%
|
|
$
|
10,986,000
|
|
|
|
100
|
%
|
|
$
|
(989,000
|
)
|
|
|
-9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory turnover
|
|
|
1.6
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE: Inventory turnover is annualized for
the six month period ended November 30, 2020.
Inventory, at $8,868,000 as of November 30,
2020, is $1,239,000 less than the prior year-end level of $10,107,000. Approximately 88% of the current inventory is work in process,
5% is finished goods, and 7% is raw materials.
Maintenance and other inventory represent stock
that is estimated to have a product life cycle in excess of twelve months. This stock represents certain items the Company is required
to maintain for service of products sold and items that are generally subject to spontaneous ordering. This inventory is particularly
sensitive to technological obsolescence in the near term due to its use in industries characterized by the continuous introduction
of new product lines, rapid technological advances and product obsolescence. Management of the Company has recorded an allowance
for potential inventory obsolescence. The provision for potential inventory obsolescence was zero and $90,000 for the six month
periods ended November 30, 2020 and 2019. The Company continues to rework slow-moving inventory, where applicable, to convert it
to product to be used on customer orders.
Accounts Receivable, Costs and Estimated
Earnings in Excess of Billings (“CIEB"), and Billings in Excess of Costs and Estimated Earnings ("BIEC")
|
|
November 30, 2020
|
|
May 31, 2020
|
|
Increase /(Decrease)
|
Accounts receivable
|
|
$
|
4,822,000
|
|
|
$
|
5,819,000
|
|
|
$
|
(997,000
|
)
|
|
|
-17
|
%
|
CIEB
|
|
|
1,543,000
|
|
|
|
1,755,000
|
|
|
|
(212,000
|
)
|
|
|
-12
|
%
|
Less: BIEC
|
|
|
381,000
|
|
|
|
737,000
|
|
|
|
(356,000
|
)
|
|
|
-48
|
%
|
Net
|
|
$
|
5,984,000
|
|
|
$
|
6,837,000
|
|
|
$
|
(853,000
|
)
|
|
|
-12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of an average day’s sales outstanding in accounts receivable
|
|
|
92
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company combines the totals of accounts
receivable, the current asset, CIEB, and the current liability, BIEC, to determine how much cash the Company will eventually realize
from revenue recorded to date. As the accounts receivable figure rises in relation to the other two figures, the Company can anticipate
increased cash receipts within the ensuing 30-60 days.
Accounts
receivable of $4,822,000 as of November 30, 2020 includes $211,000 of an allowance for doubtful accounts (“Allowance”).
The accounts receivable balance as of May 31, 2020 of $5,819,000 included an Allowance of $211,000. The number of an average day's
sales outstanding in accounts receivable (“DSO”) increased from 68 days at May 31, 2020 to 92 at November 30, 2020.
The DSO is a function of 1.) the level of sales for an average day (for example, total sales for the past three months divided
by 90 days) and 2.) the level of accounts receivable at the balance sheet date. The level of sales for an average day in the second
quarter of the current fiscal year is 39% less than in the fourth quarter of the prior year. The level of accounts receivable at
the end of the current fiscal quarter is 17% less than the level at the end of the prior year. The decrease in the level of an
average day’s sales off-set by the decrease in the level of accounts receivable caused the DSO to increase from last year
end to this quarter-end. The Company expects to collect the net accounts receivable balance during the next twelve months.
As noted above, CIEB represents revenues recognized
in excess of amounts billed. Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill,
and collect from the customer, payments in advance of shipments. Unfortunately, such provisions are often not possible. The $1,543,000
balance in this account at November 30, 2020 is 12% less than the prior year-end balance. This decrease is the result of normal
flow of the Projects through production with billings to the customers as permitted in the related contracts. The Company expects
to bill the entire amount during the next twelve months. 59% of the CIEB balance as of the end of the last fiscal quarter, August
31, 2020, was billed to those customers in the current fiscal quarter ended November 30, 2020. The remainder will be billed as
the Projects progress, in accordance with the terms specified in the various contracts.
The balances in this account are comprised
of the following components:
|
|
November 30, 2020
|
|
May 31, 2020
|
Costs
|
|
$
|
3,004,000
|
|
|
$
|
2,615,000
|
|
Estimated Earnings
|
|
|
670,000
|
|
|
|
540,000
|
|
Less: Billings to customers
|
|
|
2,131,000
|
|
|
|
1,400,000
|
|
CIEB
|
|
$
|
1,543,000
|
|
|
$
|
1,755,000
|
|
Number of Projects in progress
|
|
|
14
|
|
|
|
10
|
|
As noted above, BIEC represents billings to
customers in excess of revenues recognized. The $381,000 balance in this account at November 30, 2020 is down 48% from the $737,000
balance at the end of the prior year.
The balance in this account fluctuates in the
same manner and for the same reasons as the account “costs and estimated earnings in excess of billings,” discussed
above. Final delivery of product under these contracts is expected to occur during the next twelve months.
The balances in this account are comprised
of the following components:
|
|
November 30, 2020
|
|
May 31, 2020
|
Billings to customers
|
|
$
|
1,308,000
|
|
|
$
|
7,794,000
|
|
Less: Costs
|
|
|
1,159,000
|
|
|
|
3,781,000
|
|
Less: Estimated Earnings
|
|
|
(232,000
|
)
|
|
|
3,276,000
|
|
BIEC
|
|
$
|
381,000
|
|
|
$
|
737,000
|
|
Number of Projects in progress
|
|
|
5
|
|
|
|
5
|
|
Summary of factors affecting the balances in CIEB and BIEC:
|
|
November 30, 2020
|
|
May 31, 2020
|
Number of Projects in progress
|
|
|
19
|
|
|
|
15
|
|
Aggregate percent complete
|
|
|
62
|
%
|
|
|
80
|
%
|
Average total sales value of Projects in progress
|
|
$
|
613,000
|
|
|
$
|
830,000
|
|
Percentage of total value invoiced to customer
|
|
|
53
|
%
|
|
|
74
|
%
|
The Company's backlog of sales orders at November
30, 2020 is $15.4 million, up from the $9.8 million at the end of the prior year. $4.8 million of the current backlog is on Projects
already in progress.
Other Balance Sheet Items
Accounts
payable, at $879,000 as of November 30, 2020, is 36% less than the prior year-end. Commission expense on applicable sales orders
is recognized at the time revenue is recognized. The commission is paid following receipt of payment from the customers. Accrued
commissions as of November 30, 2020 are $326,000, up 7% from the $306,000 accrued at the prior year-end. Other current liabilities
decreased 47% from the prior year-end, to $876,000. This decrease is primarily due to a decrease in accrued incentive compensation
and customer advance payments. The Company expects the current accrued amounts to be paid or applied during the next twelve
months.
Management believes the Company's cash flows
from operations are sufficient to fund ongoing operations and capital improvements for the next twelve months.
Coronavirus Pandemic
Company management currently does not have
reason to believe that the COVID-19 pandemic will adversely affect our ability to meet our obligations to our customers. Our top
priorities continue to be the health and safety of our employees and their families along with supporting our customers.
Thanks to the careful adherence to our COVID-19 safety measures by our workforce as well as our customers and suppliers, we remain
in a strong position with respect to being able to process existing orders and we are quite prepared to process new orders as they
are secured. Our high-spirited, healthy workforce continues to adjust their work schedules as the needs arise.
While the majority of our customers remain
open to continue to receive shipments from us and issue new purchase orders to us, many of our construction customers continue
to delay ordering materials while they attempt to determine the extent and impact of the pandemic on their projects. This continues
to keep our revenue and our backlog of sales orders at a lower level.
The liquidity of the Company remains strong
at this time. Management, however, is concerned about the uncertainty of the length of time during which the virus will continue
to affect our customers’ purchasing plans. A prolonged economic downturn would have a negative impact on our operations and
our liquidity. For this reason, we have applied for and have received assistance from the federal government under provisions of
the CARES Act, as discussed above.
Our Supply Chain Management team is in communication
with our partners around the globe so that we can be updated on any delays that may occur. To date, there have been no significant
delays in receiving our raw materials, purchased components or outside services that affect our final product.