Quarterly Report for Quarter Ending August 31, 2026 (Form 10-Q)

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

Results of Operations

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

Summary comparison of the three months ended August 31, 2026 and 2025
		Increase /
		(Decrease)
Sales, net		$(2,618,000)
Cost of goods sold		$(338,000)
Research and development costs		$ 71,000
Selling, general and administrative expenses		$(145,000)
Other income		$ 34,000
Income before provision for income taxes		$(2,172,000)
Provision for income taxes		$(439,000)
Net income		$(1,733,000)

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

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

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

For the three months ended August 31, 2026 (All figures discussed are for the three months ended August 31, 2026 as compared to the three months ended August 31, 2025).

	Three months ended August 31		Change
	2026	2025	Amount		Percent
Sales, net	$7,300,000	$9,918,000	$(2,618,000)		-26%
Cost of goods sold	5,141,000	5,479,000	(338,000)		-6%
Gross profit	$2,159,000	$4,439,000	$(2,280,000)		-51%
… as a percentage of net sales	30%	45%

The Company's consolidated results of operations showed a 26% decrease in net sales and a 79% decrease in net income. Revenue recorded in the quarter ended August 31, 2026 for long-term projects was 33% lower than the level recorded in the prior year. The Company had 24 long-term projects in process during the quarter ended August 31, 2026 as compared to 25 during the same period last year. Revenue recorded in the quarter ended August 31, 2026 for other-than long-term projects was 18% lower than the level recorded in the prior year. Total sales within the U.S. during the quarter ended August 31, 2026 decreased 20% from the same period last year. Total sales to Asia during the quarter ended August 31, 2026 decreased 31% from the same period of the prior year. The change in domestic and international sales concentration from the prior year is attributed to normal fluctuations in structural project activity. Sales decreases were recorded over the same period last year to customers in aerospace / defense (-17%) and customers involved in construction of buildings and bridges (-49%) with an increase to industrial customers (8%). The decrease in sales from the prior year is attributable to differences in the timing of bookings and backlog conversion to revenue.

The gross profit as a percentage of net sales of 30% in the quarter ended August 31, 2026 is 15 percentage points lower than the same period of the prior year (45%). The decrease in gross profit percentage is attributed to lower revenue and shift in sales mix.

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

	Three months ended August 31
	2026	2025
Industrial	16%	11%
Structural	26%	38%
Aerospace / Defense	58%	51%

At August 31, 2025, the Company had 127 open sales orders in its backlog with a total sales value of $27.9 million. At August 31, 2026, the Company had 151 open sales orders in its backlog, with a total sales value of $55.2 million. The backlog at August 31, 2026 includes a $19.0 million non-project order with $1.7 million scheduled to be delivered in the fiscal year ending May 31, 2027, $5.0 million scheduled to be delivered in the fiscal year ending May 31, 2028, $10.0 million scheduled to be delivered in the fiscal year ending May 31, 2029 and $2.3 million scheduled to be delivered in the fiscal year ending May 31, 2030. The Company expects to recognize revenue for the majority of the remaining backlog during the current fiscal year, with the balance expected to be recognized during the fiscal year ending May 31, 2028.

The Company's backlog, revenues, gross profit, and net income fluctuate from period to period. The changes in the quarter ended August 31, 2026 compared to the same period in the prior year are not necessarily representative of future results.

Net sales by geographic region, as a percentage of total net sales for the three-month periods ended August 31, 2026 and 2025, is as follows:

	Three months ended August 31
	2026	2025
U.S.	89%	83%
Asia	9%	9%
Other	2%	8%

Research and Development Costs

	Three months ended August 31		Change
	2026	2025	Amount		Percent
R & D	$ 152,000	$ 81,000	$ 71,000		88%
… as a percentage of net sales	2.1%	0.8%

Research and development costs increased $71,000 during the quarter ended August 31, 2026, from the same period in the prior year.

Selling, General and Administrative Expenses

	Three months ended August 31		Change
	2026	2025	Amount		Percent
S G & A	$ 1,968,000	$ 2,113,000	$ (145,000)		-7%
… as a percentage of net sales	27%	21%

Selling, general and administrative expenses during the quarter ended August 31, 2026 decreased 7% from the same period in the prior year. This change is primarily due to lower employee incentive compensation accruals.

Operating Income

Operating income was $38,000 for the three-month period ended August 31, 2026, 98.3% lower than $2,245,000 in the same period of the prior year. The decrease in operating income is attributable to lower gross margin associated with reduced revenue and shift in sales mix.

Other Income

Other income was $418,000 for the three-month period ended August 31, 2026, a 9% increase from the same period of the prior year. This increase was driven by short-term investment interest income.

Liquidity and Capital Resources

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

Capital expenditures for the three months ended August 31, 2026 were $242,000 compared to $185,000 in the same period of the prior year. As of August 31, 2026, the Company has commitments for capital expenditures totaling $1,928,000 during the next twelve months. The Company is evaluating additional capital expenditures to expand capacity.

Inventory and Maintenance Inventory

	August 31, 2026		May 31, 2026		Increase /(Decrease)
Raw materials	$ 831,000		$643,000		$188,000		29%
Work-in-process	8,203,000		6,697,000		1,506,000		22%
Finished goods	322,000		189,000		133,000		70%
Inventory	9,356,000	89%	7,529,000	86%	1,827,000		24%
Maintenance and other inventory	1,120,000	11%	1,206,000	14%	(86,000)		-7%
Total	$10,476,000	100%	$8,735,000	100%	$1,741,000		20%
Inventory turnover	2.1		2.6

NOTE: Inventory turnover is annualized for the three-month period ended August 31, 2026.

Inventory, at $9,356,000 as of August 31, 2026, is $1,827,000 higher than the prior year-end level of $7,529,000. Approximately 88% of the inventory as of August 31, 2026 was work-in-process, 3% was finished goods, and 9% was raw materials.

Maintenance and other inventory represent stock that is estimated to have a product life cycle in excess of twelve months. This stock represents certain items the Company is required to maintain for service of products sold and items that are generally subject to spontaneous ordering. This inventory is particularly sensitive to technological obsolescence in the near term due to its use in industries characterized by the continuous introduction of new product lines, rapid technological advances and product obsolescence. Company management has, from time to time, recorded an allowance for potential inventory obsolescence. The provision for potential inventory obsolescence was zero for both the three-month periods ended August 31, 2026 and 2025.

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

	August 31, 2026		May 31, 2026		Increase /(Decrease)
Accounts receivable	$3,371,000		$3,932,000		$(561,000)		-14%
CIEB	2,332,000		8,032,000		(5,700,000)		-71%
Less: BIEC	4,539,000		1,367,000		3,172,000		232%
Net	$1,164,000		$10,597,000		$(9,433,000)		-89%
Number of an average day's sales outstanding in accounts receivable

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

Accounts receivable of $3,371,000 as of August 31, 2026 is net of $195,000 of an allowance for estimated credit losses ("Allowance"). The accounts receivable balance as of May 31, 2026 of $3,932,000 is net of an Allowance of $195,000. The number of an average day's sales outstanding in accounts receivable ("DSO") increased from 40 days at May 31, 2026 to 42 days at August 31, 2026. The DSO is a function of (1) the level of sales for an average day (for example, total sales for the past three months divided by 90 days) and (2) the level of accounts receivable at the balance sheet date. The Company expects to collect the net accounts receivable balance during the next twelve months.

As noted above, CIEB represents revenues recognized in excess of amounts billed. Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill and collect from the customer payments in advance of shipments. Unfortunately, these contract provisions are often not possible to obtain. The $2,332,000 balance in CIEB at August 31, 2026 is 71% lower than the prior year-end balance. This decrease is the result of normal flow of the long-term projects through production with billings to the customers as permitted in the related contracts. 83% of the CIEB balance as of the end of the last fiscal quarter, May 31, 2026, was billed to those customers in the quarter ended August 31, 2026. The remainder will be billed as the projects progress, in accordance with the terms specified in the various contracts.

The balances in CIEB are comprised of the following components:

	August 31, 2026		May 31, 2026
Costs	$ 4,865,000		$ 6,268,000
Estimated earnings	1,720,000		5,893,000
Less: Billings to customers	4,253,000		4,129,000
CIEB	$ 2,332,000		$ 8,032,000
Number of projects in progress

As noted above, BIEC represents billings to customers in excess of revenues recognized. The $4,539,000 balance in BIEC at August 31, 2026 is up 232% from the $1,367,000 balance at the end of the prior year. The balance in BIEC fluctuates in the same manner and for the same reasons as the CIEB, discussed above. Final delivery of product under these contracts is expected to occur during the next twelve months.

The balances in BIEC are comprised of the following components:

	August 31, 2026		May 31, 2026
Billings to customers	$9,355,000		$9,858,000
Less: Costs	2,800,000		2,844,000
Less: Estimated earnings	2,016,000		5,647,000
BIEC	$4,539,000		$1,367,000
Number of projects in progress

Summary of factors affecting the balances in CIEB and BIEC:

	August 31, 2026		May 31, 2026
Number of projects in progress
Aggregate percent complete	52%		62%
Average total sales value of projects in progress	$1,198,000		$1,619,000
Percentage of total value invoiced to customer	57%		45%

The Company's backlog of sales orders at August 31, 2026 is $55.2 million, up from $52.8 million at the end of the prior year. Of the Company's backlog as of August 31, 2026, $9.5 million was on projects already in progress.

Other Balance Sheet Items

Accounts payable, at $1,043,000 as of August 31, 2026, is 82% higher than the prior year-end. Accrued expenses decreased 31% from the prior year-end, to $2,042,000, due to the payout of fiscal year 2026 incentive compensation. The Company expects the accrued amounts to be paid or applied during the next twelve months.