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 nine months ended February 28/29, 2021 and 2020
|
|
|
Increase /
|
|
|
(Decrease)
|
Sales, net
|
|
$
|
(5,396,000
|
)
|
Cost of goods sold
|
|
$
|
(1,233,000
|
)
|
Selling, general, and administrative expenses
|
|
$
|
(422,000
|
)
|
Income (loss) before provision for income taxes
|
|
$
|
(1,719,000
|
)
|
Provision for income taxes (benefit)
|
|
$
|
(668,000
|
)
|
Net income
|
|
$
|
(1,051,000
|
)
|
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 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 nine months ended February 28, 2021 (All figures discussed are for the nine months ended February 28, 2021 as compared
to the nine months ended February 29, 2020).
|
|
Nine months ended February 28/29
|
|
Change
|
|
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
Net Revenue
|
|
$
|
15,249,000
|
|
|
$
|
20,645,000
|
|
|
$
|
(5,396,000
|
)
|
|
|
-26
|
%
|
Cost of sales
|
|
|
12,715,000
|
|
|
|
13,948,000
|
|
|
|
(1,233,000
|
)
|
|
|
-9
|
%
|
Gross profit
|
|
$
|
2,534,000
|
|
|
$
|
6,697,000
|
|
|
$
|
(4,163,000
|
)
|
|
|
-62
|
%
|
… as a percentage of net revenues
|
|
|
17
|
%
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
The
Company's consolidated results of operations showed a 26% decrease in net revenues and a decrease in net income of 51%. Revenues
recorded in the current period for long-term construction projects (“Project(s)”) were 53% less than the level
recorded in the prior year. The Company had 38 Projects in process during the current period compared with 36 during the same period
last year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 13% more
than the level recorded in the prior year. Total sales within the U.S. decreased 43% from the same period last year. Total sales
to Asia increased 78% 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 customers in aerospace / defense (3%). There was
an increase in sales to industrial customers (5%). 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 17% 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:
|
|
Nine months ended February 28/29
|
|
|
2021
|
|
2020
|
Industrial
|
|
|
10
|
%
|
|
|
7
|
%
|
Construction
|
|
|
44
|
%
|
|
|
58
|
%
|
Aerospace / Defense
|
|
|
46
|
%
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
At
February 29, 2020, the Company had 139 open sales orders in our backlog with a total sales value of $14.6 million. At February
28, 2021, the Company has 146 open sales orders in our backlog, and the total sales value is $18.8 million.
The Company's backlog, revenues, commission
expense, 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 nine-month periods ended February 28, 2021 and February
29, 2020 is as follows:
|
|
Nine months ended February 28/29
|
|
|
2021
|
|
2020
|
|
USA
|
|
|
|
64
|
%
|
|
|
83
|
%
|
|
Asia
|
|
|
|
24
|
%
|
|
|
10
|
%
|
|
Other
|
|
|
|
12
|
%
|
|
|
7
|
%
|
Selling, General, and Administrative Expenses
|
|
Nine months ended February 28/29
|
|
Change
|
|
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
Outside Commissions
|
|
$
|
504,000
|
|
|
$
|
830,000
|
|
|
$
|
(326,000
|
)
|
|
|
-39
|
%
|
Other SG&A
|
|
|
3,329,000
|
|
|
|
3,425,000
|
|
|
|
(96,000
|
)
|
|
|
-3
|
%
|
Total SG&A
|
|
$
|
3,833,000
|
|
|
$
|
4,255,000
|
|
|
$
|
(422,000
|
)
|
|
|
-10
|
%
|
… as a percentage of net revenues
|
|
|
25
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
decreased by 10% from the prior year. Outside commission expense decreased by 39% from last year's level due to lower levels of
commissionable sales. Other selling, general, and administrative expenses decreased 3% from last year to this year.
The
above factors resulted in an operating loss of $1,298,000 for the nine months ended February 28, 2021, as compared to operating
income of $2,443,000 in the same period of the prior year.
Other
income during the period includes $2,096,000 of financial assistance provided by the U.S. federal government as part of
the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Consolidated Appropriations Act of 2021 (CAA), discussed
below: a.) $1,462,000 of income due to the forgiveness of the loan by the Small Business Administration (SBA) under the Paycheck
Protection Program, and b.) $634,000 of Employee Retention Credit income.
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 February 28/29, 2021 and 2020
|
|
|
Increase /
|
|
|
(Decrease)
|
Sales, net
|
|
$
|
(2,462,000
|
)
|
Cost of goods sold
|
|
$
|
(492,000
|
)
|
Selling, general, and administrative expenses
|
|
$
|
(215,000
|
)
|
Income (loss) before provision for income taxes
|
|
$
|
(1,148,000
|
)
|
Provision for income taxes (benefit)
|
|
$
|
(548,000
|
)
|
Net income
|
|
$
|
(600,000
|
)
|
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 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 February 28, 2021 (All figures discussed are for the three months ended February 28, 2021 as
compared to the three months ended February 29, 2020).
|
|
Three months ended February 28/29
|
|
Change
|
|
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
Net Revenue
|
|
$
|
4,772,000
|
|
|
$
|
7,234,000
|
|
|
$
|
(2,462,000
|
)
|
|
|
-34
|
%
|
Cost of sales
|
|
|
4,369,000
|
|
|
|
4,861,000
|
|
|
|
(492,000
|
)
|
|
|
-10
|
%
|
Gross profit
|
|
$
|
403,000
|
|
|
$
|
2,373,000
|
|
|
$
|
(1,970,000
|
)
|
|
|
-83
|
%
|
… as a percentage of net revenues
|
|
|
8
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
The
Company's consolidated results of operations showed a 34% decrease in net revenues and a decrease in net income of 77%. Revenues
recorded in the current period for long-term construction projects (“Project(s)”) were 46% less than the level
recorded in the prior year. The Company had 27 Projects in process during the current period as compared to 24 during the same
period last year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 16%
less than the level recorded in the prior year. Total sales within the U.S. decreased 55% from the same period last year. Total
sales to Asia increased 42% from the same period of the prior year. An increase in sales was recorded over the same period last
year to industrial customers (38%). There were decreases in sales to customers involved in construction of buildings and bridges
(44%) as well as to customers in aerospace / defense (31%). The significant decrease in domestic sales is two-thirds from the reduction
in sales to construction customers and one-third from the reduction in sales to aerospace / defense customers. Many prospective
customers in the construction field have delayed 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 8% in the current period is significantly less than the same period of the prior year of 33%. The decrease in gross profit as
a percentage of revenue is primarily due to the significant reduction in domestic sales to construction customers, the decrease
in sales to aerospace / defense customers and the excess capacity in our facilities resulting from the lower volume of production
to support the lower level of sales.
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 February 28/29
|
|
|
2021
|
|
2020
|
Industrial
|
|
|
12
|
%
|
|
|
5
|
%
|
Construction
|
|
|
46
|
%
|
|
|
54
|
%
|
Aerospace / Defense
|
|
|
42
|
%
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
Net
revenue by geographic region, as a percentage of total net revenue for the three-month periods ended February 28, 2021 and February
29, 2020, is as follows:
|
|
Three months ended February 28/29
|
|
|
2021
|
|
2020
|
|
USA
|
|
|
|
56
|
%
|
|
|
82
|
%
|
|
Asia
|
|
|
|
26
|
%
|
|
|
12
|
%
|
|
Other
|
|
|
|
18
|
%
|
|
|
6
|
%
|
Selling, General, and Administrative Expenses
|
|
Three months ended February 28/29
|
|
Change
|
|
|
2021
|
|
2020
|
|
Amount
|
|
Percent
|
Outside Commissions
|
|
$
|
131,000
|
|
|
$
|
225,000
|
|
|
$
|
(94,000
|
)
|
|
|
-42
|
%
|
Other SG&A
|
|
|
1,092,000
|
|
|
|
1,213,000
|
|
|
|
(121,000
|
)
|
|
|
-10
|
%
|
Total SG&A
|
|
$
|
1,223,000
|
|
|
$
|
1,438,000
|
|
|
$
|
(215,000
|
)
|
|
|
-15
|
%
|
… as a percentage of net revenues
|
|
|
26
|
%
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
decreased by 15% from the prior year. Outside commission expense decreased by 42% from last year's level. Other selling, general,
and administrative expenses decreased 10% from last year to this.
The
above factors resulted in an operating loss of $820,000 for the three months ended February 28, 2021, as compared to operating
income of $935,000 in the same period of the prior year.
Other
income during the period includes $634,000 of Employee Retention Credit income of the CAA, 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 nine-month
periods ended February 28/29, 2021 and 2020.
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:
|
|
February
2021
|
|
February
2020
|
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 nine-month period ended February 28, 2021 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
|
|
Less: Options expired:
|
|
|
18,750
|
|
|
$
|
11.18
|
|
Options outstanding and exercisable at February 28, 2021:
|
|
|
247,750
|
|
|
$
|
11.32
|
|
Closing value per share on NASDAQ at February 28, 2021:
|
|
|
|
|
|
$
|
11.07
|
|
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, billings in excess of costs and estimated earnings, and other current liabilities. The Company's
primary source of liquidity has been operations.
Capital expenditures for the nine months ended
February 28, 2021 were $1,089,000 compared to $992,000 in the same period of the prior year. As of February 28, 2021, the Company
has commitments for capital expenditures totaling $260,000 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 its bank
that the SBA has approved its application to forgive the entire amount of the debt. The Company also qualified for federal government
assistance during the current fiscal year in the amount of $634,000 through Employee Retention Credit provisions of the CAA. The
purpose of the Employee Retention Credit is to encourage employers to keep employees on the payroll, even if they are not working
during the covered period due to the effects of the coronavirus outbreak.
The Company believes it is carrying adequate
insurance coverage on its facilities and their contents.
Inventory and Maintenance Inventory
|
|
|
February 28, 2021
|
|
May 31, 2020
|
|
Increase /(Decrease)
|
Raw materials
|
|
$
|
584,000
|
|
|
|
|
|
|
$
|
658,000
|
|
|
|
|
|
|
$
|
(74,000
|
)
|
|
|
-11
|
%
|
Work-in-process
|
|
|
7,583,000
|
|
|
|
|
|
|
|
8,586,000
|
|
|
|
|
|
|
|
(1,003,000
|
)
|
|
|
-12
|
%
|
Finished goods
|
|
|
383,000
|
|
|
|
|
|
|
|
863,000
|
|
|
|
|
|
|
|
(480,000
|
)
|
|
|
-56
|
%
|
Inventory
|
|
|
8,550,000
|
|
|
|
87
|
%
|
|
|
10,107,000
|
|
|
|
92
|
%
|
|
|
(1,557,000
|
)
|
|
|
-15
|
%
|
Maintenance and other inventory
|
|
|
1,243,000
|
|
|
|
13
|
%
|
|
|
879,000
|
|
|
|
8
|
%
|
|
|
364,000
|
|
|
|
41
|
%
|
Total
|
|
$
|
9,793,000
|
|
|
|
100
|
%
|
|
$
|
10,986,000
|
|
|
|
100
|
%
|
|
$
|
(1,193,000
|
)
|
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory turnover
|
|
|
1.6
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE: Inventory turnover is annualized for
the nine-month period ended February 28, 2021.
Inventory, at $8,550,000 as of February 28,
2021, is $1,557,000 less than the prior year-end level of $10,107,000. Approximately 89% of the current inventory is work in process,
4% 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 $135,000 for the nine-month
periods ended February 28/29, 2021 and 2020. 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")
|
|
February 28, 2021
|
|
May 31, 2020
|
|
Increase /(Decrease)
|
Accounts receivable
|
|
$
|
4,431,000
|
|
|
$
|
5,819,000
|
|
|
$
|
(1,388,000
|
)
|
|
|
-24
|
%
|
Other receivable
|
|
|
594,000
|
|
|
|
—
|
|
|
|
594,000
|
|
|
|
|
|
CIEB
|
|
|
1,011,000
|
|
|
|
1,755,000
|
|
|
|
(744,000
|
)
|
|
|
-42
|
%
|
Less: BIEC
|
|
|
633,000
|
|
|
|
737,000
|
|
|
|
(104,000
|
)
|
|
|
-14
|
%
|
Net
|
|
$
|
5,403,000
|
|
|
$
|
6,837,000
|
|
|
$
|
(1,434,000
|
)
|
|
|
-21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of an average day’s sales outstanding in accounts receivable
|
|
|
84
|
|
|
|
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 $4,431,000 as of February 28, 2021 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 84 at February 28, 2021.
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 third
quarter of the current fiscal year is 38% less than in the fourth quarter of the prior year. The level of accounts receivable at
the end of the current fiscal quarter is 24% less than the level at the end of the prior year. The decrease in the level of an
average day’s sales is 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 $1,011,000
balance in this account at February 28, 2021 is 42% 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. 83% of the CIEB balance as of the end of the last fiscal quarter, November
30, 2020, was billed to those customers in the current fiscal quarter ended February 28, 2021. 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:
|
|
February 28, 2021
|
|
May 31, 2020
|
Costs
|
|
$
|
2,102,000
|
|
|
$
|
2,615,000
|
|
Estimated Earnings
|
|
|
340,000
|
|
|
|
540,000
|
|
Less: Billings to customers
|
|
|
1,431,000
|
|
|
|
1,400,000
|
|
CIEB
|
|
$
|
1,011,000
|
|
|
$
|
1,755,000
|
|
Number of Projects in progress
|
|
|
13
|
|
|
|
10
|
|
As noted above, BIEC represents billings to
customers in excess of revenues recognized. The $633,000 balance in this account at February 28, 2021 is down 14% 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:
|
|
February 28, 2021
|
|
May 31, 2020
|
Billings to customers
|
|
$
|
1,960,000
|
|
|
$
|
7,794,000
|
|
Less: Costs
|
|
|
1,144,000
|
|
|
|
3,781,000
|
|
Less: Estimated Earnings
|
|
|
183,000
|
|
|
|
3,276,000
|
|
BIEC
|
|
$
|
633,000
|
|
|
$
|
737,000
|
|
Number of Projects in progress
|
|
|
7
|
|
|
|
5
|
|
Summary of factors affecting the balances in CIEB and BIEC:
|
|
February 28, 2021
|
|
May 31, 2020
|
Number of Projects in progress
|
|
|
20
|
|
|
|
15
|
|
Aggregate percent complete
|
|
|
37
|
%
|
|
|
80
|
%
|
Average total sales value of Projects in progress
|
|
$
|
553,000
|
|
|
$
|
830,000
|
|
Percentage of total value invoiced to customer
|
|
|
31
|
%
|
|
|
74
|
%
|
The Company's backlog of sales orders at February
28, 2021 is $18.8 million, up from the $9.8 million at the end of the prior year. $7.3 million of the current backlog is on Projects
already in progress.
Other Balance Sheet Items
Accounts
payable, at $1,206,000 as of February 28, 2021, is 12% 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 February 28, 2021 are $402,000, up 31% from the $306,000 accrued at the prior year-end. This increase is primarily
due to a few recently completed Projects for which earned commissions are not yet payable. Other current liabilities decreased
39% from the prior year-end, to $1,020,000. 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.
The majority of our customers remain open to
continue to receive shipments from us and issue new purchase orders to us. Many of our domestic construction customers froze operations
while they attempted to determine the extent and impact of the pandemic on their projects. We are starting to see a thawing in
this domestic market as customers appear to gain confidence in the future of our economy. This has resulted in an increase in the
volume of domestic sales orders as we head into the final quarter of our fiscal year. While these new orders are expected to have
a small impact on the current fiscal year, we are optimistic that they will provide a strong base for the next.
The liquidity of the Company remains strong
at this time. However, the pandemic isn’t over and the economy has not recovered yet. Management remains concerned about
the uncertainty of the length of time during which the virus will continue to affect some of our customers’ purchasing plans.
The economic downturn did have a negative impact on our operations and for this reason, we have applied for and have received assistance
from the federal government under various provisions of the CARES Act and CAA, 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. Global demand for
materials such as steel may see a sharp increase as the various economies improve around the world. We are starting to see longer
lead times to procure some materials. Management is monitoring this situation and adjusting our sourcing as necessary.