
PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2020, detailing financial position, performance, and cash flows, along with explanatory notes Condensed Consolidated Balance Sheets As of March 31, 2020, total assets increased to $54.1 million from $51.1 million at year-end 2019, driven by higher current assets including a new income tax receivable, while stockholders' equity improved to $13.2 million Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $41,794 | $38,245 | | Total Assets | $54,051 | $51,090 | | Total Current Liabilities | $19,546 | $20,079 | | Total Liabilities | $40,868 | $40,884 | | Total Stockholders' Equity | $13,183 | $10,206 | - A new Income Tax Receivable of $1,416,000 was recorded on the balance sheet as of March 31, 2020, which was not present at the end of 20198 Condensed Consolidated Statements of Operations For the first quarter of 2020, the company reported net income of $1.06 million, a significant turnaround from a net loss of $0.92 million in the same period of 2019, primarily driven by a $1.41 million income tax benefit and lower interest costs Condensed Consolidated Statements of Operations (in thousands) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Sales | $13,447 | $13,878 | | Gross Profit | $2,181 | $2,274 | | Loss from Operations | ($81) | ($63) | | Interest and Financing Costs | ($380) | ($963) | | Benefit from Income Taxes | ($1,414) | $0 | | Net Income (Loss) | $1,058 | ($923) | | EPS - Diluted (Continuing Ops) | $0.03 | ($0.03) | Condensed Consolidated Statements of Cash Flows In Q1 2020, net cash used in operating activities was $0.31 million, a substantial improvement from $1.73 million used in Q1 2019, with overall cash and cash equivalents increasing by $0.2 million Summary of Cash Flows (in thousands) | Cash Flow Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($314) | ($1,728) | | Net Cash (Used in) Provided by Investing Activities | ($78) | $54 | | Net Cash Provided by Financing Activities | $592 | $104 | | Net Increase (Decrease) in Cash | $200 | ($1,570) | Notes to Condensed Consolidated Financial Statements The notes detail the company's business structure, accounting policies, and the financial impact of significant events, including COVID-19, discontinued operations, and customer concentration - The company has been deemed an essential business and has not curtailed operations due to COVID-19, but expects the pandemic to result in a reduction to 2020 revenue and operating margins, with no material financial impact in Q1 20201923 - In May 2020, subsequent to the quarter end, the company's subsidiaries entered into government-subsidized SBA loans totaling $2.4 million under the Paycheck Protection Program (PPP)26 - The company has significant customer concentration, with three customers representing 79.9% of total net sales for the three months ended March 31, 202031 - The company filed a net operating loss carryback claim of $1,416,000 as a result of the CARES Act, which is reflected as an income tax benefit and a receivable27102 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the business overview, COVID-19 impact, and provides a detailed analysis of Q1 2020 financial results, covering segment performance, liquidity, capital resources, and cash flows Business Overview and COVID-19 Impact The company operates in aerospace and defense, with operations impacted by COVID-19, anticipating reduced 2020 revenue and margins despite being deemed an essential business - The company's products are used on high-profile military aircraft like the F-35, F-18, F-16, and UH-60 Blackhawk, as well as commercial airliners like the Boeing 777 and Airbus 380112 - The company has been designated as part of the Defense Industrial Base critical infrastructure workforce, allowing continued operations during the pandemic122 - In May 2020, the company secured $2.4 million in government-subsidized SBA loans to mitigate the impact of COVID-19127 Results of Operations Q1 2020 saw a 3.1% decrease in net sales, stable gross profit margin, and a significant reduction in interest costs, leading to a net income of $1.06 million driven by a tax benefit Segment Net Sales (in thousands) | Segment | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Complex Machining | $12,064 | $12,418 | -2.9% | | Turbine Engine Components | $1,383 | $1,460 | -5.3% | | Consolidated | $13,447 | $13,878 | -3.1% | - Interest and financing costs fell by $583,000 (60.5%) year-over-year due to lower interest rates under the new SNB credit facility which replaced the previous PNC facility144 - Net income improved by $1.98 million year-over-year, primarily due to the reduction in interest expense and the $1.414 million income tax benefit from the CARES Act146 Liquidity and Capital Resources The company's liquidity improved with a new SNB credit facility, post-quarter SBA loans, and an anticipated CARES Act tax refund, expected to cover foreseeable cash requirements - On December 31, 2019, the company entered into a new loan facility with SNB, providing a $16 million revolving line of credit and a $3.8 million term loan, which was used to repay the previous PNC facility154 - As of March 31, 2020, total debt to SNB was $17.2 million, consisting of $13.6 million on the revolving credit line and $3.6 million on the term loan158 Cash Flow Summary (in thousands) | Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Cash Used in Operating Activities | ($314) | ($1,728) | | Cash Used in Investing Activities | ($78) | $54 | | Cash Provided by Financing Activities | $592 | $104 | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report173 - There were no changes in internal control over financial reporting during the first quarter of 2020 that have materially affected, or are reasonably likely to materially affect, these controls174 PART II. OTHER INFORMATION Risk Factors This section supplements 2019 Form 10-K risk factors with a new risk concerning the COVID-19 pandemic's uncertain impact on operations, financial performance, and capital access - A new risk factor has been added regarding the COVID-19 pandemic, noting that its impact on future results of operations and overall financial performance remains uncertain177 - Potential negative impacts from the pandemic include increased operating costs, forced closure or reduction of operations, supply chain disruptions, and difficulty accessing debt and equity capital179180 Unregistered Sales of Equity Securities and Use of Proceeds The company confirms no unregistered sales of equity securities occurred during Q1 2020, except as previously disclosed in Exchange Act reports - The company did not issue or sell any unregistered equity securities during the period covered by this report, other than what was previously disclosed182 Exhibits This section lists exhibits filed with the Form 10-Q, including promissory notes for SBA loans obtained by the company's subsidiaries in May 2020 - Key exhibits filed with this report include three promissory notes dated in May 2020 between Sterling National Bank and the company's subsidiaries for the SBA loans182