During the three and nine month periods ended September 30, 2008 and 2007 approximately 37% (52% - 2007) and 41% (45% - 2007) of the Company's revenues were derived from contracts with agencies of the U.S. Government or their prime contractors and their subcontractors. The Company believes that government involvement in military operations overseas will continue to have a direct impact on the financial results in both the Advanced Technology and Consumer Products markets. While the Company remains optimistic in relation to these opportunities, it recognizes that sales to the Government are affected by defense budgets, the foreign policies of the U.S. and other nations, the level of military operations and other factors and, as such, it is difficult to predict the impact on future financial results. The Company's commercial business is affected by such factors as uncertainties in today's global economy, global competition, the vitality and ability of the commercial aviation industry to purchase new aircraft, the effects of terrorism and the threat of terrorism, market demand and acceptance both for the Company's products and its customers' products which incorporate Company-made components.

The Aerospace Industries Association (AIA) and various other sources earlier indicated that the aircraft market continues to be strong based on current aircraft backlog and aircraft order rates, which have remained so in 2008. The Company's Advanced Technology Group revenue increased for the three and nine months ended September 30, 2008 compared to the same period in 2007 due to a general increase attributable to existing and new customers as well as across various product lines. The ATG continues its aggressive business development efforts in its primary markets and is broadening its focus to include new - both domestic and foreign - markets that are consistent with its core competencies.

The Company's Consumer Products Group develops products for government and commercial applications. Based upon forecasted procurements the Company anticipates that the volatility in government procurement of certain CPG products will continue beyond 2008.

See also Note 8, Business segments, of the consolidated financial statements for information concerning business segment operating results.

Results of Operations

The following table sets forth for the period indicated the percentage
relationship of certain items in the consolidated statement of operations to
revenues and the period to period dollar ($000's omitted) and percentage
increase or decrease of such items as compared to the indicated prior period.


                          Relationship to            Period to        Period to           Relationship to           Period to        Period to
                            net revenues              period$          period%             net revenues             period $          period %
                         three months ended          increase          increase          nine months ended          increase          increase
                           September 30,            (decrease)        (decrease)           September 30,           (decrease)        (decrease)
                         2008           2007           08-07            08-07            2008          2007           08-07            08-07
Revenues
Advanced Technology
Group                       69.3 %        48.6 %   $       1,304             31.7 %         62.4 %       53.5 %   $       2,812             22.5 %
Consumer Products
Group                       30.7          51.4           (1,950)           (44.8)           37.6         46.5           (1,645)           (15.1)
                           100.0         100.0             (646)            (7.6)          100.0        100.0             1,167                5
Cost of goods sold,
exclusive of
depreciation                71.2          77.6             (997)           (15.2)           72.0         77.7             (506)            (2.8)
Gross profit                28.8          22.4               351             18.5           28.0         22.3             1,673             32.1
Selling, general
and administrative          14.6          12.0               121             11.9           13.0         12.6               243              8.3
Interest                     0.5           0.7              (20)           (32.3)            0.5          0.8              (59)           (31.4)
Depreciation and
amortization                 1.7           1.5                 0              0.0            1.7          1.8                 1              0.2
Other income, net          (0.2)         (0.4)                19           (57.6)          (0.3)        (0.4)                37           (35.6)
                            16.6          13.8               120             10.2           14.9         14.8               222              6.5
Income before
income tax
provision                   12.2           8.6               231             32.0           13.1          7.5             1,451             81.7
Income tax
provision                    4.5           3.0               102             41.3            4.8          2.7               524             79.8
Net income                   7.7 %         5.6 %   $         129             27.1 %          8.3 %        4.8 %   $         927             82.8 %

The Company's consolidated revenues increased approximately $1,167,000 for the nine month period ended September 30, 2008 when compared to the same nine month period in 2007 while the Company's consolidated revenues decreased approximately $646,000 for the three month period ended September 30, 2008 when compared to the same three month period in 2007. During the three and nine month periods ended September 30, 2008, sales of the Company's ATG products for both government and commercial applications increased when compared to the same periods of 2007. These increases were offset by decreased sales at the Company's CPG group for the same three and nine month periods primarily as a result of volatility in procurement of government contracts.

As shown in the above table, gross profit and gross profit as a percentage of net revenues for the three and nine month periods ended September 30, 2008 increased as compared to the same three and nine month periods in 2007. Increased sales volume at the ATG combined with the current mix of products sold in the period within the ATG and CPG segments as well as the composition of ATG and CPG sales to the total consolidated sales directly attributed to dollar value and percentage increase in gross profit. The increases in revenues and margins at the ATG segment were partially offset by gross margin decreases at the CPG segment during the three month period as a result of decreased sales volume due to the completion of certain significant Government contracts.

Selling, general and administrative (SG&A) expenses increased by approximately 8.3% for the nine month period ended September 30, 2008 when compared to the same nine month period in 2007 while the three month period ended September 30, 2008 showed an 11.9% increase when compared to the same three month period in 2007. The increase in SG&A is primarily due to increased expenses associated with business development activities, increased employee compensation and 404 related implementation expenses.

Interest expense decreased for the three and nine month periods ended September 30, 2008 when compared to the same three and nine month periods in 2007 as average debt outstanding was lower and will continue to decline as the Company repays its scheduled debt obligations and assuming the Company does not incur additional debt and the average industry lending rate does not increase. See also Note 5, Long-Term Debt, of the consolidated financial statements for information on long-term debt.

Depreciation and amortization expense remained relatively consistent for the three and nine month periods ended September 30, 2008 when compared to the same three and nine month periods in 2007. Depreciation expense is affected by the variable estimated useful lives of depreciable property (as identified in Note 2, "Summary of Significant Accounting Policies" of the consolidated financial statements) as well as the timing amount and nature of capital expenditures and their full amortization date thereof.

The Company's effective tax rate was 36.6% in the third quarter of 2008 as compared to 37.0% for the nine month period ended September 30, 2007. The effective tax rate in both years reflects state income taxes, permanent non-deductible expenditures and the tax benefit for manufacturing deductions allowable under the American Jobs Creation Act of 2004 as well as reductions in New York State's statutory tax rate and income apportionments formula. See also Note 6, Income taxes, of the consolidated financial statements for information concerning income tax.

Net income increased $129,000 and $927,000 respectively, when comparing the three and nine month periods ended September 30, 2008 to the same three and nine months periods in 2007. The increase in income is the result of increased sales at the ATG for products with favorable margins as well as cost containment activities and a reduction in the effective income tax rate.

Liquidity and Capital Resources

The Company's primary liquidity and capital requirements relate to working capital needs; primarily inventory, accounts receivable, capital expenditures for property, plant and equipment and principal and interest payments on debt.

At September 30, 2008, the Company had working capital of approximately $15.2 million of which approximately $4.1 million was comprised of cash and cash equivalents. The Company generated approximately $1,009,000 in cash from operations during the nine months ended September 30, 2008 as compared to $1,215,000 during the nine months ended September 30, 2007. Cash was generated from operations through an increase in net income as previously discussed as well as increases in certain employee benefit accrual items. The primary reasons for the increase in the uses of cash for the Company's operating activities for nine month period ended September 30, 2008 was related to payments of approximately $1,153,000 in income taxes and increases in accounts receivable and inventory costs aggregating $1,678,000 attributed to the increase in revenue volume.

The Company's primary use of cash in its financing and investing activities in the first nine months of 2008 related to capital expenditures for equipment, principal payments on long-term debt as well as approximately $348,000 in a cash dividend paid on March 14, 2008 to shareholders of record on February 20, 2008. The Company also expended $1,010,000 to purchase outstanding stock options and treasury shares.

At September 30, 2008, there are no material commitments for capital expenditures.

The Company also has a $1,000,000 line of credit on which there is no balance outstanding at September 30, 2008. If needed, this can be used to fund cash flow requirements.