The following discussion should be read in conjunction with the Company's Financial Statements, including the related notes thereto, appearing elsewhere in this Annual Report. Certain statements in this report may be deemed "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, that address activities, events or developments that the Company or management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by management of the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. The forward-looking statements included in this report are also subject to a number of material risks and uncertainties, including but not limited to economic, governmental, competitive and technological factors affecting the Company's operations, markets, products, services and prices and specifically, the factors discussed below under "Company Strategy" and in Item 1 above (Description of Business - Operational Risks). Such forward-looking statements are not guarantees of future performance and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements.

The Company's operating cycle is long-term and includes various types of products and varying delivery schedules. Accordingly, results of a particular period or period-to-period comparisons of recorded revenues and earnings may not be indicative of future operating results. The following comparative analysis should be viewed in this context.

Results of Operations

The Company's fiscal year ends on June 30. Accordingly, all references to years in this Management's Discussion refer to the fiscal year ended June 30 of the indicated year. Also, when referred to herein, operating profit means net sales less operating expenses.

Revenues

Revenues and estimated earnings under long-term defense contracts (including research and development contracts, except as described below in this paragraph) are recorded using the percentage-of-completion method of accounting, measured as the percentage of costs incurred to estimated total costs of each contract. For the Company's indefinite delivery, indefinite quantity contract to provide 2kW generator sets to the military and for orders from other government subcontractors for 2kW generators, percentage-of-completion calculations are based on individual "Delivery Orders" which are periodically received for specified quantities. For research and development contracts total costs incurred are compared to total expected costs for each contract. During the fiscal year ended June 30, 2009 the Company had one development sub-contract to perform qualification tests for an EPA compliant engine for use with its 2kW generator sets on which it did not recognize revenue based on the percentage-of-completion method. In this sub-contract, revenue was recorded with the successful completion of each milestone in accordance with the contract terms. The sub-contract was completed in January 2009.

The Company uses the percentage-of-completion method to recognize revenue for its replacement parts business when the dollar amount of the order to be delivered in a future period or periods is material, and the duration of the work will span multiple reporting periods. Revenue and earnings for all other orders for replacement parts (including orders for replacement parts for snowmaking equipment) are recorded when deliveries of product are made and title and risk of loss have been transferred to the customer and collection is probable.

For those contracts where revenue has been recognized using the percentage-of-completion method of accounting, provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to

costs and income and are recognized in the period in which the revisions are determined.

Revenues in fiscal year 2009 were $1,490,714 higher when compared to fiscal year 2008. The higher revenues were due to increased production of generator sets principally due to the increased production of 2kW generator sets for delivery to other defense contractors outside the Company's prime contract with the U.S. Army and initial production of a larger 3.5kW generator for another defense contractor. Customer funded research and development revenues also increased when compared to fiscal 2008 while revenues for replacement parts and short-term orders were lower in fiscal 2009 then they were in fiscal 2008.

In fiscal year 2009, production efforts to provide the Armed Forces with 2kW and 3.5 kW diesel operated generator sets provided approximately 80% of revenues compared to approximately 82% in fiscal year 2008. The Company's research and development contracts provided approximately 11% of revenues in 2009,and approximately 11% of revenues in fiscal year 2008. Replacement parts and other short-term business including snowmaking equipment provided approximately 9% of revenues in fiscal year 2009 and approximately 7% of revenues in fiscal year 2008.

In March 2007, the Company was awarded three related research and development sub-contracts, in the aggregate amount of up to approximately $230,400, to research and develop electronic controls for diesel fuel cell reformers. Work on these sub-contracts began in the first quarter of fiscal year 2008(quarter ended September 30, 2007) and is expected to extend until the third quarter of fiscal 2010. In April 2009 the Company was notified that an additional option in one of the original sub-contracts above had been funded in an amount up to $197,183. Work on this option phase of the sub-contract is also expected to continue until the third quarter of fiscal 2010. (No assurances can be given that the research and development services provided by the Company over the term of these sub-contracts will equal the full amounts set forth above.) No assurances can be given that the Company will receive any future production orders as a result of these sub-contracts or that the Company will be awarded any additional research and development contracts or sub-contracts.

In July 2007, the Company received a sub-contract to develop an armored 3 kilowatt 28 volt DC auxiliary power unit that can be mounted on the back of the United States Marine Corps (USMC) main battle tank, the Abrams M1A1. The development sub-contract, for $646,400, was awarded by the USMC Tank Program Office, in Quantico, VA, through a sub-contract administered by CACI, Eatontown, NJ, and had the possibility of a follow-on production contract. Work on this sub-contract also began in the first quarter of fiscal year 2008(quarter ended September 30, 2007) and continued into the quarter ending September 30, 2008. In December 2008, the Company was notified that the USMC had awarded the production contract to another company who was not part of the development phase awarded in 2007.

In August 2007, the Company received a new contract to provide auxiliary power systems for the USMC 'Logistic Vehicle'. This contract, awarded by the USMC Systems Command, Quantico, VA, consists of a base year and three option years, exercisable at the Government's option. The Logistics Vehicle Power System (LVPS) is a diesel-powered 3.5 kilowatt 28 volt DC generator providing power to equipment that protects against improvised explosive devices. It is based on the Company's existing 2 kilowatt military tactical generator. A delivery order for the LVPS, valued at approximately $2.4 million was received in August 2007 and completed in December 2007. In July 2008, the Company received a second delivery order valued at approximately $500,000 for additional units which were delivered in January 2009. Work began to produce these units during the first quarter of fiscal year 2009(quarter ended September 30, 2008) and was substantially completed during the second quarter of fiscal 2009. Subsequently, in January 2009, the Company received a third delivery order valued at approximately $400,000 with deliveries made in July and August 2009. While the Company was successful in obtaining these initial orders, no assurance can be made that the Company will receive any future production orders as a result of this contract.

In December 2007, the Company announced the award of a $985,976 sub-contract from Fibertek, Inc. of Herndon, VA, as part of the U.S. Government's 2kW Military Tactical Generator (MTG) Product Improvements - Engine. This sub-contract covered the efforts to qualify an EPA compliant diesel engine for use in the 2kW portable Military

Tactical Generator product line. This engineering and test effort was conducted at the Company's Oakland, NJ, facility. Initial test efforts began during the third quarter of fiscal year 2008 (quarter ended March 31, 2008). First article testing revealed that the replacement EPA compliant engine was incapable of providing the necessary power output in the required range of operating conditions. As a result, the Company does not expect this engine to replace the existing non-compliant engine used in the 2kW product line. The Army has a waiver from the EPA to continue using the non-compliant engine.

In May 2008, the Company received an award of $475,000 to develop a prototype 'idle reduction' system consisting of an environmental control unit and diesel generator under a sub-contract from MTC Technologies of Eatontown, NJ. The Company partnered with AMETEK Corporation of El Cajon, California to develop this system to provide heating and cooling for US Army "long haul" trucks independent of the vehicle's main engine. The generator developed by the Company under this sub-contract, powers the environmental control unit while also providing both AC and DC current for the vehicle. Work under this sub-contract was substantially completed in December 2008 and delivery of the prototype units to the customer was made in January 2009. No assurance can be made that the Company will receive any future production orders as a result of this sub-contract or that the Government will award the Company any additional development contracts.

The Company experiences variable amounts of material receipts from time to time during the normal course of business. Material receipts are dependent upon the receipt of orders, project requirements and vendor delivery schedules. As the Company uses the percentage-of-completion method of accounting to record revenues on certain long-term contracts, material costs have an impact upon recorded revenues (see Note 1-A, Revenue Recognition of the Notes to Financial Statements).

The aggregate value of the Company's backlog of sales orders was $5.1 million on June 30, 2009 and $6.8 million on June 30, 2008. It is estimated that most of the present backlog will be billed during the next 12 months and recognized as fiscal year 2010 revenues.

Gross Profit/(Loss)

The Company earned a gross profit of $2,093,671 for fiscal year 2009 compared to a gross profit of $1,846,254 for fiscal year 2008, as a result of higher revenues in fiscal year 2009.

Gross margin is the measure of gross profit as a percentage of revenues. It is affected by a variety of factors including, among other items, product mix, product pricing, and product costs. The Company had a gross margin of 19% for each of fiscal year 2009 and fiscal year 2008. The Company's gross margin is significantly influenced by the high proportion of 2kW generator sets that the Company produces under its long term contract with the U.S. Army relative to its total sales. As a result, changes in relative sales value in the Company's other lines of business may not significantly change the Company's gross margin.

During fiscal 2009, gains in gross margin from sales of spare parts and research and development efforts were partially offset by an increase in costs related to metals, transportation and foreign sourced components for the 2kw generator set product line. The Company's 10-year indefinite delivery, indefinite quantity prime contract for generator sets with the U.S. Army, awarded in 2001 allows for a small annual increase in selling price. Gross profit on this contract has been reduced as a result of costs increasing faster than the selling price. The Company is in communication with the Government and is continuing to pursue a pricing modification under the contract. This is a labor intensive process and no assurances can be made that the Government will agree to a modification, or that such a modification would be equitable to the Company.

At the end of fiscal 2009 the Company evaluated its business lines and made a decision to cease production of its Hedco snowmaking machines. As a result of this decision, the Company recorded a charge to cost of revenues of approximately $87,100 related to a reduction in the carrying costs of inventory held related to this product. The Company had recorded a charge of $155,800 in fiscal 2008 related to carrying costs of finished snowmaking machines. The Company is attempting to sell

the manufacturing assets and certain intellectual property related to these products while continuing to actively market these products. No assurance can be made that such efforts will be successful or, if successful, the timing thereof.

Selling, General and Administrative Expenses

Selling, General and Administrative Expenses for fiscal 2009 were $1,931,645 or 17% of revenue compared to $1,750,546 or 18% of revenue in fiscal 2008. The most significant increases in expense were the result of the write off of prepaid licensing rights of $82,000, an increase in marketing and business development expense of approximately $46,000, increased expense for training and education of $48,000 and increases in staffing and compensation of $109,000 all of which were partially offset by a decrease in research and development materials expense of approximately $108,000.

Interest Expense

The Company had no interest expense in fiscal 2009 or fiscal 2008.

Other Income(Expense) - Net

Amounts reported as other income represent the net effect of interest income and miscellaneous items such as the sale of scrap, bank transaction fees and other like items.

Other expense of $19,080 for fiscal year 2009 was comprised of bank charges of $11,438, franchise and use taxes of $9,284, other expense of $110, interest income of $277 and miscellaneous income, primarily from the sale of scrap, of $1,475.

Other income of $26,345 for fiscal year 2008 was comprised of interest income of $2,163 and miscellaneous income, primarily from the sale of scrap, of $24,182.

Net Income before income taxes

Net income before income taxes for fiscal year 2009 was $142,946. For the year ended June 30, 2008 net income before income taxes was $122,053.

Income Taxes

Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts and for tax loss and credit carry-forwards.

A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that these amounts will not be realized.

The income tax liability for fiscal year 2009 was $0 as a result of the utilization of tax credits and full valuation allowance earned in prior years. In fiscal 2008 the Company's income tax liability was $0 as a result of a utilization of tax credits and full valuation allowance earned in prior years.

Inflation

Historically, inflation and price changes have not had a material effect on net sales and revenues and on income from continuing operations. Management does not believe that inflation and price changes in fiscal year 2009 had a material effect on net sales and revenues. However, beginning in fiscal year 2006 and continuing through fiscal 2009, the 2kW generator set business experienced increased costs related to metals, transportation and foreign sourced components. The 10-year prime contract for the generator sets with the Government, awarded in 2001, allows for a small annual increase in selling price. Profits on generator sets produced under this contract have been reduced as a result of costs increasing faster than the selling price.

The Company is in communication with the Government and is continuing to pursue a pricing modification under the prime contract. This is a labor intensive process and

no assurances can be made that the Government will agree to a modification, or that such a modification would be equitable to the Company.

Liquidity and Capital Resources

Historically, the Company's capital expenditures, debt servicing requirements and working capital needs have been financed by cash flow from operations, progress payments on various Government contracts (based on cost incurred) and a line of credit of $500,000. The prior line of credit expired on February 28, 2007 and was replaced in April 2009, as described in Note 10 of the Notes to Financial Statements. Subsequent to the end of fiscal year 2009 the Company borrowed $250,000 against this line of credit.

Starting in late fiscal year 2007, the Company changed the way it negotiates payment terms on new contracts. The Company now attempts to negotiate progress payments based on achievement of sub-tasks within a project rather than relying on demonstration of incurred costs. This approach is expected to result in the Company receiving payment under those contracts at or before the time it must pay its vendors. Four recent contracts described under "Revenues" above that were received in fiscal year 2008 were structured this way and the Company intends to continue this approach where possible.

As of June 30, 2009, the Company had no material capital expenditure commitments. Management believes that the Company's current cash and its line of credit, combined with progress payments as well as billings at the time of delivery of products will be sufficient to support short-term liquidity requirements, working capital needs and capital expenditures at their current or expected levels.

At June 30, 2009, the Company's working capital was $2,411,736 compared to $2,203,421 at June 30, 2008.

The ratio of current assets to current liabilities was 2.83 to 1 at June 30, 2009 and 2.44 to 1 at June 30, 2008.

The following table is a summary of the Statements of Cash Flows in the Company's Financial Statements:

Years ended June 30, 2009 200 8 Net Cash provided by(used in)

 Operating activities           $  366,821     $ (124,110 )
 Investing activities             (53,343)       (103,105 )
 Financing activities                   --              - -

Operating Activities:

Adjustments to reconcile net income to net cash used in operations are presented in the Statements of Cash Flows in the Company's Financial Statements.

Net cash provided by operating activities in fiscal year 2009 was comprised primarily of net income before depreciation and an increase in inventory reserves and decreases in inventories, accounts receivable, and prepaid expenses, which were partly offset by an increase in contract costs and related estimated profits in excess of applicable billings and a decrease in accounts payable and accrued expenses.

Net cash used in operating activities in fiscal year 2008 was comprised primarily of net income before depreciation and amortization adjusted by increases in inventories, accounts receivable, contract costs and estimated related profits in excess of applicable billings offset by increases in accounts payable, accrued expenses,
inventory reserve and allowance for doubtful accounts and a decrease in prepaid expense.

The Company expenses its research and development costs as incurred. These costs consist primarily of salaries and material costs. For the fiscal years ended June 30, 2009 and June 30, 2008, the Company expensed $113,735 and $212,348 respectively, of research and development costs. Research and development projects performed under

contract for customers are billed to the customer and are recorded as contract costs as incurred.

Investing Activities:

During fiscal year 2009, net cash of $53,343 was used in investing activities. This amount was used for capital expenditures, principally for demonstration and test equipment.

During fiscal year 2008, net cash of $103,105 was used in investing activities. This amount consisted of $113,105 used for capital expenditures, principally for test equipment partly offset by a decrease of $10,000 in deferred costs related to licensing rights.

Financing Activities:

The Company did not use any cash in financing activities during either fiscal 2009 or fiscal 2008.

On April 27, 2009 the Company entered into a $500,000 line of credit with TD Bank, NA. (See Note 10 of the Notes to Financial Statements). As of the date of this Annual Report the Company has an outstanding debt of $250,000 against this line of credit. The Company does not however regard this credit facility as vital to its continued operations.

The Company owns approximately 90 acres of land and the building, which it occupies in Bergen County, New Jersey, adjacent to an interchange of Interstate Route 287. The Company is continuing to actively pursue possible methods of monetizing 68 undeveloped and unused acres of this property, by its sale and/or development. This endeavor has become more complex with the implications of New Jersey's "Highlands Water Protection and Planning Act".

The Act identifies approximately 400,000 acres of New Jersey as The Highlands Preservation Area. Pursuant to the statute, this area has the most onerous restrictions on future development. The Company's property is in this area, and further development would not be permitted without a waiver or other relief from the State. The Company continues to believe that there are strong reasons why its property should not be subject to the severe restrictions of the preservation area, and is attempting to affect a solution.

However, since the Act was passed in June of 2004, the State has repeatedly delayed promulgation of final regulations and a master plan. Originally expected in 2005, final regulations and a master plan were approved by Governor Corzine on September 5, 2008. At the same time the Governor issued executive order 114 further defining the framework by which the Highlands Council, other State agencies, and both county and municipal governments are to work together. The Company believes that a regulatory environment is now developing within which monetization of the land may be possible. In light of these recent events, the Company is actively assessing its options. However, no assurances can be given that the Company's efforts will be successful, that a satisfactory valuation will be achieved, or that resolution will be timely.

In May 2008, the Company entered into a contract to sell a small parcel of land, approximately 7 acres, for $205,000. The land is physically separated from the main parcel of the Company's property by an interstate highway and is contained within the Highlands Preservation Area. Among other things, the sale of the land is subject to approval for development by the Highlands Commission and various state and local government agencies. Accordingly, the Company can make no assurance that the sale will be successfully consummated or, if consummated, the timing thereof.

Recent Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB issued Staff Position No. 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13

and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" ("FSP 157-1") and Staff Position No. 157-2, "Effective Date of FASB Statement No. 157" ("FSP 157-2"). In October 2008, the FASB adopted FASB Staff Position No. 157-3 "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active" ("FSP 157-3"). FSP 157-1 amends SFAS 157 to remove certain leasing transactions from its scope. FSP 157-2 delays the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the Company's 2010 fiscal year beginning July 1, 2009. The measurement and disclosure requirements related to financial assets and financial liabilities are effective for the Company beginning in the Company's 2009 fiscal year beginning July 1, 2008. FSP 157-3 reaffirms that for financial assets fair value is an estimated exit price, and provides examples of how to estimate fair values when relevant observable data are not available. It further clarifies that in disorderly markets, judgment is required when deciding to accept or reject market prices as evidence of fair value. FSP 157-3 is immediately effective, including for prior periods, for which financial statements have not been issued. The adoption of Statement SFAS 157, FSP 157-1, and FSP 157-3 had no impact on the Company's financial statements.

In April 2009, the FASB issued Staff Position No. 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP 157-4"). FSP 157-4 provides guidelines for making fair value measurements more consistent with the principles presented in SFAS No. 157. FSP 157-4 relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms what SFAS 157 states is the objective of fair value measurement - to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive. FSP 157-4 is effective for the Company's annual reporting for the fiscal year ended on June 30, 2009. The implementation of FSP 157-4 did not impact the Company's financial position, results of operations or cash flows.

In June 2009, the FASB, issued SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles- a replacement of FASB Statement No. 162" ("SFAS 168"). SFAS 168 establishes the FASB Accounting Standards codification as the source of authoritative accounting principles and the framework for selecting the principles used in the . . .