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 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, uncertainty regarding how long the worldwide economic recession will continue and whether the recession will deepen; 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; 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 three months ended August 31, 2009 and August 31, 2008
                                                                                     Increase /
                                                                                     (Decrease)
                                                                        Sales, net  $    210,000
                                                                Cost of goods sold  $  (242,000)
                                      Selling, general and administrative expenses  $   137,000
                                          Income before provision for income taxes  $   310,000
                                                        Provision for income taxes  $   138,000
                                                                        Net income  $   172,000


Sales under certain fixed-price contracts, requiring substantial performance
over several periods prior to commencement of deliveries, 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 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.

31, 2008.)

                               Three months ended              Change
                             August 31,    August 31,   Increase /    Percent
                               2009          2008      (Decrease)     Change
              Net Revenue   $  5,014,000 $  4,804,000   $   210,000     4%
            Cost of sales     3,282,000     3,524,000     (242,000)    -7%
             Gross profit   $  1,732,000  $ 1,280,000   $   452,000    35%
   ††††as a percentage of      35%           27%
             net revenues

The Company's consolidated results of operations showed a 4% increase in net revenues and an increase in net income of 116%. Revenues recorded in the current period for long-term construction projects were 66% higher than the level recorded in the prior year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were down 37% from the level recorded in the prior year. The gross profit as a percentage of net revenues for the current and prior year periods was 35% and 27%. This fluctuation is attributable primarily to a.) one large, domestic project in process last year that had a very low margin, b.) a few of the bigger non-project shipments in the first quarter last year had low margins, and c.) three large export projects have higher than average margins.

While the overall sales figures showed only a modest gain over the prior year, the mix of customers buying our products changed. Sales of the Company's products are made to three general groups of customers: industrial, construction and aerospace / defense. The negative effect of the continued slow global construction market has been offset by an increase in our global sales to customers in the aerospace and defense markets. A breakdown of sales to the three general groups of customers is as follows:

First Quarter - Fiscal 2010 First Quarter - Fiscal 2009

  Industrial                6%   Industrial               13%
  Construction            40%    Construction             50%
  Aerospace / Defense     54%    Aerospace / Defense      37%

At August 31, 2008, we had 119 open sales orders in our backlog with a total sales value of $9.5 million. At August 31, 2009, we have 8% fewer open sales orders in our backlog (110 orders) but the total sales value is $11.3 million or approximately 19% higher than the prior year.

The Company's revenues and net income fluctuate from period to period. The fluctuations in comparing the current period to the prior period are not necessarily representative of future results.

Selling, General and Administrative Expenses


   Three months ended   Change


                           August 31,    August 31,     Increase /          Percent
                             2009          2008        (Decrease)           Change
     Outside Commissions    $  276,000   $  202,000     $   74,000           37%
              Other SG&A       904,000      841,000        63,000              7%
              Total SG&A    $1,180,000   $1,043,000     $  137,000           13%
   †††as a percentage of                  24% 22%
            net revenues

Selling, general and administrative expenses increased by 13% from the prior year. Outside commission expense increased by 37% from last year's level. As a percentage of sales, outside commissions were 5.5% compared with 4.2% last year. This fluctuation was primarily due to a single, high value, non-project, commissionable sales order recorded during the quarter as well as a higher level of Project sales in the current year. As noted above, a few of the Projects have high gross margins. These projects also have higher than average commissions. Other selling, general and administrative expenses increased only slightly from last year to this.

The above factors resulted in operating income of $552,000 for the three months ended August 31, 2009, up 133% from the $237,000 in the same period of the prior year.

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 applies the stock option expensing rules of Statement of Financial Accounting Standards (SFAS) No. 123R, "Share Based Payment," using the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The Company recognized $20,000 and $28,000 of compensation cost for the three month periods ended August 31, 2009 and August 31, 2008.

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 in estimating the fair market value of the Company's stock option grants:

                                                         2009
2008
                             Risk-free interest rate:        4.875%
5.000%
                        Expected life of the options:       2.5 years
2.5 years
                      Expected share price volatility:        57.57%
44.62%
                               Expected dividends:         zero
zero

These assumptions resulted in:

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 three month period ended August 31, 2009 is presented below:

Weighted-
                                                                Number of
Average
                                                                 Options
Exercise Price
             Options outstanding and exercisable at May 31, 2009:
160,000            $ 4.98
                                               Options granted:
14,500            $ 3.51
           Options outstanding and exercisable at August 31, 2009:
174,500            $ 4.86

          Closing value per share on NASDAQ at August 31,
2009:                        $ 3.59

Capital Resources, Line of Credit 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 debt service. The Company's primary sources of liquidity have been operations and bank financing.

Capital expenditures for the three months ended August 31, 2009 were $79,000 compared to $123,000 in the same period of the prior year. As of August 31, 2009, the Company has no commitments for capital expenditures during the next twelve months.

Effective August 7, 2009, the Company replaced its bank credit facility with a $6,000,000 demand line of credit from a bank, with interest payable at the Company's option of 30, 60, 90 or 180 day LIBOR rate plus 2.5% or the bank's prime rate less .25%. There is an interest rate floor of 3.5%. The line is secured by accounts receivable, equipment, inventory, and general intangibles, and a negative pledge of the Company's real property. This line of credit is subject to the usual terms and conditions applied by the bank and is subject to renewal annually. There is a $573,000 principal balance outstanding as of August 31, 2009, compared to the $1,017,000 balance outstanding on the line of credit in place as of May 31, 2009. The outstanding balance on the line of credit will fluctuate as the Company's various long-term projects progress. The Company is in compliance with restrictive covenants under the line of credit. In these covenants, the Company agrees to maintain the following minimum levels of the stated item:

              Covenant                  Minimum per Covenant      Current
Actual  When Measured
       Minimum level working capital             $3,000,000
$9,322,000        Quarterly
       Minimum debt service coverage ratio          1.5:1
n/a        Fiscal Year-end

All of the $5,427,000 unused portion of our line of credit is available without violating any of our debt covenants.

Principal maturities of long-term debt for the remainder of the current fiscal year and the subsequent five years are as follows: 2010 - $4,000; 2011 - $5,000; 2012 - $6,000; and 2013 - $4,000.

Inventory and Maintenance Inventory


    August 31, 2009   May 31, 2009 Increase / (Decrease)


         Raw Materials   $  464,000          $  524,000          $   (60,000)    -11%
               Work in    5,448,000           5,688,000            (240,000)      -4%
               process
        Finished goods     675,000               510,000           165,000        32%
             Inventory    6,587,000   90%     6,722,000    89%     (135,000)      -2%
 Maintenance and other     732,000    10%       809,000    11%      (77,000)     -10%
             inventory
                 Total   $7,319,000 100%     $7,531,000  100%    $  (212,000)     -3%
             Inventory     1.8                 1.6
              turnover

NOTE: Inventory turnover is annualized for the three month period ended August 31, 2009.

Inventory, at $6,587,000 as of August 31, 2009, is $135,000 or two percent lower than the prior year-end level of $6,722,000. Of this, approximately 83% is work in process, 10% is finished goods, and 7% is raw materials. While this decrease is not significant, it is one factor in the increase in the inventory turnover rate. The inventory turnover is calculated by dividing the annualized cost of sales by the average inventory level. The annualized cost of sales for the current period is $13,128,000, which is slightly over $1 million more than last year's level for the full year. This is the primary reason for the increase in the inventory turnover rate. The average level of inventory for the three months ended August 31, 2009 was $7,425,000. This is only $97,000 lower than the average level for the fiscal year ended May 31, 2009.

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. The maintenance inventory decreased slightly since May 31, 2009. Management of the Company has recorded an allowance for potential inventory obsolescence. The provision for potential inventory obsolescence was $45,000 for each of the three month periods ended August 31, 2009 and August 31, 2008. 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")

August 31, 2009 May 31, 2009 Increase /(Decrease)

Accounts receivable    $  2,553,000  $  2,691,000    $   (138,000 )   -5%
               CIEB       3,253,000     1,957,000       1,296,000     66%
         Less: BIEC         201,000       126,000          75,000     60%
                Net    $  5,605,000  $  4,522,000   $   1,083,000     24%

Number of an average day's sales
outstanding in accounts receivable 46 54

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 $2,553,000 as of August 31, 2009 includes approximately $99,000 of amounts retained by customers on long-term construction projects ("Project(s)"). It also includes $42,000 of an allowance for doubtful accounts ("Allowance"). The accounts receivable balance as of May 31, 2009 of $2,691,000 included an Allowance of $42,000. The Company expects to collect the net accounts receivable balance, including the retainage, during the next twelve months. The number of an average day's sales outstanding in accounts receivable (DSO) decreased from 54 days at May 31, 2009 to 46 days at August 31, 2009. Although the accounts receivable balance decreased by only five percent, this measurement of DSO shows a 15% decrease. The DSO is affected by the level of CIEB, which represents sales recorded for which the customer has not yet been billed. Since the customer has not been billed, the amount would not be included in accounts receivable. The reduction in DSO is primarily attributable to the increase in CIEB for the period.

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, provisions such as this are often not possible. The $3,253,000 balance in this account at August 31, 2009 is 66% more than the prior year-end. This significant increase is primarily due to five projects in progress that have an aggregate sales value of $4.6 million and, in accordance with the terms of each of the contracts, do not have any billings to the customers. In the aggregate, these five projects are slightly more than half completed. Generally, if progress billings are permitted under the terms of a Project sales agreement, the more complete the Project is, the more progress billings will be permitted. The Company expects to bill the entire amount during the next twelve months. 47% of the CIEB balance as of the end of the last fiscal quarter, May 31, 2009, was billed to those customers in the current fiscal quarter ended August 31, 2009. 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:

                                 August 31, 2009  May 31, 2009
                         Costs       $ 4,238,000   $ 3,303,000
            Estimated earnings         1,338,000     1,048,000
   Less: Billings to customers         2,323,000     2,394,000
                          CIEB       $ 3,253,000   $ 1,957,000
Number of Projects in progress          9              10

As noted above, BIEC represents billings to customers in excess of revenues recognized. The $201,000 balance in this account at August 31, 2009 is up from the $126,000 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 year-end balances in this account are comprised of the following components:

                                 August 31, 2009  May 31, 2009
         Billings to customers      $  2,410,000    $  956,000
                  Less:  Costs         1,390,000       548,000
      Less: Estimated earnings           819,000       282,000
                          BIEC        $  201,000    $  126,000
Number of projects in progress          8              4

Summary of factors affecting the balances in CIEB and BIEC:

                                                  August 31, 2009  May 31, 2009
                   Number of Projects in progress       17              14
                       Aggregate percent complete       71%            58%
Average total sales value of Projects in progress    $666,000        $661,000
   Percentage of total value invoiced to customer       42%            36%

The Company's backlog of sales orders at August 31, 2009 is $11.3 million, down from the $13.1 million backlog value at the end of the prior year. $3.5 million of the current backlog is on long-term construction projects already in progress.

Other Balance Sheet Items

Other current assets, which is primarily comprised of deferred taxes and prepaid expenses, decreased by 10% to $1,251,000. This change is mostly due to a reduction in the prepaid expenses as they are expensed in the normal course of business. Accounts payable, at $1,236,000 as of August 31, 2009, is approximately $349,000 higher than the prior year-end. There is no specific reason for this fluctuation other than the normal payment cycle of vendor invoices.

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 August 31, 2009 are $737,000, up 23% from the $598,000 accrued at the prior year-end. This increase is primarily due to more Projects in process at August 31, 2009, at a later stage of completion plus a few export Projects with higher than average rates. The Company expects the current accrued amount to be paid during the next twelve months. Other current liabilities increased 40% from the prior year-end, to $1,604,000 primarily due to higher income tax accruals and customer advance deposits. Payments on these liabilities will take place as scheduled within the next twelve months.

Management believes the Company's cash flows from operations and borrowing capacity under the bank line of credit is sufficient to fund ongoing operations, capital improvements and share repurchases for the next twelve months.