<SEC-DOCUMENT>0000814676-13-000015.txt : 20130510
<SEC-HEADER>0000814676-13-000015.hdr.sgml : 20130510
<ACCEPTANCE-DATETIME>20130510084402
ACCESSION NUMBER:		0000814676-13-000015
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20130330
ITEM INFORMATION:		Results of Operations and Financial Condition
FILED AS OF DATE:		20130510
DATE AS OF CHANGE:		20130510

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CPS TECHNOLOGIES CORP/DE/
		CENTRAL INDEX KEY:			0000814676
		STANDARD INDUSTRIAL CLASSIFICATION:	POTTERY & RELATED PRODUCTS [3260]
		IRS NUMBER:				042832509
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-16088
		FILM NUMBER:		13831176

	BUSINESS ADDRESS:	
		STREET 1:		111 SOUTH WORCESTER STREET
		CITY:			NORTON
		STATE:			MA
		ZIP:			02766
		BUSINESS PHONE:		508-222-0614

	MAIL ADDRESS:	
		STREET 1:		111 SOUTH WORCESTER STREET
		CITY:			NORTON
		STATE:			MA
		ZIP:			02766

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	CERAMICS PROCESS SYSTEMS CORP/DE/
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>k8050813c.htm
<DESCRIPTION>FORM 8-K DATED MAY 10, 2013 CONFERENCE CALL
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<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION<BR>
Washington, D.C. 20549</B></P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center"><B>FORM 8-K<BR>
<BR>
<BR>
</B></P>

<P STYLE="font: 10pt Courier New, Courier, Monospace; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center">Current Report<BR>
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934</P>

<P STYLE="font: 10pt Courier New, Courier, Monospace; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center">Date of Report (Date of earliest event reported):
May 8, 2013</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="margin: 0">&nbsp;</P>

<P STYLE="font: 12pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center"><B>CPS TECHNOLOGIES CORPORATION</B><BR>
<FONT STYLE="font-size: 10pt">(Exact Name of Registrant as Specified in its Charter)</FONT></P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Arial, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34%; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">Delaware</TD>
    <TD STYLE="width: 33%; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">0-16088</TD>
    <TD STYLE="width: 33%; padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">04-2832509</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">
        <P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center">(State or other jurisdiction of incorporation)</P>
        <P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center">&nbsp;</P></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">(Commission File Number)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">(IRS Employer Identification No.)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">111 South Worcester Street, Norton, Massachusetts</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">02766</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">(Address of principal executive offices)</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">(Zip Code)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Registrant&#8217;s telephone number, including area code</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">508-222-0614</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="3" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="3" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="3" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">(Former name or former address, if changed since last report.)</TD></TR>
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<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (<U>see</U> General Instruction
A.2. below):</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">[ ]&#9;Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">[ ]&#9;Soliciting material pursuant to Rule 14a-12 under the exchange
Act (17 CFR 240.14a-12)</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">[ ]&#9;Pre-commencement communications pursuant to rule 14d-2(b)
under the<BR>
Exchange Act (17CFR 240.14d-2(b))</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; border-bottom: black 0.75pt solid">[ ]&#9;Pre-commencement communications
pursuant to Rule 13e-4( c)) under the<BR>
Exchange Act (17 CFR 240.13e-4( c)).</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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<P STYLE="margin: 0">Item 2.02.<FONT STYLE="font: 10pt Arial, Helvetica, Sans-Serif"> Results of Operations and Financial Condition.</FONT></P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">The Company hosted a conference call on May 8, 2013 to review
the First Quarter results for 2013 and to answer questions from investors. A transcript of this conference call is attached hereto
as Exhibit 99 and is incorporated herein by reference. The information furnished under Item 2.02, including the Exhibit attached
hereto, shall not be deemed &#8216;filed&#8217; for any purpose, including for purposes of Section 18 of the Securities and Exchange
Act of 1934 (the &#8220;Exchange Act&#8221;) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated
by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of any general incorporation language
in such filing.</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center"><B>SIGNATURE</B></P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0; text-indent: 0.5in">Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.</P>

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    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><B><U>CPS Technologies Corporation</U></B><BR>
(Registrant)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 51%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">Date:&nbsp; May 10, 2013</TD>
    <TD STYLE="width: 49%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">/s/ Grant C. Bennett<BR> Grant C. Bennett<BR> President and Treasurer<BR> (Principal Executive Officer)</TD></TR>
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<P STYLE="font: 10pt Courier New, Courier, Monospace; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">EXHIBIT INDEX</P>

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        <P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">EXHIBIT NUMBER</P>
        <P STYLE="font: 10pt Arial, Helvetica, Sans-Serif; margin: 0">&nbsp;</P></TD>
    <TD STYLE="width: 80%; padding-right: 5.4pt; padding-left: 5.4pt">DESCRIPTION</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">99</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">Transcript of conference call held May 8, 2013.</TD></TR>
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<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>2
<FILENAME>cc05102013.htm
<DESCRIPTION>CONFERENCE CALL HOSTED ON MAY 8, 2013
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<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>CPS TECHNOLOGIES CORP.</B></P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Moderator:&#9;Ralph Norwood</B></P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>May 8, 2013</B></P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>5:00 p.m. ET</B></P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/200% Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in">Operator:</TD><TD>Good evening. My name is Crystal and I will be your conference operator today. At this time, I would like to welcome everyone
to the CPS Technologies Corporation first quarter 2013 conference call. All lines have been placed on mute to prevent any background
noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this
time, simply press star one on your telephone keypad. If you would like to withdraw your question, press the pound key.</TD></TR></TABLE>

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<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Thank you. Mr. Ralph Norwood, you may begin your conference.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;Thank you,
operator. Good afternoon. Before we begin the business portion of the call, I would like to point out to all of you that statements
in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, and should be considered as subject to the many uncertainties that exist in CPS's operations and
environment. These uncertainties include economic conditions, market demands, and competitive factors. Such factors could cause
actual results to differ materially from those in any forward-looking statement.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Now, to the results from the first quarter. Our revenues for the quarter totaled 5 million &ndash; $5 million; up 42 percent
from the $3.6 million earned in the first quarter of 2012. For perspective, on a sequential basis, revenues were up 20 percent
from the fourth quarter of 2012, and represent a 50 percent increase when compared with the third quarter of 2012. So the story
for this quarter is the rebound back to the $5 million revenue level. And Grant will discuss this improvement in some detail later
in the call.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>As a result of the significant increase in sales, and the absence of additional cost incurred last year in an outside finishing
operation, gross margin increased to 18 percent of revenues in the quarter. This compares with a negative 1 percent of margin realized
in the first quarter of 2012. Selling, general, and administrative expenses in the quarter were up 11 percent, compared with the
same quarter last year, due in large part to an increase in sales commissions associated with the increase in sales.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>As a result of this sales increase, and the absence of the additional finishing cost, we were able to generate a small operating
profit for the quarter. This compares with an operating loss of $843,000 experienced in the first quarter of 2012.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Turning now to the balance sheet, our day sales outstanding &ndash; or DSOs &ndash; increased to 74 days in the quarter, compared
with 63 days at the end of the first quarter of 2012. This increase was largely due to the fact that sales accelerated during the
quarter, and does not reflect an increase in past-due accounts.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Inventories were down significantly in the quarter to $2.1 million, a 40 percent reduction from a year ago, and represents
the lowest level in nearly two years. We had built inventories in late 2011 to meet a major customer's forecast as prescribed in
our agreement with them. However, actual demand fell significantly short of their projections, and it was not until the past two
quarters we were able to bring inventories back in line.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>The net book value of fixed assets was up slightly versus year-end 2012, as our capital expenditures for the quarter approximated
our depreciation expense.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Payables and accruals in total were up significantly versus both last year's first quarter and year-end 2012. This was primarily
due to the increase in our business, and does not reflect a change in our payment terms or pattern of payments.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Finally, despite $1 million &ndash; actually, a greater than $1 million increase in receivables, we were able to limit the
use of our cash to $100,000 in the quarter, as our net cash moved from a negative $200,000 at year end to a negative $300,000.
Net cash is simply cash minus bank borrowings.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>At the end of the quarter, our current ratio remains strong at 2.0 and our debt to equity was 0.5.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>At this point, I'd like to turn the call over to Grant, who will offer his comments on our results for the quarter and our
future outlook.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Thank you,
Ralph. And thanks to all of you for joining us. In our last several conference calls, we've really focused primarily on our current
business and on the near-term. I'd like to touch on the near-term, but then spend a little time on this call on longer-term opportunities
as well.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>First, some comments on the very near-term. During the first quarter of this year, we continued to experience a rebound in
demand which had begun in the fourth quarter of last year. Demand for AlSiC base plates used in traction applications, namely trains,
which had been depressed for about a year and a half as a result of the economic uncertainty in Europe and the high-speed train
crash in China in 2011 &ndash; that demand has, as of this quarter, now returned to the previous levels and this increase in demand
has been one of the two primary drivers of our return to profitability.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>The demand from our largest customer for AlSiC baseplates used in hybrid vehicles also increased significantly in the first
quarter. This demand is now running at a rate which is much closer to the forecasts which this customer provided to us last year.
Our customer has also had some important design wins for the systems that incorporate our products, and by that I mean, some new
hybrid automobile models will use the sub-systems, which is increasing demand.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>These two markets &ndash; the traction market and the hybrid electric vehicle market &ndash; are our two largest markets currently
and we monitor them closely. We reported over the last several quarters that there was just tremendous uncertainty. We feel like
we have a better visibility into what's going on in these markets and in particular, looking ahead in Q2 and Q3. That outlook shows
demand continuing generally at the level that we saw in the first quarter. There is some potential upside in the near-term, but
we've also learned realistically that there's potential downside as well. But in short, we have dug into the demand, and we have
a higher level of confidence that the demand we've experienced, at a minimum, will continue.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>As you know, we are nearing the end of our four-year contract with the Army Research Laboratory for development of metal matrix
composite armor. ARL &ndash; the Army Research Laboratory &ndash; is very pleased with our work. And we also are very pleased and
very confident that we have superior and low-cost solutions for certain lightweight armor applications--primarily certain vehicle
armor applications. Although we are engaged in discussions with ARL and with an entity called TACOM &ndash; another entity within
the Army for follow-on programs &ndash; realistically, we expect both R&amp;D funding and any possible purchases of armor itself
to be depressed in the very short-term, due to sequestration, due to the ending of the Afghan and Iraq wars, and due to the general
downward pressure on military spending. I'll come back and talk a little bit about this area in the long-term.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>So with that background, the short summary is that demand has returned in traction and that demand is now equalling what our
customers have been forecasting in the hybrid electric vehicle area. Let me switch to talk more about our long-term opportunities.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>In the traction area, according to a recent CNN report, China is projected to spend $300 billion to nearly triple its high-speed
rail system to cover over 15,000 miles by the year 2020. This Chinese rail build-out, today, generates significant demand for all
of our traction customers and will generate increasing demand as this build-out occurs. Obviously, you first build miles or kilometers
of rail and then you build the rail cars themselves, which is what uses our product.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>The very same product that we're selling into this marketplace is finding new applications. These same modules, called IGBT
modules, or motor control modules, are used in wind turbines. They are also increasingly being used in the electrical grid for
stepping up or stepping down current. And this is a new application for a current product. You hear a lot about smart grid upgrades--as
we better understand what's happening here--we see the grid as being a major new market for our IGBT baseplates.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Let me comment on the hybrid vehicle and the electric vehicle market. As we look at the picture globally, some of the statistics
are very encouraging to us. Toyota recently indicated that in Europe, the sales of Toyota and Lexus brand hybrid vehicles were
up 80 percent in the first quarter of 2013 compared to 2012.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>There's a research entity called Navigant Research that has dug into &ndash; is digging into making some projections for electric
vehicle sales in Europe. And even though electric vehicle sales capture significantly less than 1 percent of vehicle sales currently
in Europe, they are projected by the end of the decade to capture about 4 percent of vehicle sales which is an annual growth rate
of about 40 percent. Obviously starting from a tiny base, but for us that's a very impressive growth rate. And we are indeed already
in more than one all-electric vehicle in Europe, in addition to the hybrid vehicles that we're in.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Tesla has become a little bit of a darling in the media recently, with over a 50 percent increase in stock price so far this
year, and a market cap of over $6 billion. Our baseplate is not used in Tesla; we'd like to change that in new models. But nonetheless,
their success and the growth that we've talked about in Toyota and Lexus are strong indicators that there's a very exciting opportunity
for us long-term in hybrid electric and electric vehicles.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>I commented that our specific project with the ARL is coming to a close. One of the reasons that we have been very bullish
about this area is we see a very significant opportunity in vehicle armor itself. But the development we've been doing, we believed
that there would be, and we are now certain, that there will be many important spin-offs. And one area that we're very excited
about &ndash; still very much related to &ndash; primarily, to military applications, is blast protection. In addition to ballistic
protection, blast protection is very important. And we have some very positive results in a number of potential applications, where
our blast protection products could be used.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>We have also been &ndash; we've alluded to this in the last couple of conference calls &ndash; much more active in taking some
of the capabilities coming primarily out of the armor development program, and looking for new market applications in whole new
areas. Let me just cite one example that's very exciting to us. Earlier this month, we participated in an invitation-only show
in Texas, sponsored by several of the major oil and gas companies.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Our personnel at the show indicated that it was the busiest show they had ever attended in terms of inquiries. And, although
we haven't commented on it, we've been active in some product development activities in the oil and gas area for a while. Coming
out of the recent interactions we've had, we are very excited about several product opportunities that have enormous growth potential
for the use of metal matrix composites in the oil and gas area. In particular, in fracking, there are some needs that we are quite
confident we can meet.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>In summary, in the short-term, we've rebounded from a difficult 2012 and our near-term outlook is favorable, and from our perspective,
reasonably stable. Longer term, we are indeed excited and confident that we are participating in markets that are growing significantly.
Cncurrently, we are developing products in new markets where demand can be very significant.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Let me stop there, and we would welcome any questions you have.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in">Operator:</TD><TD>Sure. At this time, I would like to remind everyone, in order to ask a question, please press star one on your telephone keypad.
We'll pause for just a moment to compile the Q&amp;A roster.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Again, that's star one to ask a question or make a comment.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Your first question comes from the line of Fred Milligan.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Fred Milligan:&#9;Good show,
guys.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Thank you,
Fred.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Fred Milligan:&#9;Yes, you
and the Red Sox. Long-term stuff you talked about &ndash; for example the grid, or the wind turbine, or the oil and gas business
&ndash; is it going on currently?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Certainly.
Well, the answer is that it's happening right now and by that, I mean, although I don't have a percentage off the top of my head,
I would say that between about 5 percent of the products that we are currently shipping that we call traction, actually end up
in wind turbines. And that will increase. We talked about the grid this is an area where we are right at the beginning; but there
is almost no technological uncertainty. In other words, the modules are proven in other applications; we expect that demand will
increase quite quickly.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>On the oil and gas side, I mentioned that we have had some products that we've been developing for a while and we're in field
testing in a couple of products that could generate meaningful demand, before the year's out but certainly next year.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>So it's happening quite quickly. The armor &ndash; pardon? Go ahead.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Fred Milligan:&#9;What is
the advantage, in the oil and gas business, to the drillers in using your equipment?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;There are
several different applications, and it varies by application. But let me just say that in hydraulic fracturing &ndash; or fracking
&ndash; this is, of course, a simplistic, top-line view &ndash; you drill, and then you need to inject a liquid under tremendous
pressure. You've got to put equipment in that hole that will ensure that the pressure is applied, and prevent the hydraulic fluid
from coming back out the hole. There are a number of specific components that would be used in the equipment that is installed
in the well itself.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Another example is, in more conventional oil and gas exploration, there's a need to cut pipe. And all of the big service companies
have been looking at using ceramics for those applications. And they just haven't been able to get the ceramics in a form factor
that really meets the needs. We think that we can do that, relying on some of the intellectual property we have coming out of our
armor R&amp;D.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Fred Milligan:&#9;Is anybody
else doing any of this? Any competition?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Well, there's
always competition. But the excitement of some of these oil and gas services companies at discovering us was palpable. I think
we do have some unique IP that could be very compelling.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in">Operator:</TD><TD>And your next question comes from the line of Donald Mercier.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Donald Mercier:&#9;Hi, Grant,
this is Don Mercier, your neighbor.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Hi, Don.
Thanks for joining us.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Donald Mercier:&#9;I'm sitting
here at my desk, and I can see your house from here.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;We have
a great neighbor, by the way. That's you.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Donald Mercier:&#9;On the
grid, we all know the grid is in big trouble. Is there going to be a substantial expansion using these products for the grid &ndash;
I guess, in the switching systems? Is that where we're going to?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Yes. What
we refer to as an IGBT module is a solid state device which can convert current from AC to DC, or vice versa; and it can efficiently
step down, or step up the voltage. This category of semiconductors is fairly recent as it&rsquo;s only been around for, in total,
maybe 20 years. And they've been improved to the point where they can handle very high voltage. So trains, for example, the bullet
train in Japan and the TGV in Europe run at 6,000 volts.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>Anyway, what's happened is that the IC technology itself has reached a point where these modules are increasingly being used
in place of more traditional approaches, because they're simply more efficient, there's less loss, and they're more cost effective.
We see that as a real growth opportunity.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Donald Mercier:&#9;As you
know, a lot of us have been with you for a long time.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Yes, yes.
It's true. It's true.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Donald Mercier:&#9;My concern
&ndash; I don't watch it every day &ndash; but &ndash; (inaudible) competition of why this company has not grown, shall we say,
like some of these other &ndash; what do they call these? Companies have grown &ndash; like Microsoft. How come you haven't done
like Microsoft?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;If I truly
knew the answer to that question, we would've grown like Microsoft.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Donald Mercier:&#9;I wonder
if there's a lot of physical activities in your area &ndash; if having somebody that understands the physics a lot, and being able
to sell and demonstrate, would it help expand the uses and get the word out on the quality of your products, and what's going on?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;We are a
so-called advanced material company. By definition, we will always be more expensive than aluminum, for example, because we combine
aluminum and silicon carbide. But we have very different properties. We are finding that as our own manufacturing costs decline,
new applications open up and we expect that will continue to occur.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Donald Mercier:&#9;One of
the things I see in a lot of products as I deal with, and we see in our consumer products to, is the fact that the salesmen have
to know really what they're doing. And I understand people buying some of the products or doing some of the services that yours
does, and it costs more to do it-- it behooves the person to tell the salesman to explain to them why they should be using your
product in the long run.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;It's very
true. Our product is still &ndash; in every case, it's still what we call a very technical sale. And we have Bachelor level, Masters
level, PhD level personnel very much involved, particularly with a new customer. There's a fairly extensive qualification cycle.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Donald Mercier:&#9;But then
you have to add that with their ability to sell. I think that's why we lose a lot of our good consumer products, because the people
out there on the floors don't understand that, hey, spend another $10 here, you're going to get this and it's going to work on
your system a lot better. And I think that probably happens in a lot of products, and yours being one of them, is I believe that
you have probably a superior product but it's not as cheap as some of the competitors. And people (inaudible) the accountants.
As an example, I've heard the engineers build cars and design them but the accountants are the one that bills them because they're
taking all the parts out of them.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;I think
there's some truth to that.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Donald Mercier:&#9;And I think
that some of the products that you have may be in the same category. People coming up and saying, &quot;Oh, we can buy this other
thing over here; it looks just like it.&quot; And it may look like it, but it doesn't perform like it.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Yes. In
the hybrid vehicle area, we have had much more success in Europe than we have in the U.S. And of course, Europe &ndash; the European
higher-end, higher-reliability, longer-life &ndash; the cars generally are used longer than in the U.S. And so that to a certain
extent, I think that's part of the reason why we've been more successful there. But nonetheless, we are confident and we are working
with a number, not just one, but a number of U.S. tier-one and auto companies in the hybrid area. And we believe we'll be successful
at those companies as well.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Donald Mercier:&#9;As part
of the cost increase &ndash; I tried to get an answer from a mutual friend here in town, that has a business degree from Harvard.
But if you go to an item like yours that costs, let's say $10 more &ndash; and they always add percentages to this so by the time
it gets in the car, it's $2,000 more. And that's why the car doesn't sell, rather than just passing the basic cost through a $10
item interest, and all the carrying cost, and that maybe should go up to $15 but not these ultra-high figures when they use percentages.
I wonder if that may be what the difference is between the United States and Europe also &ndash; how they mark their pricing.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;It could
be. It could be.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Donald Mercier:&#9;Because
we all go down the street, and they talk &ndash; oh, you buy this hanger here and steel (inaudible) brass at $6 which you and I
know it's a joke. For several reason &ndash; the brass is easier to machine and the difference in cost in the actual base product
is not those expanses (inaudible); in some areas, if they're trying to keep costs in line, I would think they would try to get
away from those percentages. But I don't know if you have any control over that or not, in your selling some of these products
through to these end users.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Obviously
varies by product. Any other questions?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in">Operator:</TD><TD>Your next question comes from the line of David Birnie.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">David Birnie:&#9;Hey, Grant,
Ralph.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Hi.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">David Birnie:&#9;How you doing?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Doing well.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">David Birnie:&#9;First of
all, I'd just like to say, very encouraging numbers today. So I hope we can build on that in the next couple years or whatever.
Looks good. The other thing &ndash; question I had was in the last conference call, Grant, you talked about some in-roads that
you were making in the Japanese market. And I just &ndash; can you talk about that a little bit more?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Sure. The
clearest answer is we continue to make in-roads. And the Japanese are extremely thorough and methodical. Our VP of Marketing was
there just two weeks ago, reviewing the progress in qualification. We have a lot of activity there. We have fairly small sales
at the moment but we are projecting that it will increase.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">David Birnie:&#9;Can you talk
any about what markets you're looking at there?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Yes, the
primary market we're looking at is traction. And the major motor control module manufacturers, about 40 percent of them, are in
Europe and about 40 percent of them are in Japan. That is because that's where the major train markets have been historically.
And the Europeans tend to be the technology leaders; and the Japanese tend to be a little more conservative. But we're making in-roads
there.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">David Birnie:&#9;OK. And the
last &ndash; just very briefly, can you just talk about the European market in general, and what kind of feedback you're getting
from customers in that area right now?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Sure, two
comments: One is that everyone is saying that none of the crises have gone away but they have all abated. As we talk to our customers,
they say Greece isn't going to drop out of the Eurozone tomorrow. Customers still say it's a possibility, but there seems to be
a renewed view that the Europeans will work through their problems without major changes to the Eurozone. Now, who knows if that's
correct or not. But from our perspective, there's a degree of stability there.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>And then, what we see is that some companies are doing very well, and some companies are doing quite poorly. Even though the
demand that we have experienced in the traction area, and in the hybrid vehicle area has obviously rebounded in total, as we look
at our European customers, some are doing much better than others. So there's still variability in the demand.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">David Birnie:&#9;OK, thank
you.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Very good.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in">Operator:</TD><TD>Your next question is from Michael Epstein.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Michael Epstein:&#9;Nice quarter,
guys. I just want to know your cash balance &ndash; how much you're spending on marketing? And do we have enough to finance increased
receivables when hopefully the orders come about?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;Michael,
this is Ralph. Good afternoon.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Michael Epstein:&#9;Hi, Ralph.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;As you noticed,
in the past quarter, we went up over a million in receivables; and we only added $100,000, if you will, used in cash. So we have,
outstanding at the end of the quarter, $600,000 with the bank. We have a bank agreement with Sovereign, which actually was just
renewed this week for another year. It gives us ability to borrow up to $2 million if we need to.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>In the coming quarter, I think if anything, we'll be cash positive &ndash; in the current quarter. So I think with the ability
to grow with the bank &ndash; that there shouldn't be any impediment this year for our growth in marketing and receivables and
we'll be able to finance that. And if it grows a lot more than that, frankly, that's going to be easy to finance down the road
a well.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Michael Epstein:&#9;That's
very encouraging. Grant, I guess, how much are we spending in marketing? I hear you're very &ndash; the enthusiasm of your results
coming across. But I'm just curious &ndash; you think we're doing the right amount? And you think there's other areas &ndash; potential
markets that we can enter?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;We are increasing
our expenditures in sales and marketing. Ralph commented that our SG&amp;A expenses were up 11 percent. That's almost all sales
expense, rather than general administrative expense. We have, for example, &ndash; for the first time &ndash; we've hired a consultant
who's has some expertise in a particular area that we wanted to get up to speed on fairly quickly.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>We are much more active in sales and marketing. Just in the last month, we've had teams at trade shows in London, in Houston,
in &ndash; we've got a team right now in Taiwan. In fact, as we speak, we've got some folks at a major trade show in Long Beach.
And we've got two &ndash; our VP of Sales and Quality Manager are in Taiwan and I'm heading on Saturday to Germany. We really do
see opportunity for increased sales in the products that we're currently making. And we're stepping up our activity there. And
we are concurrently stepping up our activity in exploring some of these new areas.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;And, Michael,
just a couple more points on that. One of the reasons I was brought on board is so that Grant could get out of some of the administrative
and financial responsibilities he had, and spend time more on strategy and with customers. And that's certainly happening. And
in addition to that, this year, we've budgeted a 50 percent increase in our travel and entertainment, specifically to spend a lot
more time with current and potential customers.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Michael Epstein:&#9;Just &ndash;
is there any chance of getting some coverage in the media? Any chance of getting coverage in the financial publications, or something,
that we can use for PR to our clients?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;We are very
cognizant of the importance of getting our name out there. In large part, the more turnover we can have in the stock &ndash; all
the stockholders benefit, and we benefit with that liquidity. So we are thinking strategically about how to do that in the best
sort of way. And one of the best ways is to start with performance. And this is a beginning in that direction with our profitability
this quarter.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>But we're definitely thinking about that, and developing ways. I would say next year, Grant and I would be doing investor presentations.
We're upticking our activity on our website with more blogs as we see that also as helpful both from a customer standpoint and
an investor standpoint. So we resonate with what you say. And you can expect more activity and us being more aggressive in that
area in the coming quarters.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Michael Epstein:&#9;Nice quarter,
thank you. Looking forward to your next call.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Thanks very
much.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Michael Epstein:&#9;Thank
you.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in">Operator:</TD><TD>Your next question comes from the line of Dan Capozzo.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Dan Capozzo:&#9;Hey, good
afternoon, guys.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Hi, Dan.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Dan Capozzo:&#9;Congratulations
on a nice quarter.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Thank you.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Dan Capozzo:&#9;Just to your
point, Ralph, it may also help to put out a press release on maybe a win, or talk about a product or an application; that always
helps.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;Absolutely.
Good suggestion.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Dan Capozzo:&#9;I wanted to
ask a question about the oil and gas opportunity, Grant. How would you characterize the size of the components that you'd potentially
be selling into that market, as it compares to the size of the components you're selling now?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Well, I'm
deliberately not revealing too much information in order to fully abide by non-disclosure agreements. But we see more than one
application that would be in a form factor, which is very similar to what we're currently making. We're talking about items that
are three or four inches either in diameter or in circumference. And there's also another application where you're looking at something
that would be four or five feet. And as you may know, we operate out of two facilities. Our main facility here in Norton is where
our electronics manufacturing occurs and we have another facility nearby in Attleboro where the layout allows for the production
of much larger pieces that individual operators can't lift so that they need to be moved around by larger handling equipment.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>We think that the opportunities we're looking at &ndash; most will be similar in size to what we're currently making but some
will be much, much larger.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Dan Capozzo:&#9;OK, great.
Thank you.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in">Operator:</TD><TD>Your next question comes from the line of Clarence McGowan.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Clarence McGowan:&#9;Great
long-term outlook, fellas; just terrific. My question is (inaudible) what I experienced with a one-product company, as the top
line grows, the margins can grow much faster than any other type company, as the batches become bigger. Do you have any realistic
goals of where you think those margins could go?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;Well, this
is a matter of timeframe. But if you think over a few years, and of course this depends a lot on (mix) and applications, but I
certainly think it can be north of 30.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Clarence McGowan:&#9;Is that
30 &ndash; three-oh? I'm sorry.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;Three-oh;
north of 30 percent.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Clarence McGowan:&#9;Thank
you. Thank you. (Inaudible)</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Thank you.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in">Operator:</TD><TD>Your next question comes from the line of Wolf Scheck.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Wolf Scheck:&#9;Hi, good afternoon,
gentlemen.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Hi, Wolf.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Wolf Scheck:&#9;Nice to speak
with both of you, and congratulations on a very good quarter. And my compliments all to you, because for a very small company,
which you are still, to have as long of a conference call as you've just gone through here, and have covered so much territory,
it's quite an undertaking &ndash; quite profound, and very positive going forward for process.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>With that in mind, I wanted to get back to something that we've spoken about often in the past, which was brought up toward
the end of this call, is to find a way to get the story before people, and stop penalizing the company. Right now, stock quality
trades &ndash; there's no bidding offer; you are penalizing yourselves, and us, the company &ndash; the entire company &ndash;
and us as shareholders. And just comparing to what's going on on the street today with many companies, it looks like you're on
the cusp now, finally, of getting to a higher level of growth. There are many companies that are selling at a much higher valuation
in the marketplace with nothing.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>So therefore, you're doing yourselves a disservice by not retaining somebody to assist you in that regard. And rather than
to put it off until next year, Ralph, I think that you should really think about bringing in someone who can help in investor relations;
get the story around before many more eyeballs and assist you in getting &ndash; providing a stock that will give you a currency
that you can be able to do things going forward, without having to perhaps restrain yourself from time to time. So, you have any
thoughts on that, about maybe accelerating your (floor) process in that regard?</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;Sure, let
me comment on that, Wolf. As we've talked about in the past, this past year, we felt we really made sense under the circumstances
of an ugly environment, to hang in there and make sure we made internal improvements, and prepared ourselves for the growth phase.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Wolf Scheck:&#9;That's correct;
that's fine.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;And it probably
wasn't the best time to spend a lot on investor relations in light of our performance, frankly.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Wolf Scheck:&#9;That's a good
comment; and it was a good call at that time. That's correct.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;Now, going
forward, again, as you and I have discussed, a reason to be a public company is something that we have not taken advantage of.
And we plan to take advantage of it. And you need to get lots of interest on the shareholder part &ndash; I absolutely agree with
that. And I can assure you in the coming months, we're going to spend more time than we have recently developing a strategy to
implement that and make sure we get a fair valuation. We don't want to get too far ahead of ourselves, but I agree with you that
we need to get the stock turnover for the benefit of all the shareholders; and the company can do a lot when it has that currency.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Wolf Scheck:&#9;Just based
on this call today, it just seems that you're on a different tangent and the world seems to be settling into more of a growth mode.
You can see what's going on around the world, and even the beleaguered European continent. They are realizing that they may have
to do more &ndash; less austerity and more incentives to get business going. So that's become sort of a worldwide phenomenon. And
so times are much different now than they were a year ago, or a couple year ago. And right now, I'm looking at my screen &ndash;
I'm in my office here &ndash; there's CPSH is $1, no bid, no offer, and no volume.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in"></TD><TD>And so it's a big disservice, if you &ndash; based on what has taken place in the first quarter, and what has taken place on
this conference call suggests very strongly that you're now ready for the next level of growth. And that should be &ndash; you
should do that with dispatch, and not tarry about it, and try to get this thing going. So I hope you do think about that further,
and take some action. Because it would be very beneficial to everybody and also will help you in business, if your people see your
stock trade &ndash; your business &ndash; your clients &ndash; that helps you in closing deals.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;Absolutely
agree directionally with everything you're saying, and -</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Wolf Scheck:&#9;OK, well good
luck. And keep up the good work, guys. Have a good trip to Germany, Grant. Bye-bye.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Thank you.
Thanks very much.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in">Operator:</TD><TD>Your next question comes from the line of Irwin Gomberg.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Irwin Gomberg:&#9;(Good) afternoon.
The oil and gas industry is just a huge, huge market. Could this double the size of the company in a few years, just from that
market?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;It could,
it could, it absolutely could.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Irwin Gomberg:&#9;Right. And
these products are currently in test phase, now?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Yes, yes.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Irwin Gomberg:&#9;Are they
actually being used, or they're still all tests?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;They're
being &ndash; well, at least one is being field tested as we speak.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Ralph Norwood:&#9;You know,
Irwin, these are uniquely designed by a customer to meet a need, as opposed to being products off the shelf. So the fact that we
were in Houston recently exposed our potential to a number of companies who have problems that they think maybe we can solve. And
that will evolve over the next number of months.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Irwin Gomberg:&#9;There was
a big article about producing some upgraded tanks, and the government doesn't want them, but Congress does. It looks like that's
going forward. Is there any chance that your armor may be used on some of those re-dos?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Yes, we've
been following that debate very closely, because that is one of the specific applications that ARL focused us on, in the current
contract. Heavy vehicle armor is an area where we think we have a real advantage. We are in discussions with everyone you've talked
about. And that would be an area that we expect over time for some demand.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Irwin Gomberg:&#9;But the
articles indicated that that project will go forward--they are going to keep those lines open, and upgrade those tanks.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Right, right.
You're correct. And how many, and exactly when, and that kind of thing is very uncertain, but &hellip;</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Irwin Gomberg:&#9;Well, they
gave actually the production numbers.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Right, right.
Although it's not yet law. But anyway, yes &ndash; we're closely tracking that.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Irwin Gomberg:&#9;All right.
So if that tank's produced, will you be added? If the upgrade goes through?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;As you know,
the contracts that have been let have been to do the design and engineering for the upgrade. They're upgrading both electronics,
and they're upgrading armor. The decisions haven't been made. We are in the mix in terms of what's being evaluated.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Irwin Gomberg:&#9;I see. The
new hybrid wins &ndash; can you tell us any of the models those are going to be on?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;One of the
new design wins is a second Mercedes hybrid.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Irwin Gomberg:&#9;I see; so,
high-end?</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;This one
what I would call a mid-range &ndash; our first product in Mercedes was a very high-end and this is a mid-range car. So it's a
higher volume.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Irwin Gomberg:&#9;Right, very
good. And then is that being produced &hellip;</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Again &ndash;
you can buy it now in Europe.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Irwin Gomberg:&#9;I see. OK,
well, thanks a lot. And keep up the good work.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;Thank you.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in">Operator:</TD><TD>And there are no further questions at this time.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin: 0 0 0 1.25in; text-indent: -1.25in">Grant Bennett:&#9;We thank
you all for joining us, and thank you for your interest. And we look forward to speaking with you in three months. Thanks again,
and good night.</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 12pt/18pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 1.25in">Operator:</TD><TD>Thank you. This concludes today's conference call. You may now disconnect.</TD></TR></TABLE>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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