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What changed in ESPEY MFG & ELECTRONICS CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ESPEY MFG & ELECTRONICS CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+80 added−88 removedSource: 10-K (2023-09-21) vs 10-K (2022-09-22)

Top changes in ESPEY MFG & ELECTRONICS CORP's 2023 10-K

80 paragraphs added · 88 removed · 52 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeResearch and Development Some of the Company's engineers and technicians spend varying amounts of time on either the development of new products or improvements to existing products. A majority of the resulting costs we incur relate to research that is required to support a request for quotation from a customer product-specific need usually associated with stringent size and weight requirements.
Biggest changeA majority of the resulting costs we incur relate to research that is required to support a request for quotation from a customer product-specific need usually associated with stringent size and weight requirements. We do very little pure research as our business primarily is driven by customer product needs and custom product development with some customer funding.
Government Regulations Compliance with federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, did not in fiscal year 2022, and the Company believes will not in fiscal year 2023, have a material effect upon the capital expenditures, net income, or competitive position of the Company.
Government Regulations Compliance with federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, did not in fiscal year 2023, and the Company believes will not in fiscal year 2024, have a material effect upon the capital expenditures, net income, or competitive position of the Company.
The estimate of the June 30, 2022 backlog to be shipped in fiscal year 2023 is subject to future events, which may cause the amount of the backlog actually shipped to differ from such estimate. Marketing and Competition The Company markets its products primarily through its own direct sales organization and through outside sales representatives.
The estimate of the June 30, 2023 backlog to be shipped in fiscal year 2024 is subject to future events, which may cause the amount of the backlog actually shipped to differ from such estimate. Marketing and Competition The Company markets its products primarily through its own direct sales organization and through outside sales representatives.
From time to time the Company must identify parts to replace parts which are no longer produced. 2 Sales Backlog The total backlog at June 30, 2022 was approximately $76.8 million compared to approximately $65.6 million at June 30, 2021. The Company’s total backlog represents the estimated remaining sales value of work to be performed under firm contracts.
From time to time the Company must identify parts to replace parts which are no longer produced. 2 Sales Backlog The total backlog at June 30, 2023 was approximately $83.6 million compared to approximately $76.8 million at June 30, 2022. The Company’s total backlog represents the estimated remaining sales value of work to be performed under firm contracts.
The Company evaluates the impact of any scope modifications and will adjust reserves as information is known and estimable. It is presently anticipated that a minimum of $35 million of orders comprising the June 30, 2022 backlog will be filled during the fiscal year ending June 30, 2023.
The Company evaluates the impact of any scope modifications and will adjust reserves as information is known and estimable. It is presently anticipated that a minimum of $39.5 million of orders comprising the June 30, 2023 backlog will be filled during the fiscal year ending June 30, 2024.
The minimum of $35 million does not include any shipments which may be made against orders received subsequently to the fiscal year ending June 30, 2022.
The minimum of $39.5 million does not include any shipments which may be made against orders received subsequently to the fiscal year ending June 30, 2023.
These shortages have and will likely continue to impact our ability to support our customer’s schedule demands, as lead times for these components have, in some instances, increased from readily available to waiting times of nearly a year or more.
These shortages will likely continue to impact our ability to support our customer’s schedule demands, as lead times for these components have, in some instances, increased from readily available to waiting times of nearly a year or more. We continue to work with our customers to mitigate any adverse impact upon our ability to service their requirements.
Espey’s services include design and development to specification, build to print, design services, design studies, environmental testing services, metal fabrication, painting services, and development of automatic testing equipment. Espey is vertically integrated, meaning that the Company produces individual components (including inductors), populates printed circuit boards, fabricates metalwork, paints, wires, qualifies, and fully tests items, mechanically, electrically and environmentally, in house.
Espey is vertically integrated, meaning that the Company produces individual components (including inductors), populates printed circuit boards, fabricates metalwork, paints, wires, qualifies, and fully tests items, mechanically, electrically and environmentally, in house. Portions of the manufacturing and testing process are subcontracted to vendors from time to time.
The unfunded backlog at June 30, 2021 was approximately $2.1 million, comprised of the same multi-year orders from a single customer. Contracts are subject to modification, change or cancellation, and the Company accounts for these changes as they are probable and estimable.
The unfunded backlog at June 30, 2022 was approximately $0.4 million and represented two firm multi-year orders from a single customer for which funding had not yet been appropriated by Congress and/or funded by our customer. Contracts are subject to modification, change or cancellation, and the Company accounts for these changes as they are probable and estimable.
Sales to four domestic customers accounted for 16%, 15%, 14% and 14%, respectively, of total sales in 2021. This concentration level presents significant risk. A loss of one of these customers or programs related to these customers could significantly impact the financial performance of the Company.
This concentration level presents significant risk. A loss of one of these customers or programs related to these customers could significantly impact the financial performance of the Company. Historically, a small number of customers have accounted for a large percentage of the Company’s total sales in any given fiscal year.
For the past several years, the growth and continuing demand in the power electronics industry across multiple manufacturing sectors has created volatility and unpredictability in the availability of certain electronic components and, in some cases, creates industry shortages.
The growth and continuing demand in the power electronics industry across multiple manufacturing sectors, coupled with resulting supply chain disruptions from the effects of global events, has created volatility and unpredictability in the availability of certain electronic components and, in some cases, continues to create industry shortages.
The President of the United States continued the imposition of tariffs on steel and aluminum imports from various countries in 2022.
These issues, if they persist, may cause us to miss projected delivery dates. The President of the United States continued the imposition of tariffs on steel and aluminum imports from various countries in 2022.
Portions of the manufacturing and testing process are subcontracted to vendors from time to time. In fiscal years ended June 30, 2022 and 2021, the Company's total sales were $32,104,774 and $ 27,734,598, respectively. Sales to four domestic customers, accounted for 17%, 16%, 14% and 11%, respectively, of total sales in 2022.
In fiscal years ended June 30, 2023 and 2022, the Company's total sales were $35,592,323 and $32,104,774, respectively. Sales to five domestic customers accounted for 23%, 18%, 16%, 13% and 11%, respectively, of total sales in 2023. Sales to four domestic customers accounted for 17%, 16%, 14% and 11%, respectively, of total sales in 2022.
The funded portion of this backlog at June 30, 2022 is approximately $76.4 million. This includes items that have been authorized and appropriated by Congress and/or funded by the customer.
The funded portion of this backlog at June 30, 2023 was approximately $83.5 million. This includes items that have been authorized and appropriated by Congress and/or funded by the customer. The unfunded backlog at June 30, 2023 was approximately $32 thousand and represents a small amount under one firm multi-year order from a single customer.
Approximately 35% of the employees are represented by the International Brotherhood of Electrical Workers. The current collective bargaining agreement expires on June 30, 2025. Relations with the Union are considered good.
The Company's expenditures for research and development were approximately $65,427 and $32,362 in fiscal year 2023 and 2022, respectively. Employees The Company had 153 employees as of August 31, 2023 . Approximately 35% of the employees are represented by the International Brotherhood of Electrical Workers. The current collective bargaining agreement expires on June 30, 2025.
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Historically, a small number of customers have accounted for a large percentage of the Company’s total sales in any given fiscal year. Export sales in fiscal years 2022 and 2021 were approximately $1,644,000 and $2,019,000, respectively. The decrease is primarily due to the decrease in power supply sales offset, in part, by an increase in build to print shipments.
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Espey’s services include design and development to specification, build to specifications provided by the customer “build to print”, design services, design studies, environmental testing services, metal fabrication, painting services, and development of automatic testing equipment.
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In addition, we continue to incur delays in material deliveries from some company suppliers due to effects from global events, including the COVID-19 pandemic, resulting in supply chain disruptions. We continue to work with our customers to mitigate any adverse impact upon our ability to service their requirements.
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In some instances, our sales may include shipments to more than one business unit of a particular customer. Export sales in fiscal years 2023 and 2022 were approximately $549,510 and $1,644,000, respectively. The decrease is primarily due to the decrease in power supply sales resulting from the timing of contractual delivery schedules.
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The unfunded backlog at June 30, 2022 is approximately $0.4 million and represents two multi-year orders from a single customer for which funding has not yet been appropriated by Congress or funded by our customer.
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Our sales strategy includes identifying and obtaining multiple new engineering design and development contracts in any given fiscal year to ensure optimal utilization of our engineering personnel in addition to securing follow-on production awards for product previously designed in-house, as well as, build to print opportunities.
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We continue to place an emphasis on securing “build to print” opportunities, which allows production work to go directly to the manufacturing floor, limiting the impact on our engineering staff. This allows us to keep our manufacturing team busy while the products being developed in-house transition to production.
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The Company targets those programs and opportunities which will generate future longer-term production tails in ensuing years. From time to time, we accept work associated with engineering design studies.
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We do very little pure research as our business primarily is driven by customer product needs and custom product development with some customer funding. The Company's expenditures for research and development were approximately $32,362 and $40,912 in fiscal year 2022 and 2021, respectively. 3 Employees The Company had 150 employees as of August 31, 2022 .
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While unlikely to result in near-term follow-on orders, this positions us competitively on future awards and expands our engineering team’s skillset. 3 Research and Development Some of the Company's engineers and technicians spend varying amounts of time on either the development of new products or improvements to existing products.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings We are party to various litigation matters and claims arising from time to time in the ordinary course of business. There are no such pending matters which we believe will have a material adverse effect on our business, financial condition, results of operations or cash flows.
Biggest changeItem 3. Legal Proceedings We are party to various litigation matters and claims arising from time to time in the ordinary course of business.
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While the results of such matters cannot be predicted with certainty, we believe that the final outcome of such matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows. Currently, there are no matters pending.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDuring fiscal year 2022, the Company did not sell any of its common stock to the Trustees of The Espey Mfg. & Electronics Corp. Employee Stock Ownership Plan Trust (the “ESOP”). The Company did not make any open market purchases of equity securities in the fiscal year 2022 fourth quarter.
Biggest changeThere is no assurance that the Board of Directors will maintain the amount of the regular cash dividend during any future years. During fiscal year 2023, the Company did not sell any of its common stock to the Trustees of The Espey Mfg. & Electronics Corp. Employee Stock Ownership Plan Trust (the “ESOP”).
The Company paid no cash dividends for the fiscal year ended June 30, 2022 and paid regular cash dividends on common stock of $0.50 per share for the fiscal year ended June 30, 2021. Our Board of Directors assesses the Company’s dividend policy periodically.
The Company paid regular cash dividends on common stock of $0.20 per share for the fiscal year ended June 30, 2023 and paid no cash dividends for the fiscal year ended June 30, 2022. Our Board of Directors assesses the Company’s dividend policy periodically.
Included in this number are shares held in "nominee" or "street" name and, therefore, the number of beneficial owners of the common stock is believed to be substantially in excess of the foregoing number. Dividends Effective March 9, 2021, the Company suspended the payment of regular quarterly dividends.
Included in this number are shares held in "nominee" or "street" name and, therefore, the number of beneficial owners of the common stock is believed to be substantially in excess of the foregoing number. Dividends Effective March 13, 2023, the Company reinstated payment of a quarterly dividend. The Company had suspended dividend payments effective March 9, 2021.
Market for the Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities Price Range of Common Stock The table below shows the range of high and low prices for the Company's common stock on the NYSE American (symbol "ESP"), the principal market for trading in the common stock, for each quarterly period for the last two fiscal years ended June 30: 2022 High Low First Quarter $ 15.40 $ 13.72 Second Quarter 16.57 12.76 Third Quarter 14.34 12.92 Fourth Quarter 15.79 12.39 2021 High Low First Quarter $ 20.41 $ 15.97 Second Quarter 23.00 17.48 Third Quarter 20.80 14.49 Fourth Quarter 16.47 14.50 Holders The approximate number of holders of record of the common stock was 58 on September 20, 2022 according to records of the Company's transfer agent.
Market for the Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities Price Range of Common Stock The table below shows the range of high and low prices for the Company's common stock on the NYSE American (symbol "ESP"), the principal market for trading in the common stock, for each quarterly period for the last two fiscal years ended June 30: 2023 High Low First Quarter $ 15.54 $ 13.05 Second Quarter 14.49 13.02 Third Quarter 20.59 14.17 Fourth Quarter 22.96 15.81 2022 High Low First Quarter $ 15.40 $ 13.72 Second Quarter 16.57 12.76 Third Quarter 14.34 12.92 Fourth Quarter 15.79 12.39 Holders The approximate number of holders of record of the common stock was 58 on September 18, 2023 according to records of the Company's transfer agent.
Equity Compensation Plan Information Number of securities to Weighted-average Number of Securities remaining be issued upon exercise exercise price of available for future issuance under of outstanding options, outstanding options, equity compensation plan (excluding Plan Category warrants and rights warrants and rights securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by 246,273 $ 20.89 204,477 security holders Equity compensation plans not approved by security holders — — Total 246,273 204,477 6
Equity Compensation Plan Information Number of securities to Weighted-average Number of Securities remaining be issued upon exercise exercise price of available for future issuance under of outstanding options, outstanding options, equity compensation plan (excluding Plan Category warrants and rights warrants and rights securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders 296,331 $ 19.15 154,169 Equity compensation plans not approved by security holders — — Total 296,331 154,169 6
The following table sets forth information as of June 30, 2022 with respect to compensation plans under which equity securities of the Company may be issued.
The Company did not make any open market purchases of equity securities in the fiscal year 2023 fourth quarter. The following table sets forth information as of June 30, 2023 with respect to compensation plans under which equity securities of the Company may be issued.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe increase in net income in the twelve months ended June 30, 2022 compared to the same period in 2021 is primarily attributable to higher sales, a higher gross profit margin percentage, a slight increase in other income offset, in part, by an increase in selling, general, and administrative expenses and an increase in tax expense, all discussed above. 9 Liquidity and Capital Resources The Company's working capital is an appropriate indicator of the liquidity of its business, and during the past two fiscal years, the Company, when possible, has funded all of its operations with cash flows resulting from operating activities and when necessary from its existing cash and investments.
Biggest changeThe increase in net income in the twelve months ended June 30, 2023 compared to the same period in 2022 is primarily attributable to higher sales, a higher gross profit margin percentage, an increase in other income, and a decrease in selling, general, and administrative expenses, offset in part, by an increase in tax expense, all discussed above.
Given the nature of our business, we believe our existing sales order backlog is fairly diversified in terms of customers and the category of products on order. Management, along with the Board of Directors, continues to evaluate the need and use of the Company’s working capital.
Given the nature of our business, we believe our existing sales order backlog is fairly diversified in terms of customers and the category of products on order. 7 Management, along with the Board of Directors, continues to evaluate the need and use of the Company’s working capital.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Business Outlook Management expects revenues in fiscal year 2023 to be higher than revenues during fiscal year 2022 and expects net income per share to be higher in fiscal 2023 as compared to the net income per share realized during fiscal year 2022.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Business Outlook Management expects revenues in fiscal year 2024 to be higher than revenues during fiscal year 2023 and expects net income per share to be higher in fiscal 2024 as compared to the net income per share realized during fiscal year 2023.
The Company may at times be required to repurchase shares at the ESOP participants’ request at the fair market value. During the twelve months ended June 30, 2022 and 2021, the Company did not repurchase any shares held by the ESOP.
The Company may at times be required to repurchase shares at the ESOP participants’ request at the fair market value. During the twelve months ended June 30, 2023 and 2022, the Company did not repurchase any shares held by the ESOP.
Under existing authorizations from the Company's Board of Directors, as of June 30, 2022, management is authorized to purchase an additional $783,460 of Company stock.
Under existing authorizations from the Company's Board of Directors, as of June 30, 2023, management is authorized to purchase an additional $783,460 of Company stock.
Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at June 30, 2022 and 2021. The existing line of credit was extended and expires February 28, 2023. The Company's working capital as of June 30, 2022 and 2021 was approximately $29.5 million and $27.5 million, respectively.
Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at June 30, 2023 and 2022. The existing line of credit was extended and expires February 28, 2024. The Company's working capital as of June 30, 2023 and 2022 was approximately $33.2 million and $29.5 million, respectively.
The Company currently believes that the cash flow generated from operations and when necessary, from cash and cash equivalents will be sufficient to meet its long-term funding requirements for the foreseeable future. During the fiscal years ended June 30, 2022 and 2021, the Company expended $303,561 and $43,554, respectively, for plant improvements and new equipment.
The Company currently believes that the cash flow generated from operations and when necessary, from cash and cash equivalents, will be sufficient to meet its long-term funding requirements for the foreseeable future. During the fiscal years ended June 30, 2023 and 2022, the Company expended $512,016 and $303,561, respectively, for plant improvements and new equipment.
Management along with the Mergers and Acquisitions Committee of the Board of Directors will examine opportunities involving acquisitions or other strategic options, including buying certain products or product lines, provided that such opportunities demonstrate synergies with the Company’s existing product base and accretion to earnings.
Management along with the Legal Affairs, Strategic Planning, and M&A Committee of the Board of Directors will examine opportunities involving acquisitions or other strategic options, including buying certain products or product lines, provided that such opportunities demonstrate synergies with the Company’s existing product base and accretion to earnings.
As market factors including competition and product costs impact gross profit margins, management will continue to evaluate our sales strategy, employment levels, and facility costs. During fiscal year 2022 the Company received $43.2 million in new orders. Our total backlog at June 30, 2022 was approximately $76.8 million, as compared to $65.6 million at June 30, 2021.
As market factors including competition and product costs impact gross profit margins, management will continue to evaluate our sales strategy, employment levels, and facility costs. During fiscal year 2023, the Company received approximately $42.4 million in new orders. Our total backlog at June 30, 2023 was approximately $83.6 million, as compared to approximately $76.8 million at June 30, 2022.
Gross profit as a percentage of sales was 17% and 12.1%, for the same periods, respectively. The primary factors in determining the change in gross profit and net income (loss) are overall sales levels and product mix.
Gross profit as a percentage of sales was 22.6% and 17.0%, for the same periods, respectively. The primary factors in determining the change in gross profit and net income are overall sales levels and product mix.
Interest income is a function of the level of investments and investment strategies that generally tend to be conservative. The Company’s effective tax rate was a provision of 20.6% in the fiscal year 2022 and a benefit of 50.7% in fiscal year 2021.
Interest income is a function of the level of investments and investment strategies that generally tend to be conservative. 8 The Company’s effective tax rate was approximately 21.9% in the fiscal year 2023 and approximately 20.6% in fiscal year 2022.
The table below presents the summary of cash flow information for the fiscal years indicated: 2022 2021 Net cash provided by operating activities $ 2,219,687 $ 594,996 Net cash (used in) provided by investing activities (918,339 ) 2,006,910 Net cash used in financing activities — (1,201,316 ) Net cash provided by operating activities fluctuates between periods primarily as a result of differences in sales and net income, provision for income taxes, the timing of the collection of accounts receivable, purchase of inventory, and payment of accounts payable.
The table below presents the summary of cash flow information for the fiscal years indicated: 2023 2022 Net cash provided by operating activities $ 3,899,870 $ 2,219,687 Net cash used in investing activities (8,765,907 ) (918,339 ) Net cash used in financing activities (489,268 ) — Net cash provided by operating activities fluctuates between periods primarily as a result of differences in sales and net income, provision for income taxes, the timing of the collection of accounts receivable, purchase of inventory, and payment of accounts payable.
The outstanding quotations encompass various new and previously manufactured power supplies, transformers, and subassemblies. However, there can be no assurance that the Company will acquire any of the anticipated orders described above, many of which are subject to allocations of the United States defense spending and factors affecting the defense industry.
However, there can be no assurance that the Company will acquire any of the anticipated orders described above, many of which are subject to allocations of the United States defense spending and factors affecting the defense industry.
The Company generated net income for fiscal year 2022 of $1,265,127 or $0.52 per share, basic and diluted, compared to net loss of $(181,543) or $(0.08) per share, basic and diluted, for fiscal year 2021.
The Company generated net income for fiscal year 2023 of $3,677,131 or $1.50 and $1.49 per share, basic and diluted, compared to net income of $1,265,127 or $0.52 per share, basic and diluted, for fiscal year 2022.
The effective tax rate in fiscal 2022 and 2021 varies from the statutory tax rate mainly due to the benefit derived from the ESOP dividends paid on allocated shares.
The effective tax rate in fiscal 2022 was less than the statutory tax rate mainly from the benefit derived from the ESOP dividends paid on allocated shares prior to the dividend suspension.
Capital expenditures, primarily for machinery and equipment and for a building roof restoration project not completed in fiscal 2022 due to the backorder of materials, are expected to approximate $500,000 for fiscal year 2023. A majority of these expenditures will be made to stay competitive in the marketplace and to meet the needs of current contracts.
Capital expenditures, primarily for machinery and equipment and facility upgrades are not expected to exceed $300,000 for fiscal year 2024. A majority of these expenditures will be made to stay competitive in the marketplace and to meet the needs of current contracts.
The improvement in gross profit in the twelve months ended June 30, 2022 as compared to the same period in 2021 resulted from an increase in sales and overall product mix comprising shipments.
The improvement in gross profit for the twelve months ended June 30, 2023 when compared to the same period last year resulted from an increase in sales and a higher overall gross profit percentage comprising those shipments which was influenced by product mix.
Currently, we expect a minimum of $35 million of orders comprising the June 30, 2022 backlog will be filled during the fiscal year ending June 30, 2023.
Currently, we expect a minimum of $39.5 million of orders comprising the June 30, 2023 backlog will be filled during the fiscal year ending June 30, 2024. This $39.5 million will be supplemented by shipments which may be made against orders received during the 2024 fiscal year.
The increase in cash provided by operating activities compared to the prior year primarily relates to the increase in net income, the decrease in inventory purchases offset, in part, by a decrease in trade accounts receivables collected and the decrease in cash collected from customers as cash advances.
The increase in cash provided by operating activities compared to the prior year primarily relates to the increase in net income and an increase in cash collected from customer advances, offset, in part, by an increase in prepaid expenses and other current assets, an increase in inventories, and a decrease in other accrued expenses.
Cost overruns which may arise from technical and schedule delays and increased raw material costs could negatively impact the timing of the conversion of backlog into sales, or the profitability of such sales. We continue to experience technical and schedule delays with certain major development programs.
Cost overruns which may arise from technical and schedule delays and increased raw material costs could negatively impact the timing of the conversion of backlog into sales, or the profitability of such sales. Engineering programs in both the funded and unfunded portions of the current backlog aggregate $8.4 million.
Expectations are that the working capital will be required to fund orders, general operations of the business and dividend payments when applicable.
The Company is expected to have an initial cash outlay to satisfy income tax obligations arising from the value of the award. Expectations are that the working capital will be required to fund orders, general operations of the business and dividend payments when applicable.
The decrease in the effective tax rate between periods is the direct result of higher income before taxes in the current fiscal year and a decreased benefit derived from fewer ESOP dividends paid on allocated shares.
The effective tax rate in the twelve month period ended June 30, 2023 was higher than the prior year as the direct result of a higher income before taxes in the current fiscal year offset, in part, by a decreased benefit derived from ESOP dividends paid on allocated shares.
Other income for the fiscal year ended June 30, 2022 and 2021 was $63,914 and $57,942, respectively. The increase is primarily due to an increase in other income primarily composed of income from scrap sales, offset, in part, by a decrease in interest income.
Other income for the fiscal year ended June 30, 2023 and 2022 was $406,453 and $63,914, respectively. The increase is primarily due to the increase in interest income resulting from an increase in investment securities and an increase in fixed interest rates.
The Company has budgeted approximately $500,000 for new equipment and plant improvements in fiscal year 2023. Management anticipates that the funds required will be available from current operations. Management believes that the Company's reserve for bad debts of $3,000 is adequate given the customers with whom the Company does business. Historically, bad debt expense has been minimal. 10
Management believes that the Company's reserve for bad debts of $3,000 is adequate given the customers with whom the Company does business. Historically, bad debt expense has been minimal. 9
Net cash used in investing activities increased in the twelve months ended June 30, 2022 as compared to the same period in 2021 primarily due to the reinvestment of matured securities when compared to the same period last year.
Net cash used in investing activities increased in the twelve months ended June 30, 2023 as compared to the same period in 2022 primarily due to an increase in investment securities. Cash used in financing activities for the twelve months ended June 30, 2023 relates to dividend payments on common stock.
Results of Operations Net sales for the years ended June 30, 2022 and 2021 were $32,104,774 and $27,734,598, respectively, an approximate 16% increase. The increase in net sales in fiscal year 2022 is primarily due to an increase in magnetic and power supply shipments.
Results of Operations Net sales for the years ended June 30, 2023 and 2022 were $35,592,323 and $32,104,774, respectively, an approximate 10.9% increase.
These increases were offset, in part, by a decrease in overall employee compensation costs for program management personnel due to a reduction in headcount when compared to the same period last year, and a decrease in board of director’s fees due to a reduction of two non-employee directors.
In addition, fewer costs were incurred in the current period when compared to the prior period resulting from a decrease in board of directors fees due to a reduction of two non-employee directors and lower professional recruiting costs incurred. The decreases in the current period were offset, in part, by increases in conference and training expenditures incurred.
Combined, with supply chain constraints, future unforeseen labor disruptions could delay shipments and result in missing our backlog fulfillment projections and recognizing lower operating income. Successful conversion of engineering program backlog into sales is largely dependent on the execution and completion of our engineering design efforts.
Successful conversion of engineering program backlog into sales is largely dependent on the execution and completion of our engineering design efforts.
This $35 million will be supplemented by shipments which may be made against orders received during the 2023 fiscal year. 7 In addition to the backlog, the Company currently has outstanding opportunities representing in excess of $74.6 million in the aggregate as of August 31, 2022, for both repeat and new programs.
In addition to the backlog, the Company currently has outstanding opportunities representing in excess of $69 million in the aggregate as of August 31, 2023, for both repeat and new programs. The outstanding quotations encompass various new and previously manufactured power supplies, transformers, and subassemblies.
Deliverables within firm contracts are often subject to delivery schedules which also contributes to sales fluctuations between comparable periods. We saw improvement to our operations in the second half of the year which eased our previous inability to ship on specific contracts.
Deliverables within firm contracts are often subject to delivery schedules which also contributes to sales fluctuations between comparable periods. The increase in net sales in fiscal year 2023 is primarily due to an increase in shipments on contracts related to a family of power distribution transformers for a single customer when compared to sales recognized in the prior year.
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These expectations are driven by orders already in our sales backlog. Creating consistency in our quarter to quarter financial performance will remain a challenge as we navigate a current difficult environment of inflation and parts shortages. We saw improvement to our operations in the second half of fiscal year 2022 and expect continued improvement in fiscal year 2023.
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We successfully navigated through many of the issues which constrained our ability to recognize revenue in fiscal 2023 related to select engineering design contracts and build to print contracts which relied upon customer-owned designs to execute.
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However, we continue to be constrained by (i) engineering design changes required to meet customer requirements, (ii) delays in obtaining timely resolutions on issues encompassing build to print customer-owned drawings, and (iii) an increase in lead times for many parts, including certain electronic components due to industry shortages and volatility within the power electronics industry.
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While supply chain disruptions, including extended lead times and part obsolescence, continue to affect our production, we are better able to manage these factors and adequately factor lead times into internal planning schedules and new customer quotations. Inflationary costs are expected to continue but are not expected to have a significant impact on operating income in fiscal year 2024.
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Engineering, program management, and supply chain personnel are working closely with our customers and suppliers to execute on our past due deliveries and we do not expect this situation to affect future business opportunities.
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We made significant improvement in filling many of our open positions in the second half of the year. The labor workforce remains stable. Management continues to closely monitor workforce labor requirements to support our sales backlog and planned delivery schedules.
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Effects from global events and the resulting supply chain disruptions continue to place pressure on the cost of raw materials, freight, utility, labor and other production and administrative costs. These inflationary cost challenges are expected to continue to have a negative impact on operating income in fiscal year 2023.
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Longer time-to-hire challenges remain for certain positions due to specific skillsets required for those positions and the fact fewer workers, in general, are seeking employment. Unemployment rates in the local geographic region are lower than the national average. Where possible, the Company continues to offer on-the-job training and when necessary continues to recruit personnel outside the local region.
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Volatile raw material indexes and shortages have led to wide-spread vendor price increases. For our executed fixed-priced contracts, we will continue to either singularly or combined be 1) required to absorb the increased costs 2) continue to mitigate costs down through the identification of additional supply chain buying strategies or 3) submit for price remediation assistance from our customers.
Added
Combined with supply chain constraints, future unforeseen labor disruptions could delay shipments and result in missing our backlog fulfillment projections and recognizing lower operating income. The Company currently expects new orders in fiscal 2024 to be greater than those received in fiscal year 2023.
Removed
To minimize exposure on future fixed-priced contracts, we continue to incorporate inflationary increases to product quotations provided to our customers, some of which have resulted in significant price increases. Additionally, to minimize our exposure, we have, in many instances, reduced the time in which certain product quotations remain valid and have also extended lead times for product deliveries.
Added
Our sales strategy includes identifying and obtaining multiple new engineering design and development contracts in any given fiscal year to ensure optimal utilization of our engineering personnel in addition to securing follow-on production awards for product previously designed in-house, as well as, build to print opportunities.
Removed
We continue to work with our customers to mitigate any adverse impact upon our ability to service their requirements. Management continues to closely monitor the impact of evolving workforce labor constraints, primarily from the effects from the pandemic, on our planned delivery schedules.
Added
The Company targets those programs and opportunities which will generate future longer-term production tails in ensuing years. From time to time, we accept work associated with engineering design studies. While unlikely to result in near-term follow-on orders, this positions us competitively on future awards and expands our engineering team's skillset.
Removed
Although declining, we continue to experience periodic disruptions from workforce absences due to COVID-19 illnesses and direct contact exposures, resulting in self-isolating protocols to be followed to ensure the safety of company personnel. Disruptions from workforce turnover has stabilized.
Added
In addition, the Company is expected to spend an amount, not to exceed $7.1 million, towards a facility and capital equipment upgrade under an award issued to us by the United States Navy. Incurred spending is reimbursable through a milestone plan.
Removed
To date, we have been able to resolve various technical and scheduling delays and continue to work with our customers on newly arising delays. Engineering programs in both the funded and unfunded portions of the current backlog aggregate $7.3 million. The Company currently expects new orders in fiscal 2023 to be greater than those received in fiscal year 2022.
Added
Sales in the current year increased on multiple new and repeat contracts which had no or significantly fewer comparable sales in the same period last year, primarily related to build to print contracts and, to a lesser extent, magnetic and power supply deliverables.
Removed
Four significant customers represented approximately 57.2% of the Company’s total sales in fiscal year 2022 and four significant customers represented approximately 59.4% of the Company’s total sales in fiscal year 2021. These sales are in connection with multiyear programs in which the Company is a significant contractor.
Added
In addition, sales increased in the current year from a large production contract for a power supply previously designed by the Company which had no comparable sales in the prior period and from greater sales on a large engineering design and production contract which had significantly fewer sales in the prior year.
Removed
The June 30, 2022 backlog of $76.8 million included orders from five customers that represent approximately 16%, 16%, 15%, 13%, and 12%, respectively, of the total backlog. The June 30, 2021 backlog of $65.6 million included orders from five customers that represented approximately 15%, 15%, 14%, 13%, and 10%, respectively, of the total backlog.
Added
These increases were offset, in part, by decreases in sales, between the comparable periods, due to contract completion, timing of contractual delivery schedules and certain programs impeded by longer material lead times. Gross profits for the twelve months ended June 30, 2023 and 2022 were $8,050,538 and $5,472,158, respectively.
Removed
A loss of one of these customers or programs related to these customers, or customer requested deferrals of product delivery could significantly impact the Company. Historically, a small number of customers have accounted for a large percentage of the Company’s total sales in any given fiscal year.
Added
In the current period, gross profit was favorably impacted from higher sales and improved margins on a specific magnetics contract and certain build to print contracts, resulting from manufacturing improvements.
Removed
We processed and converted certain past due supply chain deliveries into product shipments and completed certain past due engineering milestone deliverables. We expect continued improvement on current engineering delays as new employees come up to speed on contracts and related statement of work specifications and material delays.
Added
The current period gross profit was negatively impacted by significant costs incurred on a certain fixed-priced engineering design contract for a power supply due to the ongoing unforeseen complexity of the design and the identification of additional costs due to the unavailability of mil-spec rated parts in the marketplace resulting from part obsolescence or exceptionally long lead times.
Removed
In addition, contracts impeded by actions required from our customers have been resolved or are moving forward towards resolution. However, the impact of ongoing global events, most notably the COVID-19 pandemic, is expected to continue to impact operational instability primarily in our supply chain, with increased lead times and increased costs from inflationary pricing.
Added
The prior year gross profit was negatively impacted by certain programs which had higher sales in the prior year and contributed less to gross profit as the result of cost overruns when compared to the same period this year.
Removed
Unplanned employee absences due to sickness and self-isolating protocols continues, but have been significantly less when compared to the prior year. Disruptions from workforce turnover has stabilized. Our focus remains to work with our customers and suppliers to identify alternative strategies to reduce lead times and maximize sales and operating income.
Added
These cost overruns included labor from both production and engineering efforts made and the impact of inflationary pricing on materials for certain fixed-price contracts.
Removed
Specific to net sales for the twelve month periods discussed above, the sales fluctuations when compared to the same periods last year were primarily the direct result of an unplanned facility closure which occurred in March 2021 due to a significant workforce COVID-19 exposure. The closure lasted approximately 10 days with the facility re-opening at less than full capacity.
Added
In addition, to a lesser extent, specific to the prior year, gross profit was negatively impacted by the expensing of remaining development costs formerly capitalized in inventory on a specific engineering design program in which our customer had delayed unit qualification testing and for which production units were not expected to be manufactured in the near term.
Removed
In addition, the increase in sales in the current fiscal year was influenced by product mix, contractual due dates, and our ability to deliver on certain past due customer orders which had been delayed due to extended raw material lead times.
Added
Selling, general and administrative expenses were $3,750,524 for the fiscal year ended June 30, 2023; a decrease of $192,467 compared to the fiscal year ended June 30, 2022. Lower costs were incurred for the twelve months ended June 30, 2023, comparably, as the prior year spending included specific non-recurring costs attributed to a change in senior management.
Removed
Specific to magnetic shipments, sales increased from more shipments on specific contracts related to a family of power distribution transformers for a single customer when compared to the prior year.
Added
The effective tax rate in fiscal 2023 is greater than the statutory tax rate mainly due to the permanent difference for incentive stock option expense recorded for book purposes which is not deductible for tax purposes.
Removed
In addition, an increase in magnetic sales is attributable to increased deliveries against a large magnetics contract for transformers originally designed in-house and an increase in milestone deliveries on a large on-going development program for a power distribution panel.
Added
In the current year, there was no benefit received from ESOP dividends paid on allocated shares due to the suspension of the company dividend in place through February 2023.
Removed
Specific to power supply shipments, the increase in sales is primarily attributable to product supporting the rail industry when compared to a year ago, also attributable to the timing of deliveries on existing contracts and additional follow-on orders received. 8 Gross profits for the twelve months ended June 30, 2022 and 2021 were $5,472,158 and $3,359,607, respectively.
Added
Liquidity and Capital Resources The Company's working capital is an appropriate indicator of the liquidity of its business, and during the past two fiscal years, the Company, when possible, has funded all of its operations with cash flows resulting from operating activities and when necessary from its existing cash and investments.
Removed
In addition, gross profit for the twelve month period improved when compared to the prior year as specific items which negatively impacted prior year results did not have a negative impact on gross profit recognized in the current year.
Added
The Company has budgeted approximately $300,000 for new equipment and plant improvements in fiscal year 2024. Management anticipates that the funds required will be available from current operations. A majority of these expenditures will be made to stay competitive in the marketplace and to meet the needs of current contracts.
Removed
Reductions to gross profit in the prior year included lower sales as the result of an unplanned facility shutdown in the third quarter of last year and the costs incurred for an inventory write-down for a design and production contract serving the airline industry which was cancelled by the customer during the prior fiscal year and with respect to which the Company was unsuccessful in being awarded restitution.
Added
In addition, the Company is expected to spend an amount, not to exceed $7.1 million, towards a facility and capital equipment upgrade under an award issued to us by the United States Navy. Incurred spending is reimbursable through a milestone plan.
Removed
Last year, two specific engineering design and production contracts, on which we incurred increased costs, had a larger negative impact on gross profit when compared to the current year.
Removed
Specific to the current fiscal year, the Company recognized higher gross profit on increased sales, primarily from mature power supply, magnetic and build to print shipments when compared to the same period last year. Additionally, the Company showed an improvement to gross profit on a specific power supply contract resulting from adjustments recovered from the customer for costs previously incurred.
Removed
Finally, the Company was successful in securing several additional equitable adjustments on other contracts in the second half of the fiscal year which had a favorable impact on gross profit.
Removed
These improvements to gross profit were offset, in part, by increased costs, primarily labor, incurred on a power supply engineering design and production contract and a build to print power supply contract requiring engineering efforts, both of which contracts had no adverse impact on the prior year results.
Removed
Finally, gross profit was reduced by an unforeseen significant increase in material costs on a large production contract, a direct result of inflationary and volatile pricing for certain raw materials and components. We have submitted a formal request to the customer for an equitable adjustment to this long-term fixed price contract supporting the US military.
Removed
There is no guaranty that the customer will agree to a pricing adjustment. Selling, general and administrative expenses were $3,942,991 for the fiscal year ended June 30, 2022; an increase of $157,245 compared to the fiscal year ended June 30, 2021.

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