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What changed in ESPEY MFG & ELECTRONICS CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of ESPEY MFG & ELECTRONICS CORP's 2023 and 2024 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 2024 report.

+83 added−83 removedSource: 10-K (2024-09-27) vs 10-K (2023-09-21)

Top changes in ESPEY MFG & ELECTRONICS CORP's 2024 10-K

83 paragraphs added · 83 removed · 55 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeFrom 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.
Biggest changeThe Company’s total backlog represents the estimated remaining sales value of work to be performed under firm contracts. Orders from significant customers may include more than a single program and procurement may originate from various divisions of the significant customer. The funded portion of this backlog at June 30, 2024 was approximately $94.9 million.
These regulations also subject the Company to financial audits and other reviews by the government of its costs, performance, accounting and general business practices relating to its contracts, which may result in adjustment of the Company’s contract-related costs and fees.
These regulations also subject the Company to financial audits and other reviews by the government of its costs, performance, accounting and general business practices relating to its contracts, which may result in adjustment of the Company’s contract-related costs and fees. 4
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.
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 2024, and the Company believes will not in fiscal year 2025, have a material effect upon the capital expenditures, net income, or competitive position of the Company.
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.
The estimate of the June 30, 2024 backlog to be shipped in fiscal year 2025 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.
However, the concentration of our business in the rail industry, and in equipment for military applications and industrial applications and our customer concentrations expose us to on-going associated risks.
However, the concentration of our business in the rail industry, and in equipment for military applications and industrial applications, as well as our customer concentrations, expose us to on-going associated risks.
While there is no guarantee that future budgets and appropriations will provide funding for individual programs, management has included in unfunded backlog only those programs that it believes are likely to receive funding based on discussions with customers and program status.
While there is no guarantee that future budgets and appropriations will provide funding for individual programs, management has included in unfunded backlog only those programs that it believes are likely to receive funding based on discussions with customers and program status. The unfunded backlog at June 30, 2023 approximated $32 thousand.
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.
This includes items that have been authorized and appropriated by Congress and/or funded by the customer. The unfunded backlog at June 30, 2024 was approximately $2.3 million and represents an amount under one firm repeat multi-year order from a single customer.
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.
In fiscal years ended June 30, 2024 and 2023, the Company's total sales were $38,736,319 and $35,592,323, respectively. Sales to five domestic customers accounted for 20%, 18%, 16%, 16% and 11%, respectively, of total sales in 2024. Sales to five domestic customers accounted for 23%, 18%, 16%, 13% and 11%, respectively, of total sales in 2023.
Despite the risk associated with single or limited source suppliers, the benefits of higher quality goods and timely delivery minimize and often limit any potential risk and can eliminate problems with part failures during production. At times, replacements are required to cover obsolete parts.
Despite the risk associated with single or limited source suppliers, the benefits of higher quality goods minimize and often limit any potential risk and can eliminate problems with part failures during production. At times, replacements are required to cover obsolete parts. Ongoing demand in the power electronics industry across multiple manufacturing sectors continues to create shortages and extended lead times.
Although we are not currently experiencing any significant financial or raw material sourcing issues resulting from the product tariffs, the Company cannot provide any assurance that the existing tariffs, the potential of additional tariffs, and the associated volatility arising from the Administration’s foreign trade policies, will not have a negative impact on our future earnings by increasing our raw material prices and augmenting the lead time for the availability of raw materials.
Although we are not currently experiencing any significant financial or raw material sourcing issues resulting from the product tariffs, the Company cannot provide any assurance that the existing tariffs, the potential of additional tariffs, and the associated volatility arising from foreign trade policies, will not have a negative impact on our future earnings by increasing our raw material prices and augmenting the lead time for the availability of raw materials. 2 Sales Backlog The total sales backlog at June 30, 2024 was $97.2 million, which included approximately $61 million from four significant customers, compared to $83.6 million at June 30, 2023, which included approximately $66 million from six significant customers.
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.
As part of our strategy, we adjust our pricing in order to achieve a balance which enables us both to retain repeat programs while being more competitive in bidding on new programs. 3 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.
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.
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.
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.
The applications of these products include AC and DC locomotives, shipboard power, shipboard radar, airborne power, ground-based radar, and ground mobile power. Espey 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.
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.
In some instances, our sales may include shipments to more than one business unit of a particular customer. Export shipments in fiscal years 2024 and 2023 were $2,350,087 and $549,510, respectively. The increase is primarily due to the increase in power supply shipments resulting from a repeat order received which had no comparable shipments in the prior year.
Espey is ISO 9001:2015 and AS9100:2016 certified. Our primary products are power supplies, power converters, filters, power transformers, magnetic components, power distribution equipment, UPS systems, antennas and high power radar systems. The applications of these products include AC and DC locomotives, shipboard power, shipboard radar, airborne power, ground-based radar, and ground mobile power.
Espey is an ISO 9001:2015 and AS9100:2016 certified manufacturer of power conversion, advanced magnetics and build to specifications provided by the customer “build to print” products for the rugged industrial and military marketplace. Our primary products are power supplies, power converters, filters, power transformers, magnetic components, power distribution equipment, UPS systems, and antennas.
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.
Approximately 36% 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.
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. We do very little pure research as our business primarily is driven by customer product needs and custom product development with some customer funding.
We incur research costs to support a request for quotation from a customer product-specific need usually associated with stringent size and weight requirements. In addition, the Company's engineers and technicians spend varying amounts of time identifying improvements to existing products with the primary objective of reducing production costs.
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.
It is not uncommon to receive orders which include delivery schedules extending beyond a year from the contract purchase date, therefore a customer’s reorder point may vary. It is presently anticipated that a minimum of $44 million of orders comprising the June 30, 2024 backlog will be filled during the fiscal year ending June 30, 2025.
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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.
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In some instances, waiting times for certain components approach a year or more. We adequately factor supplier-provided lead times into internal planning schedules and new customer quotations. From time to time, we encounter part obsolescence which requires us to identify an alternate part suitable for use.
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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.
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We continue to work with our customers on strategies to mitigate any adverse impact upon our ability to service their requirements. Factors which may arise after the placement of the customer’s order may cause us to miss projected delivery dates.
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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.
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Inflationary costs are expected to continue but are not expected to have a significant impact on operating income in fiscal year 2025. Tariffs on steel and aluminum imports from various countries continue to be in effect.
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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.
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Contracts are subject to modification, change or cancellation, and the Company accounts for these changes as they are probable and estimable. The Company evaluates the impact of any scope modifications and will adjust reserves as information is known and estimable.
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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.
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The majority of our orders are generated from prime defense contractors, the United States Department of Defense, other agencies of the government of the United States and foreign governments, and are for the design and development and/or manufacture of products. Orders are also generated from industrial manufacturers for similar services.
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As part of our strategy, we adjust our pricing in order to achieve a balance which enables us both to retain repeat programs while being more competitive in bidding on new programs.
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Research and Development We do very little research and development with the intent to develop and market new product offerings for sale to customers. Our business primarily is driven by customer product needs and custom product development funded by the applicable customers.
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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.
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At times, engineers are tasked with researching replacement parts to remediate identified obsolescence on current or repeat production programs. The Company's expenditures for research related activities were approximately $86,714 and $65,427 in fiscal year 2024 and 2023, respectively. Employees The Company had 148 employees as of August 31, 2024.
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Cyber or Other Security Threats or Other Disruptions We routinely experience cybersecurity threats in the form of unauthorized attempts to gain access to our sensitive information. The threats we face vary from attacks common to most industries to more advanced attacks with the specific objective of accessing national security information.
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We believe our threat detection and mitigation processes and procedures are above adequate. The processes and procedures in place are designed to detect, manage and prevent current threats and respond quickly to detect and mitigate new threats.
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To ensure our systems remain protected, we continually assess and acquire, as appropriate, new available technology and provide employee training to utilize effectively our technological assets.
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Prior cyberattacks directed at us have not had a material impact on our financial results nor restricted us from being awarded contracts from other defense companies or directly from the United States Department of Defense.
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However, we can provide no assurance that the occurrence of any future event would not adversely affect our internal operations, our reputation and competitive advantage, and our future financial results. 4

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed3 unchanged
Biggest changeThe plant has a sprinkler system throughout and contains approximately 151,000 square feet of floor space, of which 90,000 is used for manufacturing, 24,000 for engineering, 33,000 for shipping and climatically secured storage, and 4,000 for offices. The offices, engineering and some manufacturing areas are air-conditioned.
Biggest changeThe plant has a sprinkler system throughout and contains approximately 151,000 square feet of in-service floor space, of which 90,000 is used for manufacturing, 24,000 for engineering, 33,000 for shipping and climatically secured storage, and 4,000 for offices. The offices, engineering and some manufacturing areas are air-conditioned.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeMarket 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.
Biggest changeMarket 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: 2024 High Low First Quarter $ 18.00 $ 14.74 Second Quarter 19.29 14.69 Third Quarter 27.32 17.97 Fourth Quarter 26.31 20.20 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 Holders The approximate number of holders of record of the common stock was 57 on September 24, 2024 according to records of the Company's transfer agent.
There 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”).
There is no assurance that the Board of Directors will maintain the amount of the regular cash dividend during any future years. During fiscal year 2024, 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 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.
The Company did not make any open market purchases of equity securities in the fiscal year 2024 fourth quarter. The following table sets forth information as of June 30, 2024 with respect to compensation plans under which equity securities of the Company may be issued.
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.
The Company paid regular cash dividends on common stock of $0.675 per share for the fiscal year ended June 30, 2024 and paid regular cash dividends on common stock of $0.20 per share for the fiscal year ended June 30, 2023. Our Board of Directors assesses the Company’s dividend policy periodically.
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
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 322,056 $ 18.41 80,969 Equity compensation plans not approved by security holders — — Total 322,056 80,969 6

Item 7. Management's Discussion & Analysis

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

31 edited+21 added−16 removed12 unchanged
Biggest changeThe 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.
Biggest changeThe increase in cash provided by operating activities compared to the prior year primarily relates to an increase in net income, a decrease in prepaid expenses and other current assets, a decrease in inventory, an increase in accounts payable and other accrued expenses, offset in part, by a decrease in contract liabilities, and an increase in trade accounts receivable. 9 Net cash used in investing activities increased in the year ended June 30, 2024 as compared to the same period in 2023 due to an increase in investment securities when compared to the same period last year, in addition to additions to property, plant and equipment, partially offset by proceeds received from the grant award.
In general, sales fluctuations within product categories will occur during a comparable fiscal period as the direct result of product mix, influenced by the duration of specific programs and the contractual terms of firm orders placed for product and services under those programs including contract value, scope of work and duration.
In general, sales fluctuations within product categories will occur during a comparable fiscal period as the direct result of product mix, influenced by the duration of specific programs and the contractual terms of firm orders placed for product and services under those programs including contract value, scope of work and contract delivery schedules.
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.
Under existing authorizations from the Company's Board of Directors, as of June 30, 2024, management is authorized to purchase an additional $783,460 of Company stock.
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.
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 $10.2 million.
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.
Capital expenditures, primarily for machinery and equipment and facility upgrades, are not expected to exceed $500,000 for fiscal year 2025. A majority of these expenditures will be made to stay competitive in the marketplace and to meet the needs of current contracts.
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.
Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at June 30, 2024 and 2023. The existing line of credit was extended and expires February 28, 2025. The Company's working capital as of June 30, 2024 and 2023 was approximately $38 million and $33.2 million, respectively.
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.
The Company may at times be required to repurchase shares at the ESOP participants’ request at the fair market value. During the years ended June 30, 2024 and 2023, the Company did not repurchase any shares held by the ESOP.
It is not uncommon to experience technical or scheduling delays which arise from time to time as a result of, among other reasons, design complexity, the availability of personnel with the requisite expertise, and the requirements to obtain customer approval at various milestones.
It is not uncommon to experience technical or scheduling delays which arise from time to time as a result of, among other reasons, design complexity, the availability of personnel with the requisite expertise, the requirements to obtain customer approval at various milestones, and extended delivery lead times on material required for prototypes.
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.
During fiscal 2023, there was no benefit received from ESOP dividends paid on allocated shares due to the suspension of the company dividend through February 2023.
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 table below presents the summary of cash flow information for the fiscal years indicated: 2024 2023 Net cash provided by operating activities $ 10,595,200 $ 3,899,870 Net cash used in investing activities (7,840,277 ) (8,765,907 ) Net cash used in financing activities (1,151,708 ) (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 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.
The increase in net income in the year ended June 30, 2024 compared to the same period in 2023 is primarily attributable to higher sales, a higher gross profit margin percentage, an increase in other income, offset in part, by an increase in selling, general, and administrative expenses and an increase in the provision for income taxes.
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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Business Outlook Management expects revenues in fiscal year 2025 to be higher than revenues recognized during fiscal year 2024 and expects net income per share to exceed fiscal 2023 reported results, however net income per share is anticipated to fall below fiscal 2024 results.
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 Company generated net income for fiscal year 2024 of $5,815,140 or $2.34 and $2.29 per share, basic and diluted, compared to net income of $3,677,131 or $1.50 and $1.49 per share, basic and diluted, for fiscal year 2023.
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.
In addition to the backlog, the Company currently has outstanding opportunities representing in excess of $130 million in the aggregate as of August 31, 2024, for both repeat and new programs.
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.
Separately, the Company has budgeted approximately $500,000 for new equipment and plant improvements in fiscal year 2025, not reimbursable under the funding award. A majority of these expenditures will be made to stay competitive in the marketplace and to meet the needs of current contracts.
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.
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 trend lower than the national average which has created a competitive recruiting environment.
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.
Gross profits for the years ended June 30, 2024 and 2023 were $10,653,060 and $8,050,538, respectively. Gross profit as a percentage of sales was 27.5% and 22.6%, 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.
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 outstanding opportunities described above, many of which are subject to allocations of the United States defense spending and factors affecting the defense industry, as well as, the fact many solicitations we receive for the procurement of goods and services takes place by competitive bidding.
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.
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.
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.
Expectations are that the working capital will be required to fund orders, general operations of the business and dividend payments.
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.
Where possible, the Company continues to offer on-the-job training and when necessary continues to recruit personnel outside the local region. Combined with supply chain constraints, unforeseen labor disruptions could delay shipments and result in missing our backlog fulfillment projections and recognizing lower operating income.
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.
Inflationary costs are expected to continue but are not expected to have a significant impact on operating income in fiscal year 2025. The labor workforce remains stable. Management continues to closely monitor workforce labor requirements to support our sales backlog and planned delivery schedules.
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.
The effective tax rate in fiscal 2024 is less than the statutory tax rate mainly due to the benefit received from ESOP dividends paid on allocated shares and a benefit from foreign derived intangible income, offset in part by permanent differences related to incentive stock options.
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.
The effective tax rate in the year ended June 30, 2024 was lower than the comparable prior year primarily from the benefit derived from ESOP dividends paid on allocated shares, greater benefit derived from foreign derived intangible income and a benefit derived from the exercise of incentive stock options in the current period when compared to same period in the prior year.
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.
As of June 30, 2024, the Company anticipates spending the remaining $2.3 million, allowable under the award, during fiscal 2025. Results of Operations Net sales for the years ended June 30, 2024 and 2023 were $38,736,319 and $35,592,323, respectively, an approximate 8.8% increase.
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 increase is primarily due to the increase in interest income resulting from an increase in investment securities and an increase in fixed interest rates. Interest income is a function of the level of investments and investment strategies that generally tend to be conservative.
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.
Cash used in financing activities for the year ended June 30, 2024 relates primarily to dividend payments on common stock, offset in part, by proceeds from the exercise of stock options.
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.
Deliverables within firm contracts are often subject to delivery schedules which also contributes to sales fluctuations between comparable periods.
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.
Overhead costs will be reduced, in future years, from the Company’s withdrawal from the plan, as recurring annual contribution payments to the plan will no longer be required. 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.
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.
Moreover, the gross profit in fiscal year 2023 had been negatively impacted by significant unanticipated costs incurred on several fixed-priced engineering design contracts and a specific build to print contract, all for power supplies, due to unforeseen complexities of the designs.
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.
The increase in gross profit for the year ended June 30, 2024 when compared to the same period last year resulted primarily from (i) sales levels and general product mix, (ii) higher than average profit margins on one-time sales to certain customers, and (iii) higher sales on a large follow-on order for power distribution panels which had fewer sales and higher costs in the prior year related to engineering design efforts.
Removed
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.
Added
This expectation is driven primarily by orders already in our backlog that will be shipped in fiscal year 2025 with higher anticipated aggregate costs than the product mix shipped during fiscal 2024.
Removed
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.
Added
Gross profit on fiscal 2025 shipments will be reduced by the increase in overhead costs incurred specific to the pension withdrawal obligation recorded in fiscal 2024, explained in greater detail in Financial Statement Note 7. Pension Expense.
Removed
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.
Added
Ongoing demand in the power electronics industry across multiple manufacturing sectors continues to create shortages and extended lead times. In some instances, waiting times for certain components approach a year or more. We adequately factor supplier-provided lead times into internal planning schedules and new customer quotations.
Removed
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.
Added
From time to time, we encounter part obsolescence which requires us to identify an alternate part suitable for use. We continue to work with our customers on strategies to mitigate any adverse impact upon our ability to service their requirements. Factors which may arise after the placement of the customer’s order may cause us to miss projected delivery dates.
Removed
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.
Added
The Company currently expects new orders in fiscal 2025 to be greater than those received in fiscal year 2024. During fiscal year 2024, the Company received approximately $52.4 million in new orders. Included in new order bookings are repeat production orders for multi-year purchases with deliveries expected to extend for several years.
Removed
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.
Added
Included in outstanding opportunities is a large multi-year purchase from a single customer for several products currently being manufactured by the Company, expected to be formalized prior to December 31, 2024. Outstanding opportunities encompass various new and previously manufactured power supplies, transformers, and subassemblies.
Removed
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.
Added
We consider the value of those opportunities we believe are likely to be awarded based on factors which include: quotation status, communicated award dates, historical ordering, public information on defense programs and program funding, discussion with customers, and our cost competitiveness.
Removed
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.
Added
The Company was awarded $7.4 million in funding during the second quarter of fiscal year 2023 in support of facility and capital equipment upgrades for testing and qualification for the United States Navy. The funding is part of the Navy’s investment to improve and sustain the Surface Combatant Industrial Base.
Removed
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.
Added
The work is being conducted on the Company’s property in Saratoga Springs, NY, with completion slated for the end of calendar year 2024. The Company expects to be paid within 30 days after the submission of three milestone invoices, but will not be paid for expenses incurred in excess of the specified milestone payment limits.
Removed
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.
Added
The Company will record the receipt of milestone payments received as a reduction from the cost of the assets. As of June 30, 2024 milestone reimbursements received totaled $4,228,722. Included in property, plant, and equipment at June 30, 2024 was $965,392 not yet reimbursed under the funding award.
Removed
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.
Added
Sales in fiscal year 2024 were higher when compared to the prior year primarily from (i) increased shipments on several large multi-year contracts for transformers and power distribution panels, and (ii) increased shipments on several power supply contracts primarily supporting AESA radar programs and off-highway vehicle production builds.
Removed
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.
Added
These increases were offset, in part, by a decrease in overall build to print sales which, in several instances, had specific contracts with significantly fewer or no sales in the current reporting period as compared to the same period last year due to order completion or planned customer delivery schedules.
Removed
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.
Added
The improvement in the gross profit in fiscal year 2024 was offset, in part, by increased costs incurred on a recurring production job and a new engineering development job.
Removed
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.
Added
Finally, gross profit in the current year was reduced by an increase in the overhead costs on shipments, resulting from the recorded pension withdrawal obligation established in the last quarter of the current fiscal period, explained in greater detail in Financial Statement Note 7.
Removed
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.
Added
Pension Expense. 8 Selling, general and administrative expenses were $4,113,608 for the fiscal year ended June 30, 2024; an increase of $363,084 compared to the fiscal year ended June 30, 2023.
Removed
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
Added
The increase in spending for the year ended June 30, 2024 compared to the same period in 2023 mainly relates to the increase in employee compensation costs which includes a new business development employee. In addition, and to a lesser extent, expenses increased related to travel expenses, recruiting expenses, and freight costs incurred on outgoing shipments.
Added
These increases were offset, in part, by a decrease in utility and outside selling costs related to non-employee sales representatives. Other income for the fiscal years ended June 30, 2024 and 2023 was $755,562 and $406,453, respectively.
Added
The Company’s effective tax rate was approximately 20.3% in the fiscal year 2024 and approximately 21.9% in fiscal year 2023.
Added
During the fiscal years ended June 30, 2024 and 2023, the Company expended $5,164,165 and $512,016, respectively, for plant improvements and new equipment, of which $4,886,113 and $249,705, respectively, was either reimbursed or eligible to be reimbursed under a not to exceed $7.4 million award received by the Company.
Added
The award received by the Company is in support of facility and capital equipment upgrades for testing and qualification for the United States Navy. This funding award is part of the Navy’s investment to improve and sustain the Surface Combatant Industrial Base.
Added
Management believes that the Company's allowance for credit losses of $3,000 is adequate given the customers with whom the Company does business based on historical experience, current economic market conditions, performance of specific account reviews, and other factored considerations to include, but not limited to, contracts covered by government funding and the overall health of the industry.

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