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What changed in TAYLOR DEVICES, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TAYLOR DEVICES, INC.'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.

+90 added−82 removedSource: 10-K (2023-08-15) vs 10-K (2022-08-19)

Top changes in TAYLOR DEVICES, INC.'s 2023 10-K

90 paragraphs added · 82 removed · 67 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeDuring the year ended May 31, 2022, delivery time after receipt of orders averaged 8 to 10 weeks for the Company's standard products. Due to the volatility of structural and aerospace/defense programs, progress payments are usually required for larger projects using custom designed components of the Company.
Biggest changeThe Company had no inventory out on consignment and there were no consignment sales for the years ended May 31, 2023 and 2022. No extended payment terms are offered. During the year ended May 31, 2023, delivery time after receipt of orders averaged 8 to 10 weeks for the Company's standard products.
For structural applications outside of the USA, the Company competes directly with several other firms particularly in Japan, China and Taiwan. The Company competes with numerous other firms that supply alternative seismic protection technologies.
For structural applications outside of the USA, the Company competes directly with several other firms particularly in Japan and Taiwan. The Company competes with numerous other firms that supply alternative seismic protection technologies.
Crane and industrial buffers are larger versions of the Fluidicshoks® with up to 10,890,000 inch-pound capacities, produced in more than 60 standard sizes for industrial applications on cranes and crane trolleys, truck docks, ladle and ingot cars, ore trolleys and train car stops.
Crane and industrial buffers are larger versions of the Fluidicshoks® with up to 10,890,000 inch-pound capacities, produced in more than 50 standard sizes for industrial applications on cranes and crane trolleys, truck docks, ladle and ingot cars, ore trolleys and train car stops.
The Company believes that it is in substantial compliance with these regulations and does not anticipate corrective expenditures in the future. Employees Exclusive of Company sales representatives and distributors, as of May 31, 2022, the Company had 123 employees, including five executive officers. The Company has good relations with its employees. -5- Table of Contents
The Company believes that it is in substantial compliance with these regulations and does not anticipate corrective expenditures in the future. Employees Exclusive of Company sales representatives and distributors, as of May 31, 2023, the Company had 125 employees, including three executive officers. The Company has good relations with its employees. 5
Occasionally, research and development for products in the aerospace and defense sectors is funded by customers or the federal government. The Company also engages in research testing of its products. For the fiscal years ended May 31, 2022 and 2021, the Company expended $1,213,000 and $924,000, respectively, on product research.
The Company also engages in research testing of its products. For the fiscal years ended May 31, 2023 and 2022, the Company expended $1,097,000 and $999,000, respectively, on product research. For the years ended May 31, 2023 and 2022, defense sponsored research and development totaled $581,000 and $334,000, respectively.
The loss of any or all of these customers, unless the business is replaced by the Company, could result in an adverse effect on the results for the Company. Patents, Trademarks and Licenses The Company holds 6 patents expiring at different times until the year 2035.
Sales to five customers approximated 30% (7%, 6%, 6%, 6% and 5%, respectively) of net sales for 2023. The loss of any or all of these customers, unless the business is replaced by the Company, could result in an adverse effect on the results for the Company.
Terms of Sale The Company does not carry significant inventory for rapid delivery to customers, and goods are not normally sold with return rights such as are available for consignment sales. The Company had no inventory out on consignment and no consignment sales for the years ended May 31, 2022 and 2021. No extended payment terms are offered.
Patents, Trademarks and Licenses The Company holds 6 patents expiring at different times until the year 2035. Terms of Sale The Company does not carry significant inventory for rapid delivery to customers, and goods are not normally sold with return rights such as are available for consignment sales.
Raw Materials and Supplies The principal raw materials and supplies used by the Company in the manufacture of its products are provided by numerous U.S. and foreign suppliers.
Raw Materials and Supplies The principal raw materials and supplies used by the Company in the manufacture of its products are provided by numerous U.S. and foreign suppliers. The loss of any one of these would not materially affect the Company's operations. 4 Dependence Upon Major Customers The Company is not dependent on any one or a few major customers.
Need for Government Approval of Principal Products or Services Contracts between the Company and the federal government or its independent contractors are subject to termination at the election of the federal government. Contracts are generally entered into on a fixed price basis.
Due to the volatility of structural and aerospace/defense programs, progress payments are usually required for larger projects using custom designed components of the Company. Need for Government Approval of Principal Products or Services Contracts between the Company and the federal government or its independent contractors are subject to termination at the election of the federal government.
If the federal government should limit defense spending, these contracts could be reduced or terminated, which management believes would have a materially adverse effect on the Company. Research and Development To accommodate growth and to maintain its presence in current markets, the Company engages in product research and development activities in connection with the design of its products.
Contracts are generally entered into on a fixed price basis. If the federal government should limit defense spending, these contracts could be reduced or terminated, which management believes would have a materially adverse effect on the Company.
Removed
The loss of any one of these would not materially affect the Company's operations. -4- Table of Contents Dependence Upon Major Customers The Company is not dependent on any one or a few major customers. Sales to four customers approximated 37% (15%, 8%, 8%, and 5%, respectively) of net sales for 2022.
Added
Research and Development To accommodate growth and to maintain its presence in current markets, the Company engages in product research and development activities in connection with the design of its products. Occasionally, research and development for products in the aerospace and defense sectors is funded by customers or the federal government.
Removed
This increase is primarily due to research and development that will aid in accommodating planned growth in multiple sectors. For the years ended May 31, 2022 and 2021, defense sponsored research and development totaled $334,000 and $243,000, respectively.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAdditional information regarding the Company's agreement with M&T Bank is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, at "Capital Resources, Line of Credit and Long-Term Debt." The Company believes it carries adequate insurance coverage on its facilities and their contents. Item 3. Legal Proceedings. There are no legal proceedings at present.
Biggest changeAdditional information regarding the Company's agreement with M&T Bank is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, at "Capital Resources, Line of Credit and Long-Term Debt." The Company believes it carries adequate insurance coverage on its facilities and their contents.
This building contains overhead traveling cranes to allow dampers to be built up to 45 ft. in length. It is also the site of two long bed damper test machines where seismic dampers Taylor Devices manufactures will be tested at maximum force to satisfy customer specifications. Another adjacent building (approximately 2,000 square feet) is used as a training facility.
This building contains overhead traveling cranes to allow dampers to be built up to 45 ft. in length. It is also the site of three long bed damper test machines where seismic dampers Taylor Devices manufactures will be tested at maximum force to satisfy customer specifications. Another adjacent building (approximately 2,000 square feet) is used as a training facility.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Removed
Item 3. Legal Proceedings . 6 Item 4. Mine Safety Disclosures. 6 PART II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . 7 Item 6. Selected Financial Data . 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . 8 Item 7A.
Added
Item 3. Legal Proceedings. Taylor Devices Inc. (the “Company”) has been named as a Third-Party Defendant in an action captioned Board of Managers of the 432 Park Condominium, et al. v. 56 th and Park (NY) Owner LLC, et al. Index No. 655617/2021 (S.Ct. N.Y. Co.) (the “Action”). The Action was filed on or about September 23, 2021.
Removed
Quantitative and Qualitative Disclosures About Market Risk . 17 Item 8. Financial Statements and Supplementary Data . 17 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 17 Item 9A. Controls and Procedures . 17 Item 9B. Other Information . 17 PART III
Added
In an amended Complaint dated April 29, 2022, the Board of Managers of 432 Park Condominium (the “Owner”), a condominium association for a high-rise condominium building (the “Building”) located at 432 Park Avenue in New York, N.Y., has asserted a claim against the condominium sponsor, 56 th and Park (NY) Owner LLC (the “Sponsor”).
Added
The Owner alleges “over 1500 identified construction and design defects to the common elements of” residential and commercial units at the Building, based upon a report generated by a consultant (SBI Consultants Inc.) retained by the Owner. The alleged defects include, but are not limited to, allegedly-excessive noise and vibration, water leaks and elevator failures.
Added
The SBI report allegedly identified defects in the Building’s: (a) structural/envelope system; (b) mechanical/electrical & plumbing systems; (c) architectural/interiors; and (d) elevators/vertical systems.
Added
On March 14, 2022, the Sponsor filed a Third-Party Complaint against LendLease Construction (US) LMB (“LendLease”), as well as the architects of record on the project (SLCE Architects), the lead structural engineer (Cantor ESA) and the head mechanical engineer (Flack + Kurtz) involved in the Building’s design.
Added
As to LendLease, the Third-Party Complaint alleges breach of a Construction Management Contract between LendLease and Sponsor and negligence arising from purported failure to perform under the contract. 6 On March 22, 2023, LendLease initiated a Third-Party action against various entities with whom LendLease had contracted for the supply of materials and services in connection with construction of the Building.
Added
The Third-Party defendants include the suppliers of products and services relating to the automatic sprinkler system, structural steel, mechanical systems, electrical systems, sheet metal, component assembly, roofing, the building exterior, plumbing, concrete, curtain walls, custom machine work and elevators.
Added
The Third-Party Complaint also names the Company as a Third-Party Defendant, based upon a contract between the Company and LendLease to supply 16 Viscous Damping Devices (“VDDs”) that were incorporated into a Tuned Mass Damper (“TMD”) system designed by another company to limit accelerations of the Building during wind events.
Added
On July 5, 2023, the Company timely filed and served an Answer to LendLease’s Third-Party Complaint. Additional third-party actions have been filed by parties named as defendants in the Third-Party Complaint. Presently, seven third-party actions are pending. The Progress of the Matter to Date .
Added
The matter, and all of the related third-party actions, are pending in the Commercial Division of the Supreme Court, New York County before Justice Melissa A. Crane. Justice Crane has appointed Hon. Andrew J. Peck, a retired justice of the Supreme Court, as Special Master to hear and determine disputes regarding all or any part of any discovery issue.
Added
On June 13, 2023, Special Master Peck issued an Amended Final Scheduling Order.
Added
Among the directives in the Amended Final Scheduling Order is a requirement that: (a) recently-added third-party defendants (including the Company) respond to discovery demands by August 30, 2023 and complete document productions by October 11, 2023; (b) all parties complete fact depositions and fact discovery by March 15, 2024; and (c) all parties complete expert discovery by August 28, 2024.
Added
Management Response . Management of the Company vigorously disputes the allegations in the Third-Party Complaint.
Added
Based upon the information currently available, there is a credible argument that: (a) the Company met the contractual requirements of the 2013 Purchase Order for Viscous Damping Devices (VDDs) that were incorporated into the Tuned Mass Damper (TMD) system; and (b) the VDDs that were delivered were successfully tested to the applicable specification and met the technical requirements of that specification.
Added
The Owner has not itemized the damages it seeks to recover from Sponsor, but the Amended Complaint contains an ad damnum clause demanding $125 million plus punitive damages.
Added
Sponsor has not itemized the damages it seeks to recover from LendLease or the other third-party defendants, but the claim for relief in the Third-Party Complaint includes a demand for full indemnification of any amounts the Sponsor is required to pay plaintiff.
Added
In turn, LendLease does not itemize the damages it seeks to recover from the several Third-Party defendants (including the Company), but its demand for relief in the Third-Party Complaint includes a demand for full indemnification of any amounts LendLease is required to pay to Sponsor.
Added
The Company anticipates that the pending actions would provide opportunities for Sponsor, LendLease and the Company to allocate some or all of any liability to one or more co-defendants or third parties. In view of the limited discovery to date, it is not practical to quantify likely damages to the Company in the event of an unfavorable outcome on liability.
Added
Item 4. Mine Safety Disclosures. Not applicable. 7 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFiscal 2022 Fiscal 2021 High Low High Low First Quarter $ 12.25 $ 11.21 $ 11.46 $ 8.68 Second Quarter $ 12.00 $ 10.93 $ 10.54 $ 8.58 Third Quarter $ 11.00 $ 9.88 $ 11.93 $ 9.76 Fourth Quarter $ 10.24 $ 8.75 $ 12.43 $ 10.58 Holders As of May 31, 2022, the number of issued and outstanding shares of Common Stock was 3,497,937 and the number of record holders of the Company's Common Stock was 461.
Biggest changeFiscal 2023 Fiscal 2022 High Low High Low First Quarter $10.25 $ 8.13 $12.25 $11.21 Second Quarter $14.00 $ 9.66 $12.00 $10.93 Third Quarter $16.98 $10.50 $11.00 $ 9.88 Fourth Quarter $23.79 $15.30 $10.24 $ 8.75 Holders As of May 31, 2023, the number of issued and outstanding shares of Common Stock was 3,520,442 and the number of record holders of the Company's Common Stock was 406.
The high and low sales information noted below for the quarters of fiscal year 2022 and fiscal year 2021 were obtained from NASDAQ.
The high and low sales information noted below for the quarters of fiscal year 2023 and fiscal year 2022 were obtained from NASDAQ.
A substantial number of shares of the Company's Common Stock are held in street name. The Company believes that the total number of beneficial owners of its Common Stock is less than 1,300. Dividends No cash or stock dividends have been declared during the last two fiscal years.
A substantial number of shares of the Company's Common Stock are held in street name. The Company believes that the total number of beneficial owners of its Common Stock is less than 2,100. Dividends No cash or stock dividends have been declared during the last two fiscal years.
No shares have been purchased since August 2011. -7- Table of Contents Equity Compensation Plan Information The following table sets forth information regarding equity compensation plans of the Company as of May 31, 2022.
No shares have been purchased since August 2011. 8 Equity Compensation Plan Information The following table sets forth information regarding equity compensation plans of the Company as of May 31, 2023.
Such purchases are without any contribution on the part of the Company. As of May 31, 2022, 217,287 shares were available for issuance.
Such purchases are without any contribution on the part of the Company. As of May 31, 2023, 216,365 shares were available for issuance.
Equity Compensation Plan Information Plan Category Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) ) (c) Equity compensation plans approved by security holders: 2008 Stock Option Plan 2012 Stock Option Plan 2015 Stock Option Plan 2018 Stock Option Plan 4,750 52,000 90,000 136,250 $ 8.06 $11.30 $12.72 $10.75 - - - 23,750 Equity compensation plans not approved by security holders: 2004 Employee Stock Purchase Plan (1) - - 217,287 Total 283,000 241,037 (1) The Company's 2004 Employee Stock Purchase Plan (the "Employee Plan") permits eligible employees to purchase shares of the Company's common stock at fair market value through payroll deductions and without brokers' fees.
Equity Compensation Plan Information Plan Category Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) ) (c) Equity compensation plans approved by security holders: 2012 Stock Option Plan 2015 Stock Option Plan 2018 Stock Option Plan 2022 Stock Option Plan 40,500 84,000 153,250 55,250 $12.28 $12.74 $10.85 $18.07 - - - 201,000 Equity compensation plans not approved by security holders: 2004 Employee Stock Purchase Plan (1) - - 216,365 Total 333,000 417,365 (1) The Company's 2004 Employee Stock Purchase Plan (the "Employee Plan") permits eligible employees to purchase shares of the Company's common stock at fair market value through payroll deductions and without brokers' fees.

Item 7. Management's Discussion & Analysis

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

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Biggest changeInventory and Maintenance Inventory May 31, 2022 May 31, 2021 Increase /(Decrease) Raw materials $ 488,000 $ 503,000 $ (15,000 ) -3 % Work-in-process 5,166,000 5,076,000 90,000 2 % Finished goods 200,000 256,000 (56,000 ) -22 % Inventory 5,854,000 84 % 5,835,000 78 % 19,000 0 % Maintenance and other inventory 1,107,000 16 % 1,613,000 22 % (506,000 ) -31 % Total $ 6,961,000 100 % $ 7,448,000 100 % $ (487,000 ) -7 % Inventory turnover 3.1 2.1 Inventory, at $5,854,000 as of May 31, 2022, is only slightly higher than at the prior year-end.
Biggest changeInventory and Maintenance Inventory May 31, 2023 May 31, 2022 Increase /(Decrease) Raw materials $ 674,000 $ 489,000 $ 185,000 38% Work-in-process 5,005,000 5,166,000 (161,000) -3% Finished goods 262,000 200,000 62,000 31% Inventory 5,941,000 86% 5,855,000 84% 86,000 1% Maintenance and other inventory 1,003,000 14% 1,107,000 16% (104,000) -9% Total $ 6,944,000 100% $ 6,962,000 100% $ (18,000) 0% Inventory turnover 3.5 3.1 Inventory, at $5,941,000 as of May 31, 2023, is one percent higher than at the prior year-end.
Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable in the current period. The actual amount of accounts written off over the five year period ended May 31, 2022 equaled less than 0.3% of sales for that period.
Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable in the current period. The actual amount of accounts written off over the five year period ended May 31, 2023 equaled less than 0.3% of sales for that period.
The Company disclaims any obligation to release publicly any updates or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based. -8- Table of Contents Application of Critical Accounting Policies and Estimates The Company's consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles.
The Company disclaims any obligation to release publicly any updates or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based. 9 Application of Critical Accounting Policies and Estimates The Company's consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles.
The significant increase in sales to structural customers is primarily from domestic customers.
The increase in sales to structural customers is primarily from domestic customers.
Revenue Recognition Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. -9- Table of Contents A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account.
Revenue Recognition Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. 10 A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account.
Of this, approximately 88% is work in process, 4% is finished goods, and 8% is raw materials. All of the current inventory is expected to be consumed or sold within twelve months. The level of inventory will fluctuate from time to time due to the stage of completion of the non-project sales orders in progress at the time.
Of this, approximately 84% is work in process, 4% is finished goods, and 12% is raw materials. All of the current inventory is expected to be consumed or sold within twelve months. The level of inventory will fluctuate from time to time due to the stage of completion of the non-project sales orders in progress at the time.
The balance of the valuation allowance has increased to $16,000 at May 31, 2022 from $7,000 at May 31, 2021. Management does not expect the valuation allowance to materially change in the next twelve months for the current accounts receivable balance. Inventory Inventory is stated at the lower of average cost or net realizable value.
The balance of the valuation allowance has increased to $29,000 at May 31, 2023 from $16,000 at May 31, 2022. Management does not expect the valuation allowance to materially change in the next twelve months for the current accounts receivable balance. Inventory Inventory is stated at the lower of average cost or net realizable value.
A summary of changes in the stock options outstanding during the year ended May 31, 2022 is presented below.
A summary of changes in the stock options outstanding during the year ended May 31, 2023 is presented below.
The $1,123,000 balance in this account at May 31, 2022 is in comparison to a $1,362,000 balance at the end of the prior year. The balance in this account fluctuates in the same manner and for the same reasons as the account "costs and estimated earnings in excess of billings," discussed above.
The $1,992,000 balance in this account at May 31, 2023 is in comparison to a $1,123,000 balance at the end of the prior year. The balance in this account fluctuates in the same manner and for the same reasons as the account "costs and estimated earnings in excess of billings," discussed above.
This deferred tax asset balance is 7% ($61,000) more than at the end of the prior year. The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced.
This deferred tax asset balance is 81% ($707,000) more than at the end of the prior year. The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced.
Management believes that the Company's cash on hand, cash flows from operations, and borrowing capacity under the bank line of credit will be sufficient to fund ongoing operations and capital improvements for the next twelve months. -16- Table of Contents
Management believes that the Company's cash on hand, cash flows from operations, and borrowing capacity under the bank line of credit will be sufficient to fund ongoing operations and capital improvements for the next twelve months. 17
The Company expects to bill the entire amount during the next twelve months. 58% of the CIEB balance as of the end of the last fiscal quarter, February 28, 2022, was billed to those customers in the current fiscal quarter ended May 31, 2022.
The Company expects to bill the entire amount during the next twelve months. 46% of the CIEB balance as of the end of the last fiscal quarter, February 28, 2023, was billed to those customers in the current fiscal quarter ended May 31, 2023.
Historically, actual results have not varied materially from the Company's estimates. Other sales to customers are recognized upon shipment to the customer based on contract prices and terms. In the year ended May 31, 2022, 60% of revenue was recorded for contracts in which revenue was recognized over time while 40% was recognized at a point in time.
Historically, actual results have not varied materially from the Company's estimates. Other sales to customers are recognized upon shipment to the customer based on contract prices and terms. In the year ended May 31, 2023, 61% of revenue was recorded for contracts in which revenue was recognized over time while 39% was recognized at a point in time.
In the year ended May 31, 2021, 43% of revenue was recorded for contracts in which revenue was recognized over time while 57% was recognized at a point in time. For financial statement presentation purposes, the Company nets progress billings against the total costs incurred and estimated earnings on uncompleted contracts.
In the year ended May 31, 2022, 60% of revenue was recorded for contracts in which revenue was recognized over time while 40% was recognized at a point in time. For financial statement presentation purposes, the Company nets progress billings against the total costs incurred and estimated earnings on uncompleted contracts.
Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 4% less than the level recorded in the prior year. The number of Projects in-process fluctuates from period to period. The changes from the prior period to the current period are not necessarily representative of future results.
Revenues recorded in the current period for other-than long-term projects (non-projects) were 26% more than the level recorded in the prior year. The number of Projects in-process fluctuates from period to period. The changes from the prior period to the current period are not necessarily representative of future results.
Revenues recorded in the current period for long-term construction projects (“Project(s)”) were 92% more than the level recorded in the prior year. We had 45 Projects in process during the current period compared with 41 during the same period last year.
Revenues recorded in the current period for long-term projects (“Project(s)”) were 33% more than the level recorded in the prior year. We had 52 Projects in process during the current period compared with 45 during the same period last year.
The Company expects to collect all of these amounts, including the retained amounts, during the next twelve months. The number of an average day's sales outstanding in accounts receivable (DSO) was 42 days at May 31, 2022 and May 31, 2021. The Company expects to collect the net accounts receivable balance, including the retainage, during the next twelve months.
The Company expects to collect all of these amounts, including the retained amounts, during the next twelve months. The number of an average day's sales outstanding in accounts receivable (DSO) was 47 days at May 31, 2023 and 42 days at May 31, 2022.
The Company saw a 60% increase from last year’s level in sales to structural customers who were seeking seismic / wind protection for either construction of new buildings and bridges or retrofitting existing buildings and bridges along with a 22% increase in sales to customers in aerospace / defense and a 1% decrease in sales to customers using our products in industrial applications.
The Company saw a 27% increase from last year’s level in sales to structural customers who were seeking seismic / wind protection for either construction of new buildings and bridges or retrofitting existing buildings and bridges along with a 25% increase in sales to customers in aerospace / defense and an 85% increase in sales to customers using our products in industrial applications.
Expected volatility assumptions used in the model were based on volatility of the Company's stock price for the thirty-month period immediately preceding the granting of the options. The Company issued stock options in August 2021 and April 2022. The risk-free interest rate is derived from the U.S. treasury yield.
The Company used a weighted average expected term. Expected volatility assumptions used in the model were based on volatility of the Company's stock price for the thirty-month period immediately preceding the granting of the options. The Company issued stock options in October 2022 and April 2023. The risk-free interest rate is derived from the U.S. treasury yield.
As the accounts receivable figure rises in relation to the other two figures, the Company can anticipate increased cash receipts within the ensuing 30-60 days. Accounts receivable of $4,467,000 as of May 31, 2022 includes approximately $190,000 of amounts retained by customers on long-term construction projects.
As the accounts receivable figure rises in relation to the other two figures, the Company can anticipate increased cash receipts within the ensuing 30-60 days. Accounts receivable of $5,554,000 as of May 31, 2023 includes approximately $24,000 of amounts retained by customers on long-term construction projects.
Current year capital expenditures included new manufacturing machinery, testing equipment, paint booths system, upgrades to technology equipment and assembly / test facility improvements. The Company has commitments to make capital expenditures of approximately $1,600,000 as of May 31, 2022. These capital expenditures will be primarily for new manufacturing and testing equipment.
Current year capital expenditures included new manufacturing machinery, testing equipment, upgrades to technology equipment and assembly / test facility improvements. The Company has commitments to make capital expenditures of approximately $107,000 as of May 31, 2023. These capital expenditures will be primarily for new manufacturing and testing equipment.
The Company considers future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance. In future years the Company will need to generate approximately $4.2 million of taxable income in order to realize our deferred tax assets recorded as of May 31, 2022 of $876,000.
The Company considers future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance. In future years the Company will need to generate approximately $7.5 million of taxable income in order to realize our deferred tax assets recorded as of May 31, 2023 of $1,583,000.
The $3,336,000 balance in this account at May 31, 2022 is a 122% increase from the prior year-end. This increase reflects the higher aggregate level of the percentage of completion of these Projects as of the current year end as compared with the Projects in process at the prior year end.
The $4,124,000 balance in this account at May 31, 2023 is a 24% increase from the prior year-end. This increase reflects the higher aggregate level of the percentage of completion of these Projects as of the current year end as compared with the Projects in process at the prior year end.
The Company disposed of approximately $772,000 and $1,101,000 of obsolete inventory during the years ended May 31, 2022 and 2021, respectively.
The Company disposed of approximately $322,000 and $772,000 of obsolete inventory during the years ended May 31, 2023 and 2022, respectively.
The following assumptions were used in the Black-Scholes model in estimating the fair market value of the Company's stock option grants: August 2021 April 2022 Risk-free interest rate: 2.875 % 2.25 % Expected life of the options: 4 years 4 years Expected share price volatility: 32 % 29 % Expected dividends: zero zero These assumptions resulted in estimated fair-market value per stock option: $ 3.42 $ 2.52 The ultimate value of the options will depend on the future price of the Company's common stock, which cannot be forecast with reasonable accuracy.
The following assumptions were used in the Black-Scholes model in estimating the fair market value of the Company's stock option grants: October 2022 April 2023 Risk-free interest rate: 1.625% 3.25% Expected life of the options: 4.1 years 4.2 years Expected share price volatility: 30% 36% Expected dividends: zero zero These assumptions resulted in estimated fair-market value per stock option: $3.06 $6.72 The ultimate value of the options will depend on the future price of the Company's common stock, which cannot be forecast with reasonable accuracy.
The year-end balances in the CIEB account are comprised of the following components: May 31, 2022 May 31, 2021 Costs $ 3,250,000 $ 2,362,000 Estimated earnings 2,642,000 410,000 Less: Billings to customers 2,556,000 1,272,000 CIEB $ 3,336,000 $ 1,500,000 Number of projects in progress 11 9 As noted above, BIEC represents billings to customers in excess of revenues recognized.
The year-end balances in the CIEB account are comprised of the following components: May 31, 2023 May 31, 2022 Costs $ 3,006,000 $ 3,250,000 Estimated earnings 2,648,000 2,642,000 Less: Billings to customers 1,530,000 2,556,000 CIEB $ 4,124,000 $ 3,336,000 Number of projects in progress 12 11 As noted above, BIEC represents billings to customers in excess of revenues recognized.
The status of the projects in-progress at the end of the current and prior fiscal years have changed in the factors affecting the year-end balances in the asset CIEB, and the liability BIEC: 2022 2021 Number of projects in progress at year-end 19 14 Aggregate percent complete at year-end 47 % 32 % Average total value of projects in progress at year-end $ 795,000 $ 963,000 Percentage of total value invoiced to customer 35 % 30 % There are 5 more projects in-process at the end of the current fiscal year as compared with the prior year end and the average value of those projects has decreased by 17% between those two dates.
The status of the projects in-progress at the end of the current and prior fiscal years have changed in the factors affecting the year-end balances in the asset CIEB, and the liability BIEC: 2023 2022 Number of projects in progress at year-end 22 19 Aggregate percent complete at year-end 33% 47% Average total value of projects in progress at year-end $1,285,000 $795,000 Percentage of total value invoiced to customer 29% 35% There are 3 more projects in-process at the end of the current fiscal year as compared with the prior year end and the average value of those projects has increased by 62% between those two dates.
At May 31, 2022, we had 135 open sales orders in our backlog with a total sales value of $23.7 million. $7.6 million of the current backlog is on Projects already in progress. $9.3 million of the $22.0 million sales order backlog at May 31, 2021 was in progress at that date. 41% of the sales value in the backlog is for aerospace / defense customers compared to 43% at the end of fiscal 2021.
At May 31, 2023, we had 134 open sales orders in our backlog with a total sales value of $32.5 million. $18.1 million of the current backlog is on Projects already in progress. $7.6 million of the $23.7 million sales order backlog at May 31, 2022 was in progress at that date. 81% of the sales value in the backlog is for aerospace / defense customers compared to 41% at the end of fiscal 2022.
A breakdown of sales to these three general groups of customers, as a percentage of total net revenue for fiscal years ended May 31, 2022 and 2021 is as follows: Year ended May 31 2022 2021 Industrial 7 % 10 % Structural 53 % 45 % Aerospace / Defense 40 % 45 % -11- Table of Contents Total sales within North America increased 52% from last year.
A breakdown of sales to these three general groups of customers, as a percentage of total net revenue for fiscal years ended May 31, 2023 and 2022 is as follows: Year ended May 31 2023 2022 Industrial 10% 7% Structural 51% 53% Aerospace / Defense 39% 40% 12 Total sales within the USA increased 39% from last year.
Final delivery of product under these contracts is expected to occur during the next twelve months. -15- Table of Contents The year-end balances in this account are comprised of the following components: May 31, 2022 May 31, 2021 Billings to customers $ 2,711,000 $ 2,741,000 Less: Costs 1,019,000 1,011,000 Less: Estimated earnings 569,000 368,000 BIEC $ 1,123,000 $ 1,362,000 Number of projects in progress 8 5 Accounts payable, at $1,427,000 as of May 31, 2022, is 20% less than the prior year-end.
Final delivery of product under these contracts is expected to occur during the next twelve months. 16 The year-end balances in this account are comprised of the following components: May 31, 2023 May 31, 2022 Billings to customers $ 6,538,000 $ 2,711,000 Less: Costs 2,343,000 1,019,000 Less: Estimated earnings 2,203,000 569,000 BIEC $ 1,992,000 $ 1,123,000 Number of projects in progress 10 8 Accounts payable, at $1,718,000 as of May 31, 2023, is 20% more than the prior year-end.
The fair value of each stock option grant has been determined using the Black-Scholes model. The model considers assumptions related to exercise price, expected volatility, risk-free interest rate, and the weighted average expected term of the stock option grants. The Company used a weighted average expected term.
The Company recognized $417,000 and $201,000 of compensation cost for the years ended May 31, 2023 and 2022. The fair value of each stock option grant has been determined using the Black-Scholes model. The model considers assumptions related to exercise price, expected volatility, risk-free interest rate, and the weighted average expected term of the stock option grants.
Total sales to Asia decreased 5% from the prior year.
Total sales to Asia increased 2% from the prior year.
The Company measures compensation cost arising from the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee is required to provide service in exchange for the award. The Company recognized $201,000 and $154,000 of compensation cost for the years ended May 31, 2022 and 2021.
Options not exercised by the end of the term expire. The Company measures compensation cost arising from the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee is required to provide service in exchange for the award.
These are primarily inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued commissions, billings in excess of costs and estimated earnings, and debt service. The Company's primary sources of liquidity have been operations and bank financing. Capital expenditures for the year ended May 31, 2022 were $1,392,000 compared to $1,622,000 in the prior year.
These are primarily short-term investments, inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued expenses and billings in excess of costs and estimated earnings. The Company's primary source of liquidity has been operations. Capital expenditures for the year ended May 31, 2023 were $3,359,000 compared to $1,392,000 in the prior year.
The Company has a $10,000,000 demand line of credit from a bank, with interest payable at the Company's option of 30, 60 or 90 day LIBOR rate plus 2.25%. There is no outstanding balance at May 31, 2022 or May 31, 2021. The outstanding balance on the line of credit fluctuates as the Company's various long-term projects progress.
The Company has a $10,000,000 bank demand line of credit, with interest payable at the Company's option of 30, 60 or 90 day LIBOR rate plus 2.25%. Interest payable will change from LIBOR rate plus 2.25% to SOFR rate plus 2.365% effective July 1, 2023. There is no outstanding balance at May 31, 2023 or May 31, 2022.
Weighted- Number of Average Options Exercise Price Options outstanding and exercisable at May 31, 2021: 267,750 $ 11.60 Options granted: 66,750 $ 10.69 Less: Options expired: 51,500 — Options outstanding and exercisable at May 31, 2022: 283,000 $ 11.43 Closing value per share on NASDAQ at May 31, 2022: $ 9.30 -13- Table of Contents Capital Resources, Line of Credit and Long-Term Debt The Company's primary liquidity is dependent upon its working capital needs.
Weighted- Number of Average Options Exercise Price Options outstanding and exercisable at May 31, 2022: 283,000 $ 11.43 Options granted: 85,000 $ 15.75 Less: Options exercised: 30,500 $ 9.57 Less: Options expired: 4,500 - Options outstanding and exercisable at May 31, 2023: 333,000 $ 12.70 Closing value per share on NASDAQ at May 31, 2023: $ 18.55 14 Capital Resources, Line of Credit and Long-Term Debt The Company's primary liquidity is dependent upon its working capital needs.
Net revenue by geographic region, as a percentage of total net revenue for fiscal years ended May 31, 2022 and 2021 is as follows: Year ended May 31 2022 2021 North America 78 % 70 % Asia 14 % 20 % Other 8 % 10 % The gross profit as a percentage of net revenue of 28% in the current period is double the 14% recorded in the same period of the prior year.
Net revenue by geographic region, as a percentage of total net revenue for fiscal years ended May 31, 2023 and 2022 is as follows: Year ended May 31 2023 2022 USA 81% 76% Asia 11% 14% Other 8% 10% The gross profit as a percentage of net revenue of 40% in the current period is nine percentage points greater than the same period of the prior year (31%).
The ETR for the fiscal year ended May 31, 2022 is 12%, compared to the ETR for the prior year of -56%. -12- Table of Contents A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows: 2022 2021 Computed tax provision at the expected statutory rate $ 538,000 $ 143,000 Tax effect of permanent differences: Research tax credits (275,000 ) (218,000 ) Foreign-derived intangible income deduction (12,000 ) — U.S.
The ETR for the fiscal year ended May 31, 2023 is 16%, compared to the ETR for the prior year of 12%. 13 A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows: 2023 2022 Computed tax provision at the expected statutory rate $ 1,575,000 $ 538,000 Tax effect of permanent differences: Research tax credits (284,000) (275,000) Foreign-derived intangible income deduction (67,000) (12,000) Other permanent differences 1,000 3,000 Other (7,000) 63,000 $ 1,218,000 $ 317,000 The foreign-derived intangible income deduction is a tax deduction provided to corporations that sell goods or services to foreign customers.
Accounts Receivable, Costs and Estimated Earnings in Excess of Billings (“CIEB”) and Billings in Excess of Costs and Estimated Earnings (“BIEC”) May 31, 2022 May 31, 2021 Increase /(Decrease) Accounts and other receivables $ 4,467,000 $ 4,121,000 $ 346,000 8 % Less: Other receivable — 741,000 (741,000 ) -100 % Accounts receivable 4,467,000 3,380,000 1,087,000 32 % CIEB 3,336,000 1,500,000 1,836,000 122 % Less: BIEC 1,123,000 1,362,000 (239,000 ) -18 % Net $ 6,680,000 $ 3,518,000 $ 3,162,000 90 % Number of an average day’s sales outstanding in accounts receivable (DSO) 42 42 -14- Table of Contents The Company combines the totals of accounts receivable, the asset CIEB, and the liability BIEC, to determine how much cash the Company will eventually realize from revenue recorded to date.
Accounts Receivable, Costs and Estimated Earnings in Excess of Billings (“CIEB”) and Billings in Excess of Costs and Estimated Earnings (“BIEC”) May 31, 2023 May 31, 2022 Increase /(Decrease) Accounts receivable 5,554,000 4,467,000 1,087,000 24% CIEB 4,124,000 3,336,000 788,000 24% Less: BIEC 1,992,000 1,123,000 869,000 77% Net $ 7,686,000 $ 6,680,000 $ 1,106,000 15% Number of an average day’s sales outstanding in accounts receivable (DSO) 47 42 15 The Company combines the totals of accounts receivable, the asset CIEB, and the liability BIEC, to determine how much cash the Company will eventually realize from revenue recorded to date.
Total sales in the current period and the changes in the current period compared to the prior period, are not necessarily representative of future results.
The Company's backlog, revenues, commission expense, gross margins, gross profits, and net income fluctuate from period to period. Total sales in the current period and the changes in the current period compared to the prior period, are not necessarily representative of future results.
The provision for potential inventory obsolescence was zero and $1,500,000 for the years ended May 31, 2022 and 2021.
There was $322,000 and $772,000 of inventory disposed of during the years ended May 31, 2023 and 2022. The provision for potential inventory obsolescence was $295,000 and zero for the years ended May 31, 2023 and 2022.
As of May 31, 2022, the Company had State investment tax credit carryforwards of approximately $389,000 expiring through May 2027. -10- Table of Contents Results of Operations A summary of the period-to-period changes in the principal items included in the consolidated statements of income is shown below: Summary comparison of the years ended May 31, 2022 and 2021 Increase / (Decrease) Sales, net $ 8,357,000 Cost of goods sold $ 2,904,000 Selling, general and administrative expenses $ 628,000 Income before provision for income taxes $ 1,875,000 Provision for income taxes $ 698,000 Net income $ 1,177,000 For the year ended May 31, 2022 (All figures being discussed are for the year ended May 31, 2022 as compared to the year ended May 31, 2021.) Year ended May 31 Change 2022 2021 Amount Percent Net Revenue $ 30,867,000 $ 22,510,000 $ 8,357,000 37 % Cost of sales 22,239,000 19,335,000 2,904,000 15 % Gross profit $ 8,628,000 $ 3,175,000 $ 5,453,000 172 % … as a percentage of net revenues 28 % 14 % The Company's consolidated results of operations showed a 37% increase in net revenues and an increase in net income of 110%.
As of May 31, 2023, the Company had State investment tax credit carryforwards of approximately $424,000 expiring through May 2028. 11 Results of Operations A summary of the period-to-period changes in the principal items included in the consolidated statements of income is shown below: Summary comparison of the years ended May 31, 2023 and 2022 Increase / (Decrease) Sales, net $ 9,332,000 Cost of goods sold $ 2,893,000 Research and development costs $ 98,000 Selling, general and administrative expenses $ 2,005,000 Income before provision for income taxes $ 4,949,000 Provision for income taxes $ 901,000 Net income $ 4,048,000 For the year ended May 31, 2023 (All figures being discussed are for the year ended May 31, 2023 as compared to the year ended May 31, 2022.) Year ended May 31 Change 2023 2022 Amount Percent Net Revenue $ 40,199,000 $ 30,867,000 $ 9,332,000 30% Cost of sales 24,133,000 21,240,000 2,893,000 14% Gross profit $ 16,066,000 $ 9,627,000 $ 6,439,000 67% … as a percentage of net revenues 40% 31% The Company's consolidated results of operations showed a 30% increase in net revenues and an increase in net income of 181%.
Other income during the current period includes ERC income of $54,000. The Company's effective tax rate (ETR) is calculated based upon current assumptions relating to the year's operating results and various tax related items.
Operating income of $6,809,000 for the year ended May 31, 2023, showed significant improvement from the $2,473,000 operating income in the prior year. The Company's effective tax rate (ETR) is calculated based upon current assumptions relating to the year's operating results and various tax related items.
This decrease is normal fluctuation of this account and is not considered to be unusual. The Company expects the current accounts payable amount to be paid during the next twelve months. Commission expense on applicable sales orders is recognized at the time revenue is recognized. The commission is paid following receipt of payment from the customers.
This increase is normal fluctuation of this account and is not considered to be unusual. The Company expects the current accounts payable amount to be paid during the next twelve months. Accrued expenses of $4,078,000 increased 19% from the prior year level of $3,414,000.
Selling, General and Administrative Expenses Year ended May 31 Change 2022 2021 Amount Percent Outside Commissions $ 495,000 $ 719,000 $ (224,000 ) -31 % Other SG&A 5,660,000 4,808,000 852,000 18 % Total SG&A $ 6,155,000 $ 5,527,000 $ 628,000 11 % … as a percentage of net revenues 20 % 25 % Selling, general and administrative expenses increased 11% from the prior year.
Selling, General and Administrative Expenses Years ended May 31 Change 2023 2022 Amount Percent S G & A $ 8,160,000 $ 6,155,000 $ 2,005,000 33% … as a percentage of net revenues 20% 20% Selling, general and administrative expenses increased 33% from the prior year, primarily from increased personnel costs.
Other accrued expenses of $3,329,000 increased 94% from the prior year level of $1,715,000. This increase is due to increases in customer prepayments on projects not yet started along with an increase in accrued incentive compensation resulting from increased earnings and sales order bookings.
This increase is due to increases in accrued incentive compensation resulting from increased earnings and sales order bookings, offset by a reduction in customer prepayments.
As a percentage of the total sales order backlog, orders from structural customers accounted for 50% at May 31, 2022 and 55% at May 31, 2021. The Company's backlog, revenues , commission expense, gross margins, gross profits, and net income fluctuate from period to period.
As a percentage of the total sales order backlog, orders from structural customers accounted for 15% at May 31, 2023 and 50% at May 31, 2022. The Company expects to recognize revenue for the majority of the backlog during the fiscal year ending May 31, 2024, with the remainder during fiscal year ending May 31, 2025.
The significant increase in gross profit as a percentage of revenue is primarily due to the increase in domestic sales to structural customers. The prior year results were adversely affected by the pandemic. At May 31, 2021, we had 132 open sales orders in our backlog with a total sales value of $22.0 million.
These actions combined with benefits from the Company’s continuous improvement initiatives and increased volume have helped to improve the gross margin as a percentage of revenue over the prior year. At May 31, 2022, we had 135 open sales orders in our backlog with a total sales value of $23.7 million.
The legislation that created the PPP and permitted the SBA to forgive loans made through the PPP also directed that the forgiven loan would not be taxable income to the recipient. Stock Options The Company has stock option plans which provide for the granting of nonqualified or incentive stock options to officers, key employees and non-employee directors.
It became available through Public Law 115-97, known as the Tax Cuts and Jobs Act. Stock Options The Company has stock option plans which provide for the granting of nonqualified or incentive stock options to officers, key employees and non-employee directors. Options granted under the plans are exercisable over a ten-year term.
Removed
During fiscal 2021, the Company began a thorough review of the facilities including the flow of inventory through the factory and warehouse areas to determine the most efficient utilization of available space. This review continued through fiscal 2022.
Added
The Company has been able to increase sales prices to recover more of the increased costs for materials and labor that were incurred over the past year. Management continues to work with suppliers to obtain more visibility of conditions affecting their respective markets.
Removed
Inventory purchasing practices and stocking levels were also evaluated and it was determined that a significant portion of the older items would be disposed of while the allowance for potential inventory obsolescence would be increased as more items are identified for disposal. There was $772,000 and $1,101,000 of inventory disposed of during the years ended May 31, 2022 and 2021.
Added
Selling, General and Administrative Expenses Research and Development Costs Years ended May 31 Change 2023 2022 Amount Percent R & D $ 1,097,000 $ 999,000 $ 98,000 10% … as a percentage of net revenues 2.7% 3.2% Research and development costs increased 10% from the prior year.
Removed
Outside commission expense decreased 31% from last year's level due to the significant decrease in the level of commissionable sales recorded in the current period as compared to the prior period. Other selling, general and administrative expenses increased 18% from last year.
Added
The Company expects to collect the net accounts receivable balance, including the retainage, during the next twelve months.
Removed
The Company reduced its reliance on outside manufacturers’ representatives in FY22 and increased its internal sales force in an effort to increase profitable sales. This is the primary reason that the level of commissionable sales has decreased while the other SG&A expenses have increased.
Removed
The above factors resulted in operating income of $2,473,000 for the year ended May 31, 2022, showing significant improvement from the $2,352,000 operating loss in the prior year.
Removed
Other income during the prior period includes $2,972,000 of financial assistance provided by the U.S. federal government as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Consolidated Appropriations Act of 2021 (CAA): a.) $1,462,000 of income due to the forgiveness of the loan by the Small Business Administration (SBA) under the Paycheck Protection Program (PPP), and b.) $1,510,000 of Employee Retention Credit (ERC) income.
Removed
Government PPP loan forgiven — (307,000 ) Other permanent differences 3,000 42,000 Other 63,000 (41,000 ) $ 317,000 $ (381,000 ) The foreign-derived intangible income deduction is a tax deduction provided to corporations that sell goods or services to foreign customers. It became available through Public Law 115-97, known as the Tax Cuts and Jobs Act.
Removed
Options granted under the plans are exercisable over a ten-year term. Options not exercised by the end of the term expire.
Removed
The Company continues to rework slow-moving inventory, where applicable, to convert it to product to be used on customer orders. During fiscal 2021, the Company began a thorough review of the inventory to identify and dispose of items that had not been used for several years and were unlikely to be used in the foreseeable future.
Removed
Other receivable is an amount of ERC claimed by the Company for the second calendar quarter of 2021 and was received in the third calendar quarter of 2021.
Removed
Accrued commissions as of May 31, 2022 are $85,000. This is 68% less than the $269,000 accrued at the prior year-end. This decrease is generally due to the decrease in the level of commissionable sales, discussed above. The Company expects the current accrued amount to be paid during the next twelve months.

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