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What changed in TAYLOR DEVICES, INC.'s 10-K — 2023 vs 2024

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

+85 added−118 removedSource: 10-K (2024-08-15) vs 10-K (2023-08-15)

Top changes in TAYLOR DEVICES, INC.'s 2024 10-K

85 paragraphs added · 118 removed · 72 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeCustom actuators are typically of the gas-charged type, using high pressure, that have custom features not available from other suppliers. These actuators are used for special aerospace and defense applications. Distribution The Company does not rely on sales representatives in the United States but uses the services of several representatives throughout the rest of the world.
Biggest changeCustom Shock and Vibration Isolators are comprised of various configurations including liquid springs, fluid dampers, elastomeric springs and Pumpkin™ Mounts. They are typically used for defense applications. Custom Actuators are typically of the gas-charged type, using high pressure, that have custom features not available from other suppliers. These actuators are used for special aerospace and defense applications.
Sales representatives typically have non-exclusive agreements with the Company, which, in most instances, provide for payment of commissions on sales at 5% to 10% of the product's net aggregate selling price. A limited number of distributors also have non-exclusive agreements with the Company to purchase the Company's products for resale purposes.
Sales representatives typically have non-exclusive agreements with the Company, which, in most instances, provide for payment of commissions on sales at 5% to 10% of the product's net aggregate selling price. A limited number of foreign distributors also have non-exclusive agreements with the Company to purchase the Company's products for resale purposes.
Specialized technical sales in custom marketing activities outside the U.S.A. are serviced by these sales representatives, under the direction and with the assistance of the Company's President and in-house technical sales staff.
Specialized technical sales in custom marketing activities outside the U.S. are serviced by these sales representatives under the direction and with the assistance of the Company's President and in-house technical sales staff.
The 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.
The Company had no inventory out on consignment and there were no consignment sales for the years ended May 31, 2024 and 2023. No extended payment terms are offered. During the year ended May 31, 2024, delivery time after receipt of orders averaged 8 to 10 weeks for the Company's standard products.
Fluidicshoks® are small, extremely compact shock absorbers with up to 19,200 inch-pound capacities, produced in 12 standard sizes for primary use in the defense, aerospace and commercial industry.
Fluidicshoks® are small, extremely compact shock absorbers with up to 19,200 inch-pound capacities, produced in 12 standard sizes for primary use in the defense, aerospace and commercial industries.
These similar products are included in one of eight categories; namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs, Vibration Dampers, Machined Springs and Custom Actuators. Custom derivations of all of these products are designed and manufactured for many aerospace and defense applications.
These similar products are included in one of nine categories, namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs, Vibration Dampers, Machined Springs, Custom Shock and Vibration Isolators, and Custom Actuators. Custom derivations of all of these products are designed and manufactured for many aerospace and defense applications.
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.
Patents, Trademarks and Licenses The Company holds ten patents expiring at different times until the year 2040. 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.
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.
Due to the volatility of structural and aerospace/defense programs, we usually require progress payments for larger projects where the Company supplies custom designed components. 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.
The following is a summary of the capabilities and applications for these products. Seismic Dampers are designed to mitigate the effects of earthquakes on structures and represent a substantial part of the business of the Company.
The following is a summary of the capabilities and applications for these products. Seismic Dampers are designed to mitigate the effects of earthquakes on structures and represent a substantial portion of the Company’s sales.
The Company is subject to the Occupational Safety and Health Act ("OSHA") and the rules and regulations promulgated thereunder, which establish strict standards for the protection of employees, and impose fines for violations of such standards. The Company believes that it is in substantial compliance with OSHA provisions and does not anticipate any material corrective expenditures in the near future.
The Company is subject to the Occupational Safety and Health Act ("OSHA") and the rules and regulations promulgated thereunder, which establish strict standards for the protection of employees, and impose fines for violations of such standards. The Company believes that it is in substantial compliance with OSHA.
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 Company also engages in research testing of its products. For the fiscal years ended May 31, 2024 and 2023, the Company expended $388,000 and $1,097,000, respectively, on product research. For the years ended May 31, 2024 and 2023, government-funded research and development totaled $818,000 and $581,000, respectively.
Item 1. Business. The Company was incorporated in the State of New York on July 22, 1955 and is engaged in the design, development, manufacture and marketing of shock absorption, rate control, and energy storage devices for use in various types of machinery, equipment and structures.
Item 1. Business. Taylor Devices, Inc. (referred to herein as the “Company,” “we,” “us” or “our”) was incorporated in the State of New York on July 22, 1955 and is engaged in the design, development, manufacture and marketing of shock absorption, rate control, and energy storage devices for use in various types of machinery, equipment and structures.
The Company currently incurs only moderate costs with respect to disposal of hazardous waste and compliance with OSHA regulations. The Company is also subject to regulations relating to production of products for the federal government. These regulations allow for frequent governmental audits of the Company's operations and fairly extensive testing of Company products.
The Company is also subject to regulations relating to production of products for the federal government. These regulations allow for frequent governmental audits of the Company's operations and extensive testing of Company products.
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.
For structural applications outside of the U.S., the Company competes directly with several other firms, particularly in Japan and Taiwan.
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.
Dependence Upon Major Customers Sales to four customers approximated 40% (21%, 7%, 7%, and 5%, respectively) of net sales for 2024. The loss of any or all of these customers, unless the business is replaced by the Company, would have a material adverse effect on the Company.
Competition The Company faces competition on mature aerospace and defense programs which may use more conventional products manufactured under less stringent government specifications. Two foreign companies and two U.S. companies are the Company's main competitors in the production of crane buffers. The Company competes directly against two other firms supplying structural damping devices for use in the United States.
For the industrial products group, two foreign companies and two U.S. companies are the Company’s main competitors in the production of crane buffers and industrial shock absorbers. The Company competes directly against two other firms supplying structural damping devices for use in the U.S.
Government Regulation Compliance with federal, state, and local laws and regulations which have been enacted or adopted regulating the discharge of materials into the environment has had no material effect on the Company, and the Company believes that it is in substantial compliance with such provisions.
For the years ended May 31, 2024 and 2023, customer-funded research and development totaled $477,000 and $285,000, respectively. Government Regulation Compliance with federal, state, and local laws and regulations regulating the discharge of materials into the environment has had no material effect on the Company, and the Company believes that it is in substantial compliance with these laws and regulations.
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.
The Company competes with numerous other firms that supply alternative seismic protection technologies. 4 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 suppliers would not have a material adverse effect on the Company.
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
The Company believes that it is in substantial compliance with these regulations. 5 Employees As of May 31, 2024, the Company had 128 total employees, consisting of 125 full-time employees and three part-time employees. The Company has good relations with its employees, and none of the Company’s employees are covered by a collective bargaining agreement.
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Sales and Distribution The Company uses a technical sales force consisting of Company employees for sales in the United States. The Company uses the services of several non-employee sales representatives for sales throughout the rest of the world.
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Competition The Company faces some competition for hydraulic energy absorbers on mature aerospace and defense programs. Other competition in these sectors include the use of competing technologies, not necessarily of similar design as Taylor Devices’ products.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeTotal area of the two buildings is 46,000 square feet. One building includes a machine shop containing custom-built machinery for boring, deep-hole drilling and turning of parts. Another is used for painting and packaging parts and completed units. The Company's real properties are subject to a negative pledge agreement with its lender, M&T Bank.
Biggest changeTotal area of the two buildings is 46,000 square feet. One building includes a machine shop containing custom-built machinery for boring, deep-hole drilling and turning of parts. Another is used for painting and packaging parts and completed units.
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.
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 manufactured by the Company 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 2. Properties. The Company's production facilities occupy approximately six acres on Tonawanda Island in North Tonawanda, New York and are comprised of four interconnected buildings and two adjacent buildings.
Item 2. Properties. The Company's production facilities occupy approximately six acres on Tonawanda Island in North Tonawanda, New York and are comprised of four interconnected buildings and two adjacent buildings, each of which is owned by the Company.
Removed
The Company has agreed with the lender that, for so long as the credit facilities with the lender are outstanding, the Company will not sell, lease or mortgage any of its real properties.
Removed
Additional 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

Legal Proceedings — active lawsuits and investigations

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Removed
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.
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Item 3. Legal Proceedings. Refer to Note 17, “Legal Proceedings,” to the Notes to Consolidated Financial Statements for additional information regarding the Company’s legal proceedings, which is incorporated by reference into this Item 3. Item 4. Mine Safety Disclosures. Not applicable. 7 PART II
Removed
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”).
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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 .
Removed
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.
Removed
On June 13, 2023, Special Master Peck issued an Amended Final Scheduling Order.
Removed
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.
Removed
Management Response . Management of the Company vigorously disputes the allegations in the Third-Party Complaint.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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 changeA 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.
Biggest changeA 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 approximately 3,300. Dividends The Company does not pay a cash dividend and plans to retain cash in the foreseeable future to fund working capital needs. Item 6. [Reserved].
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information The Company's Common Stock trades on the NASDAQ Capital Market of the National Association of Securities Dealers Automated Quotation ("NASDAQ") stock market under the symbol TAYD.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information The Company's Common Stock trades on the Nasdaq Stock Market under the symbol TAYD. Holders As of August 1, 2024, the number of record holders of the Company's Common Stock was 381.
Removed
The high and low sales information noted below for the quarters of fiscal year 2023 and fiscal year 2022 were obtained from NASDAQ.
Removed
Fiscal 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.
Removed
The Company plans to retain cash in the foreseeable future to fund working capital needs. Rights Plan As of September 25, 2018, the Company's Board of Directors adopted a shareholder rights plan designed to deter coercive or unfair takeover tactics and prevent an acquirer from gaining control of the Company without offering a fair price to shareholders.
Removed
Under the plan, certain rights ("Rights") were distributed as a dividend on each share of Common Stock (one Right for each share of Common Stock) held as of the close of business on October 2, 2018.
Removed
Each whole Right entitles the holder, under certain defined conditions, to buy one two-thousandths (1/2000) of a newly issued share of the Company's Series A Junior Participating Preferred Stock ("Series A Preferred Stock") at a purchase price of $5.00 per unit of one two-thousandths of a share.
Removed
Rights attach to and trade with the shares of Common Stock, without being evidenced by a separate certificate. No separate Rights certificates will be issued unless and until the Rights detach from Common Stock and become exercisable for shares of the Series A Preferred Stock.
Removed
The Rights become exercisable to purchase shares of Preferred Stock (or, in certain circumstances, Common Stock) only if (i) a person acquired 15% or more of the Company's Common Stock, or (ii) a person commenced a tender or exchange offer for 10% or more of the Company's Common Stock, or (iii) the Board of Directors determined that the beneficial owner of at least 10% of the Company's Common Stock intended to cause the Company to take certain actions adverse to it and its shareholders or that such ownership would have a material adverse effect on the Company.
Removed
The Rights Plan will expire on October 5, 2028. Issuer Purchases of Equity Securities A share repurchase agreement with a major broker-dealer, under which the Company repurchased shares of its common stock on the open market, has been terminated by the Company.
Removed
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.
Removed
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.
Removed
Such purchases are without any contribution on the part of the Company. As of May 31, 2023, 216,365 shares were available for issuance.

Item 7. Management's Discussion & Analysis

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

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Biggest changeAs 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%.
Biggest changeResults 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, 2024 and 2023 Increase / (Decrease) Sales, net $ 4,384,000 Cost of goods sold $ 494,000 Research and development costs $ (708,000) Selling, general and administrative expenses $ 1,928,000 Other income (expense) $ 745,000 Income before provision for income taxes $ 3,415,000 Provision for income taxes $ 704,000 Net income $ 2,711,000 10 For the year ended May 31, 2024 (All figures being discussed are for the year ended May 31, 2024 as compared to the year ended May 31, 2023.) Year ended May 31 Change 2024 2023 Amount Percent Net Revenue $ 44,583,000 $ 40,199,000 $ 4,384,000 11% Cost of sales 23,744,000 23,250,000 494,000 2% Gross profit $ 20,839,000 $ 16,949,000 $ 3,890,000 23% … as a percentage of net revenues 47% 42% The Company's consolidated results of operations showed an 11% increase in net revenues and an increase in net income of 43%.
Information in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this 10-K that does not consist of historical facts are "forward-looking statements." Statements accompanied or qualified by, or containing, words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," "assume" and "optimistic" constitute forward-looking statements and, as such, are not a guarantee of future performance.
Information in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-K that does not consist of historical facts are "forward-looking statements." Statements accompanied or qualified by, or containing, words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," "assume" and "optimistic" constitute forward-looking statements and, as such, are not a guarantee of future performance.
The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements.
These statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements.
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.
Of this, approximately 85% is work in process, 3% 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.
Average cost approximates first-in, first-out cost. Maintenance and other inventory represent stock that is estimated to have a product life-cycle in excess of twelve-months. This stock represents certain items the Company is required to maintain for service of products sold, and items that are generally subject to spontaneous ordering.
Maintenance and other inventory represent stock that is estimated to have a product life-cycle in excess of twelve-months. This stock represents certain items the Company is required to maintain for service of products sold, and items that are generally subject to spontaneous ordering.
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.
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, 2024, 59% of revenue was recorded for contracts in which revenue was recognized over time while 41% was recognized at a point in time.
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.
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, 2024 equaled 0.2% of sales for that period.
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.
The $5,601,000 balance in this account at May 31, 2024 is in comparison to a $1,992,000 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.
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.
At May 31, 2023, we had 134 open sales orders in our backlog with a total sales value of $32.5 million. $18.6 million of the current backlog is on Projects already in progress. $18.1 million of the $32.5 million sales order backlog at May 31, 2023 was in progress at that date. 72% of the sales value in the backlog is for aerospace / defense customers compared to 74% at the end of fiscal 2023.
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.
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. 9 For financial statement presentation purposes, the Company nets progress billings against the total costs incurred and estimated earnings on uncompleted contracts.
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.
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, 2024, we had 134 open sales orders in our backlog with a total sales value of $33.1 million.
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.
This deferred tax asset balance is 38% ($594,000) higher 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.
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 $4,357,000 balance in this account at May 31, 2024 is a 6% 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 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.
The Company saw a 30% decrease 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 71% increase in sales to customers in aerospace / defense and a 12% decrease in sales to customers using our products in industrial applications.
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.
The Company has been able to increase sales prices to recover more of the increased costs for materials and labor that were incurred during the year ended May 31, 2024. Management continues to work with suppliers to obtain more visibility of conditions affecting their respective markets.
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.
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 29, 2024, was billed to those customers in the current fiscal quarter ended May 31, 2024.
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.
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: 2024 2023 Number of projects in progress at year-end 19 22 Aggregate percent complete at year-end 53% 33% Average total value of projects in progress at year-end $2,089,000 $1,285,000 Percentage of total value invoiced to customer 56% 29% There are three less 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 63% between those two dates.
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.
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 $5,212,000 as of May 31, 2024 includes no retainage by customers on long-term construction projects.
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 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 $10.4 million of taxable income in order to realize our deferred tax assets recorded as of May 31, 2024 of $2,176,000.
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.
There was $791,000 and $322,000 of inventory disposed of during the years ended May 31, 2024 and 2023. The provision for potential inventory obsolescence was $386,000 and $295,000 for the years ended May 31, 2024 and 2023.
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 year ended May 31, 2024 for other-than long-term projects (non-projects) were 15% higher than the level recorded in the prior year. The number of Projects in-process fluctuates from period to period. The changes from the prior year to the year ended May 31, 2024 are not necessarily representative of future results.
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 year-end balances in the CIEB account are comprised of the following components: May 31, 2024 May 31, 2023 Costs $ 9,644,000 $ 3,006,000 Estimated earnings 9,782,000 2,648,000 Less: Billings to customers 15,069,000 1,530,000 CIEB $ 4,357,000 $ 4,124,000 Number of projects in progress 14 12 14 As noted above, BIEC represents billings to customers in excess of revenues recognized.
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.
The balance of the valuation allowance is unchanged at $29,000 at both May 31, 2024 and May 31, 2023. 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. Average cost approximates first-in, first-out cost.
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.
A breakdown of sales to these three general groups of customers, as a percentage of total net revenue for fiscal years ended May 31, 2024 and 2023 is as follows: Year ended May 31 2024 2023 Industrial 8% 10% Structural 32% 51% Aerospace / Defense 60% 39% Total sales within the U.S. increased 18% from last year.
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 bank is not committed to make loans under this line of credit and no commitment fee is charged. 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.
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.
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.
The preparation of the Company's financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported. These estimates, assumptions and judgments are affected by management's application of accounting policies, which are discussed in Note 1, "Summary of Significant Accounting Policies", and elsewhere in the accompanying consolidated financial statements.
These estimates, assumptions and judgments are affected by management's application of accounting policies, which are discussed in Note 1, "Summary of Significant Accounting Policies", and elsewhere in the accompanying consolidated financial statements.
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 number of an average day's sales outstanding in accounts receivable (DSO) was 39 days at May 31, 2024 and 47 days at May 31, 2023. The Company expects to collect the net accounts receivable balance during the next twelve months.
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%).
Net revenue by geographic region, as a percentage of total net revenue for fiscal years ended May 31, 2024 and 2023 is as follows: Year ended May 31 2024 2023 U.S. 86% 81% Asia 4% 11% Other 10% 8% The gross profit as a percentage of net revenue of 47% in the year ended May 31, 2024 is five percentage points greater than the same period of the prior year (42%).
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.
Revenues recorded in the year ended May 31, 2024 for long-term projects (“Project(s)”) were 8% higher than the level recorded in the prior year. We had 39 Projects in process during the year ended May 31, 2024 compared with 52 during the same period last year.
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.
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. Accrued expenses of $4,664,000 increased 14% from the prior year level of $4,078,000. This change is due to increases in accrued incentive compensation resulting from increased earnings.
Total sales to Asia increased 2% from the prior year.
Total sales to Asia decreased 55% from the prior year.
Management provides for probable uncollectible accounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts after considering the age of each receivable and communications with the customers involved.
Management provides for probable uncollectible accounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts after considering the age of each receivable and communications with the customers involved. 8 Balances that are collected, for which a credit to a valuation allowance had previously been recorded, result in a current-period reversal of the earlier transaction charging earnings and crediting a valuation allowance.
A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct.
The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations.
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.
A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows: 2024 2023 Computed tax provision at the expected statutory rate $ 2,293,000 $ 1,575,000 Tax effect of permanent differences: Research tax credits (408,000) (284,000) Foreign-derived intangible income deduction (142,000) (67,000) Stock option costs 49,000 - Other permanent differences 3,000 1,000 Other 127,000 (7,000) $ 1,922,000 $ 1,218,000 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, 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.
The Company disposed of approximately $791,000 and $322,000 of obsolete inventory during the years ended May 31, 2024 and 2023, respectively. 13 Accounts Receivable, Costs and Estimated Earnings in Excess of Billings (“CIEB”) and Billings in Excess of Costs and Estimated Earnings (“BIEC”) May 31, 2024 May 31, 2023 Increase /(Decrease) Accounts receivable 5,212,000 5,554,000 (342,000 ) -6% CIEB 4,357,000 4,124,000 233,000 6% Less: BIEC 5,601,000 1,992,000 3,609,000 181% Net $ 3,968,000 $ 7,686,000 $ (3,718,000 ) -48% Number of an average day’s sales outstanding in accounts receivable (DSO) 39 47 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.
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 has commitments to make capital expenditures of approximately $1,360,000 as of May 31, 2024. These capital expenditures will be primarily for new manufacturing and testing equipment.
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.
Selling, General and Administrative Expenses Years ended May 31 Change 2024 2023 Amount Percent S G & A $ 10,971,000 $ 9,043,000 $ 1,928,000 21% … as a percentage of net revenues 25% 22% Selling, general and administrative expenses increased 21% from the prior year, primarily from increased personnel costs.
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.
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.
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 year-end balances in this account are comprised of the following components: May 31, 2024 May 31, 2023 Billings to customers $ 7,211,000 $ 6,538,000 Less: Costs 933,000 2,343,000 Less: Estimated earnings 677,000 2,203,000 BIEC $ 5,601,000 $ 1,992,000 Number of projects in progress 5 10 Accounts payable, at $1,439,000 as of May 31, 2024, is 16% less than the prior year-end.
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.
The Company has a $10,000,000 demand line of credit with M&T Bank, with interest payable at the Company's option of 30, 60 or 90 day SOFR rate plus 2.365%. There is no outstanding balance at May 31, 2024. The line is secured by a negative pledge of the Company's real and personal property and is subject to renewal annually.
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.
Except as required by law, 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.
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.
As a percentage of the total sales order backlog, orders from structural customers accounted for 22% at May 31, 2024 and 22% at May 31, 2023.
Inventory 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.
Inventory and Maintenance Inventory May 31, 2024 May 31, 2023 Increase /(Decrease) Raw materials $ 887,000 $ 674,000 $ 213,000 32% Work-in-process 6,412,000 5,005,000 1,407,000 28% Finished goods 213,000 262,000 (49,000) -19% Inventory 7,512,000 83% 5,941,000 86% 1,571,000 26% Maintenance and other inventory 1,580,000 17% 1,003,000 14% 577,000 58% Total $ 9,092,000 100% $ 6,944,000 100% $ 2,148,000 31% Inventory turnover 3.0 3.5 Inventory, at $7,512,000 as of May 31, 2024, is 26 percent higher than at the prior year-end.
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.
Working capital consists primarily of cash and 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 excess cash flow from operations.
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.
Research and Development Costs Years ended May 31 Change 2024 2023 Amount Percent R & D $ 388,000 $ 1,097,000 $ (709,000) -65% … as a percentage of net revenues 0.9% 2.7% Research and development costs decreased 65% from the prior year. This decrease was driven by the completion of the Taylor Damped Moment Frame™ project.
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.
Other Income (expense) Other income increased 104% from the prior year due to increased interest income from higher levels of short-term investments during the course of the year. Provision for Income Taxes 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.
The Company and its subsidiary file consolidated Federal and State income tax returns.
The Company and its subsidiary file consolidated federal and state income tax returns. As of May 31, 2024, the Company had state investment tax credit carryforwards of approximately $470,000 expiring through May 2029.
Removed
Balances that are collected, for which a credit to a valuation allowance had previously been recorded, result in a current-period reversal of the earlier transaction charging earnings and crediting a valuation allowance.
Added
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 preparation of the Company's financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported.
Removed
Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations.
Added
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. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
Removed
The increase in sales to structural customers is primarily from domestic customers.
Added
The Company expects to recognize revenue for the majority of the backlog during the fiscal year ending May 31, 2025, with the remainder during the fiscal year ending May 31, 2026. 11 The Company's backlog, revenues, commission expense, gross margins, gross profits, and net income fluctuate from period to period.
Removed
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.
Added
Operating Income Operating income of $9,479,000 for the year ended May 31, 2024, showed significant improvement from the $6,809,000 operating income in the prior year. The increase in operating income was attributed to the decrease in research and development costs as well as improved gross margin performance.
Removed
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.
Added
The ETR for the fiscal year ended May 31, 2024 is 18%, compared to the ETR for the prior year of 16%.
Removed
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.
Added
It became available through Public Law 115-97, known as the Tax Cuts and Jobs Act. 12 Liquidity and Capital Resources, Line of Credit and Long-Term Debt The Company's primary liquidity requirements depend on its working capital and capital expenditure needs.
Removed
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.
Added
Capital expenditures for the year ended May 31, 2024 were $1,149,000 compared to $3,359,000 in the prior year. The Company also acquired Pumpkin™ Mounts intellectual property during the year ended May 31, 2024 for $300,000. Current year capital expenditures included new manufacturing machinery, testing equipment, upgrades to technology equipment and assembly / test facility improvements.
Removed
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.
Added
On January 4, 2024, the Company entered into a redemption agreement to purchase 459,015 of the Company’s shares of the capital stock of the Company, which represented approximately 13% of all of the issued and outstanding shares of capital stock of the Company as of January 8, 2024 (the “Closing Date”), from the Ira Sochet Trust and the Ira Sochet Roth IRA.
Removed
A summary of changes in the stock options outstanding during the year ended May 31, 2023 is presented below.
Added
Each of the foregoing counterparties are non-affiliates of the Company. The agreed purchase price was $19.92 per share, which constituted 87.6% of the average price ($22.74) at which shares of the Company's common stock traded on the Closing Date.
Removed
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.
Added
Final delivery of product under these contracts is expected to occur during the next twelve months.
Removed
The line is secured by a negative pledge of the Company's real and personal property. This line of credit is subject to the usual terms and conditions applied by the bank and is subject to renewal annually. The bank is not committed to make loans under this line of credit and no commitment fee is charged.
Removed
The Company disposed of approximately $322,000 and $772,000 of obsolete inventory during the years ended May 31, 2023 and 2022, respectively.
Removed
The Company expects to collect the net accounts receivable balance, including the retainage, during the next twelve months.
Removed
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.

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