What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-09-24 compared with 2020-09-21 · 190 added, 186 removed, 27 unchanged (93% of the section changed)

1 unchanged sentence

Business Outlook

Management expects revenues in fiscal

year 2021 to be higher than revenues during fiscal year 2020 and expects the net income per share to be higher in fiscal year 2021

than the net income per share during fiscal year 2020.

This expectation is driven by orders already in our sales backlog.

The Company currently expects new orders

in fiscal 2021 to approximate those received in fiscal year 2020.

As market factors including competition and product costs impact

gross profit margins, management will continue to evaluate our sales strategy, employment levels, and facility costs.

Management expects revenues in fiscal year 2022

to be higher than revenues during fiscal year 2021 and expects to generate net income per share as compared to the net loss per share

realized during fiscal year 2021.

These expectations are driven by orders already in our sales backlog.

Management continues to closely monitor the

impact of evolving workforce and supplier constraints, primarily from the effects from the pandemic, to our planned delivery schedules.

We continue to experience disruptions from workforce absences due to COVID-19 illnesses and direct contact exposures, resulting in self-isolating

protocols to be followed to ensure the safety of company personnel.

In addition, we are experiencing disruptions from workforce turnover,

as local businesses emerging from the pandemic compete for personnel.

Many of our positions require certain skillsets resulting in longer

than average time to fill position vacancies.

Some company suppliers continue to incur similar disruptions, in addition to incurring longer

lead times on certain raw materials.

Successful conversion of engineering program backlog

into sales is largely dependent on the execution and completion of our engineering design efforts.

It is not uncommon to experience

technical or scheduling delays which arise from time to time as a result of, among other reasons, design complexity, the availability

of personnel with the requisite expertise, and the requirements to obtain customer approval at various milestones.

Cost overruns

which may arise from technical and schedule delays could negatively impact the timing of the conversion of backlog into sales, or the

profitability of such sales.

We continue to experience technical and schedule delays with certain development programs.

these delays are being resolved as they arise and we do not expect any negative impact on our customer order fulfillment projections for

fiscal year 2022.

In April 2021, we received qualification approval on a significant engineering design and production contract which

allows us to begin the manufacturing of end units.

Engineering programs in both the funded and unfunded portions of the current backlog

aggregate $8.9 million.

The Company currently expects new orders in

fiscal 2022 to approximate those received in fiscal year 2021.

As market factors including competition and product costs impact gross

profit margins, management will continue to evaluate our sales strategy, employment levels, and facility costs.

During fiscal year 2021 the Company received

1 unchanged sentence

Our total backlog at June 30, 2021 was $65.6 million, as compared to $54.9 million at June 30, 2020.

Currently, we expect a minimum of $32 million of orders comprising the June 30, 2020 backlog will be filled during the fiscal year

ending June 30, 2021.

This $32 million will be supplemented by shipments which may be made against orders received during the 2021

Successful conversion of engineering program

backlog into sales is largely dependent on the execution and completion of our engineering design efforts.

It is not uncommon to

experience technical or scheduling delays which arise from time to time as a result of, among other reasons, design complexity,

the availability of personnel with the requisite expertise, and the requirements to obtain customer approval at various milestones.

Cost overruns which may arise from technical and schedule delays could negatively impact the timing of the conversion of backlog

into sales, or the profitability of such sales.

We continue to experience technical and schedule delays with our major development

The issues causing the delays are being resolved as they arise.

Engineering programs in both the funded and unfunded

portions of the current backlog aggregate $5.1 million.

The global outbreak of the novel strain of

coronavirus COVID-19 disease was declared a pandemic by The World Health Organization (WHO) during March 2020.

This resulted in

initial country and state-wide mandated closures of non-essential businesses lasting various durations as determined under local

jurisdictions.

In most instances, businesses have since re-opened, some with limited or reduced capacity due to adherence and compliance

with reopening and mitigation guidelines set in place to help prevent workplace exposures.

Deemed an essential business, authorized

by the Department of Homeland Security, we remained open and continue to be fully operational.

Global supply chain disruptions

from closures had a minor impact on our ability to ship product during the third and fourth quarters.

However, because the effects

of the pandemic continue, world-wide, we believe it is likely we will continue to experience some trickle-down effects to our direct

supply base which may impact our ability to ship certain scheduled deliveries during the first half of fiscal 2021.

we expect these disruptions to be minimal in nature and could result in our suppliers extending lead times for materials or, in

some rare instances, require us to procure materials from an alternate supplier in order to meet contractual dates which could

impact our anticipated material costs.

To date, we have experienced some slowdown in customer procurements and government contract

We continue to work with our customers and suppliers to mitigate issues as they become known.

we expect a minimum of $38 million of orders comprising the June 30, 2021 backlog will be filled during the fiscal year ending June 30,

This $38 million will be supplemented by shipments which may be made against orders received during the 2022 fiscal year.

In addition to the backlog, the Company currently

has outstanding opportunities representing in excess of $84 million in the aggregate as of September 10, 2020, for both repeat

and new programs.

The outstanding quotations encompass various new and previously manufactured power supplies, transformers, and

subassemblies.

However, there can be no assurance that the Company will acquire any of the anticipated orders described above,

many of which are subject to allocations of the United States defense spending and factors affecting the defense industry.

significant customers represented approximately 38% of the Company’s total sales in fiscal year 2020 and three significant

customers represented 54% of the Company’s total sales in fiscal year 2019.

These sales are in connection with multiyear

programs in which the Company is a significant contractor.

The June 30, 2020 backlog of $54.9 million included orders from four

customers that represent 19%, 13%, 10%, and 10%, respectively, of the total backlog.

The June 30, 2019 backlog of $45.6 million

includes orders from five customers that represent 16%, 13%, 11%, 11% and 10%, respectively, of the total backlog.

Although improvement

has been made in customer concentrations, this high customer concentration level continues to present significant risk.

of one of these customers or programs related to these customers, or customer requested deferrals of product delivery could significantly

impact the Company.

Historically, a small number of customers have

accounted for a large percentage of the Company’s total sales in any given fiscal year.

Management continues to pursue opportunities

with current and new customers with an overall objective of lowering the concentration of sales, mitigating excessive reliance

upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer.

the nature of our business, we believe our existing sales order backlog is fairly diversified in terms of customers and the category

of products on order.

Management, along with the Board of Directors,

continues to evaluate the need and use of the Company’s working capital.

Capital expenditures, primarily for machinery and

equipment, are expected to be approximately $200,000 for fiscal year 2021.

A majority of these expenditures will be made to stay

competitive in the marketplace and to meet the needs of current contracts.

Expectations are that the working capital will be required

to fund orders, dividend payments, and general operations of the business.

Management along with the Mergers and Acquisitions Committee

of the Board of Directors will examine opportunities involving acquisitions or other strategic options, including buying certain

products or product lines, provided that such opportunities demonstrate synergies with the Company’s existing product base

and accretion to earnings.

has outstanding opportunities representing in excess of $75.3 million in the aggregate as of August 31, 2021, for both repeat and new

The outstanding quotations encompass various new and previously manufactured power supplies, transformers, and subassemblies.

However, there can be no assurance that the Company will acquire any of the anticipated orders described above, many of which are subject

to allocations of the United States defense spending and factors affecting the defense industry.

Four significant customers represented

approximately 59.4% of the Company’s total sales in fiscal year 2021 and two significant customers represented 38% of the Company’s

total sales in fiscal year 2020.

These sales are in connection with multiyear programs in which the Company is a significant contractor.

The June 30, 2021 backlog of $65.6 million included orders from five customers that represent 15%, 15%, 14%, 13%, and 10%, respectively,

of the total backlog.

The June 30, 2020 backlog of $54.9 million includes orders from four customers that represent 19%, 13%, 10%, and

10%, respectively, of the total backlog.

Although improvement has been made in customer concentrations, this high customer concentration

level continues to present significant risk.

A loss of one of these customers or programs related to these customers, or customer requested

deferrals of product delivery could significantly impact the Company.

Historically, a small number of customers have accounted

for a large percentage of the Company’s total sales in any given fiscal year.

Management continues to pursue opportunities with

current and new customers with an overall objective of lowering the concentration of sales, mitigating excessive reliance upon a single

major product of a particular program and minimizing the impact of the loss of a single significant customer.

Given the nature of our

business, we believe our existing sales order backlog is fairly diversified in terms of customers and the category of products on order.

Management, along with the Board of Directors, continues

to evaluate the need and use of the Company’s working capital.

Capital expenditures, primarily for machinery and equipment, are

expected to be approximately $200,000 for fiscal year 2022.

A majority of these expenditures will be made to stay competitive in the marketplace

and to meet the needs of current contracts.

Expectations are that the working capital will be required to fund orders, general operations

of the business and dividend payments when applicable.

Management along with the Mergers and Acquisitions Committee of the Board of Directors

will examine opportunities involving acquisitions or other strategic options, including buying certain products or product lines, provided

that such opportunities demonstrate synergies with the Company’s existing product base and accretion to earnings.

Results of Operations

Net sales for the years ended June 30, 2020

and 2019 were $31,526,231 and $36,477,851, respectively, a 13.6% decrease.

The decrease in net sales in fiscal year 2020 is primarily

due to a decrease in power supply and build to print sales offset, in part, by an increase in magnetic shipments.

in power supply sales is mainly due to reduced demand from one significant customer in the rail industry offset, in part, by an

increase in shipments against a single military contract.

The decline in build to print sales is primarily due to the timing of

shipments across multiple contracts of varying size, scope and duration.

The increase in magnetic shipments is primarily due to

an increase in sales related to one major engineering development program, an increase in shipments on several repeat and new magnetic

orders, offset, in part, by a decline in sales on another major engineering development program based on scheduled performance

In addition, sales were significantly impacted

by our ability to meet contractual milestones on certain engineering design contracts and delays on several build to print orders.

We continued to be constrained by engineering design changes required to meet customer requirements, certain supplier product non-conformances,

obtaining timely resolutions on issues encompassing build to print customer-owned drawings and an increase in lead times for many

parts, including certain electronic components due to industry shortages and volatility within the power electronics industry.

Engineering, program management, and supply chain personnel are working closely with our customers and suppliers to execute on

our past due deliveries and we do not expect this situation to affect future business opportunities.

We anticipate that many of

these issues will be resolved during fiscal 2021.

Gross profits for the fiscal years ended June

Net sales for the years ended June 30, 2021 and 2020

were $27,734,598 and $31,526,231, respectively, a 12% decrease.

The decrease in net sales in fiscal year 2021 is primarily due to a decrease

in power supply and magnetics sales offset, in part, by an increase in build to print shipments.

In general, sales fluctuations within

product categories will occur during a comparable fiscal period as the direct result of product mix, influenced by the duration of specific

programs and the contractual terms of firm orders placed for product and services under those programs including contract value, scope

of work and duration.

Deliverables within firm contracts are often subject to delivery schedules.

Internal and external constraints, at

times, impact our ability to ship.

Sales results during the twelve months ended June 30, 2021 were impacted by our inability to manufacture

and ship product during the third quarter due to an unplanned facility closure resulting from a significant workforce COVID-19 exposure.

This closure lasted approximately 10 days with the facility re-opening at less than full capacity.

These delays in production placed strain

on an already aggressive production and shipment schedule in place for the fourth quarter.

Also impacting sales during the fiscal year

ended June 30, 2021, specific to power supply shipments, is the decline in procurement for product supporting the rail industry and the

decrease in shipments against a single military contract which had no sales in the fiscal year when compared to the prior year.

was offset, in part, by an increase in build to print contracts of varying size, scope and duration.

In addition, we continued to be constrained by (i)

engineering design changes required to meet customer requirements, (ii) certain supplier product non-conformances, (iii) delays in obtaining

timely resolutions on issues encompassing build to print customer-owned drawings, and (iv) an increase in lead times for many parts, including

certain electronic components due to industry shortages and volatility within the power electronics industry.

We are also experiencing

an increase in delays with certain supplier deliveries resulting from effects of the COVID-19 pandemic.

Engineering, program management,

and supply chain personnel are working closely with our customers and suppliers to execute on our past due deliveries and we do not expect

this situation to affect future business opportunities.

We anticipate that many of these issues will be resolved in the near future.

of April 2021, we received qualification approval on a significant engineering design and production contract which allows us to begin

the manufacturing of end units.

Gross profits for the twelve months ended June 30,

2021 and 2020 were $3,359,607 and $5,558,615, respectively.

Gross profit as a percentage of sales was 17.6% and 19.4%, for

Gross profit as a percentage of sales was approximately 12.1% and 17.6%, for

the same periods, respectively.

The primary factors in determining the change in gross profit and net income are overall sales

The primary factors in determining the change in gross profit and net income (loss) are overall sales

levels and product mix.

1 unchanged sentence

which are still in the engineering development stage or in early stages of production.

In the case of the latter, the Company can

incur what it refers to as “loss contracts,”

primarily on engineering design contracts in which the Company invests

with the objective of developing future product sales.

In any given accounting period the mix of product shipments between higher

margin programs and less mature programs, and expenditures associated with loss contracts, has a significant impact on gross profit

and net income.

The gross profit percentage decreased in

the twelve months ended June 30, 2020 compared to the same period in 2019.

This decrease resulted from product mix,

specifically related to the decrease in power supply shipments.

This portfolio of products consists of many mature products

which typically yield higher margins.

The Company also incurred an increase in cost on a specific power supply contract due

to the replacement cost associated with a recurring product failure stemming from an engineering design issue.

the Company incurred specific program losses on several large build to print contracts due to higher than expected material

costs and first time build and quality control inspections costs, as well as, a large engineering contract due to engineering

delays, third-party supplier issues and additional testing required.

These decreases were offset, in part, by an improved

gross profit percentage on a separate large engineering design contract when compared to the same period in 2019.

improvement on the engineering contract resulted from reduced spending on the program and from additional funded and

anticipated funding for required testing.

Selling, general and administrative expenses

were $4,386,307 for the fiscal year ended June 30, 2020;

In the case of the latter, the Company can incur

what it refers to as “loss contracts,”

primarily on engineering design contracts in which the Company invests with the objective

of developing future product sales.

In any given accounting period the mix of product shipments between higher margin programs and less

mature programs, and expenditures associated with loss contracts, has a significant impact on gross profit and net income.

Impacting sales

and gross profits in the current fiscal year, when compared to the prior year, was an unplanned facility shutdown during the third quarter

which lasted approximately 10 days due to the COVID-19 pandemic.

Several additional factors contributed to a decrease

in the gross profit and the gross profit percentage in the twelve months ended June 30, 2021 as compared to the same period in 2020.

Most significantly, the Company recognized as a reduction to income, increased costs on two specific engineering design and production

contracts, one of which incurred an increase in both material and labor anticipated costs and the other primarily consisting of unforeseen

material escalation costs to complete the production builds.

Second, the Company wrote down the value of inventory pertaining to a certain

design and production contract serving the airline industry which was cancelled by the customer during the second quarter of the fiscal

Finally, sales on several build to print contracts and one specific large magnetics contract, which yielded lower margins, represented

a higher volume of the overall product mix in fiscal 2021, thereby resulting in lower gross profit realized in the year.

Selling, general and administrative expenses were

$3,785,746 for the fiscal year ended June 30, 2021;

a decrease of $600,561 compared to the fiscal year ended June 30, 2020.

The decrease for the fiscal year ended June 30, 2020 as compared to the same period in 2019 relates primarily to the decrease in

bad debt expense, conferences and training costs, travel and entertainment expenses and product shipment costs.

This decrease was

offset, in part, by an increase in employee compensation costs.

for the fiscal year ended June 30, 2021 as compared to the same period in 2020 relates primarily to the decrease in costs incurred for

employee compensation, travel, board of director’s fees due to a reduction of one director, outside services supporting sales leads,

outside selling costs for commissions paid on certain contracts, and outgoing freight costs due to a decrease in shipments.

These decreases

were offset in part by an increase in costs associated with recruiting for position vacancies.

Employee compensation decreased due to

a reduction in workforce and cost reduction measures implemented that included forgoing cost of living increases and the payment of bonuses

during the current fiscal year.

Other income for the fiscal year ended June 30, 2021

and 2020 was $57,942 and $136,881, respectively.

The decrease in the twelve months ended is primarily due to a decrease

in interest income on investments and income received from the sale of scrap metal.

The decrease in interest income resulted from

the gradual decrease in current yield percentages earned on investment securities offset, in part, by a reduction in investment

Interest income is a function of the level of investments and investment strategies which generally tend to be conservative.

The decrease in income from scrap metal sales is primarily due to a decrease in saleable metal remnants resulting from the overall

decrease in material purchases during the current year when compared to the prior year.

The Company’s effective tax rate was

11.1% in the fiscal year 2020 and 18.7% in fiscal year 2019.

The statutory tax rate was reduced from 34% to 21% under the Tax Cuts

and Jobs Act (the “Tax Act’) effective on January 1, 2018.

The effective tax rate in fiscal 2020 and 2019 is less than

the statutory tax rate mainly due to the benefit derived from the ESOP dividends paid on allocated shares.

The decrease in the

effective tax rate between fiscal years is primarily due to a decrease in income before taxes and the benefit derived from the

ESOP special cash dividend paid on the allocated shares.

Net income for fiscal year 2020 was $1,163,668

or $0.49 per share, basic and diluted compared to $2,342,694 or $0.99 and $0.98 per share, basic and diluted, respectively for

fiscal year 2019.

The decrease in net income in the twelve months ended June 30, 2020 compared to the same period in 2019 is primarily

attributable to lower sales, a lower gross profit margin percentage, a decrease in other income offset, in part, by a decrease

in selling, general, and administrative expenses and the benefit derived from the decrease in the effective tax rate, all discussed

The decrease in the twelve months ended is primarily due to a decrease in interest income.

Interest income is a function of the level of investments and investment strategies that generally tend to be conservative.

in interest income in the current fiscal year resulted from the reduction and timing of investments made, offset in part, by a gradual

decrease in overall current yield percentages earned on those investments.

The Company’s effective tax rate was 50.7% in

the fiscal year 2021 and 11.1% in fiscal year 2020.

The effective tax rate in fiscal 2021 and 2020 varies from the statutory tax rate

mainly due to the benefit derived from the ESOP dividends paid on allocated shares.

The increase in the effective tax rate between periods

is primarily due to the reduction in income before taxes and the benefits received in the current fiscal year on the ESOP dividends paid

as well as the tax rate differential associated with the net operating loss carryback which resulted from the net loss incurred in the

current fiscal year.

The Company had a net loss for fiscal year 2021 of

$(181,543) or $(0.08) per share, basic and diluted compared to net income of $1,163,668 or $0.49 per share, basic and diluted, for fiscal

The decrease in net income in the twelve months ended June 30, 2021 compared to the same period in 2020 is primarily attributable

to lower sales, a lower gross profit margin percentage, and a decrease in other income offset, in part, by a decrease in selling, general,

and administrative expenses and the benefit derived from the increase in the effective tax rate, all discussed above.

Liquidity and Capital Resources

The Company's working capital is an appropriate

indicator of the liquidity of its business, and during the past two fiscal years, the Company, when possible, has funded all of

its operations with cash flows resulting from operating activities and when necessary from its existing cash and investments.

Company did not borrow any funds during the last two fiscal years.

Management has available a $3,000,000 line of credit to help

fund further growth or working capital needs, if necessary, but does not anticipate the need for any borrowed funds in the foreseeable

Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at June 30, 2020 and 2019.

The line of credit is reviewed annually in November for renewal by December 1 st .

indicator of the liquidity of its business, and during the past two fiscal years, the Company, when possible, has funded all of its operations

with cash flows resulting from operating activities and when necessary from its existing cash and investments.

The Company did not borrow

any funds during the last two fiscal years.

Management has available a $3,000,000 line of credit to help fund further growth or working

capital needs, if necessary, but does not anticipate the need for any borrowed funds in the foreseeable future.

Contingent liabilities

on outstanding standby letters of credit agreements aggregated to zero at June 30, 2021 and 2020.

The line of credit is reviewed annually

in November for renewal by December 1 st .

The Company's working capital as of June 30,

30, 2020 and 2019 was $27,993,023 and $28,377,168, respectively.

During the twelve months ended June 30, 2020, the Company repurchased

2,180 shares of its common stock from the ESOP for a purchase price of $47,949.

During the twelve months ended June 30, 2019 the

Company repurchased 1,810 shares of its common stock from the ESOP for a purchase price of $44,888.

Under existing authorizations

from the Company's Board of Directors, as of June 30, 2020, management is authorized to purchase an additional $783,460 of Company

The table below presents the summary

of cash flow information for the fiscal years indicated:

Net cash provided (used in) by operating activities

$ (3,604,406 )

2021 and 2020 was $27.5 million and approximately $28 million, respectively.

The Company may at times be required to repurchase shares

at the ESOP participants’

request at the fair market value.

During the twelve months ended June 30, 2021 the Company did not repurchase

any shares held by the ESOP.

During the twelve months ended June 30, 2020 the Company repurchased 2,180 shares of its common stock previously

held by the ESOP for a purchase price of $47,949.

Under existing authorizations from the Company's Board of Directors, as of June 30,

2021, management is authorized to purchase an additional $783,460 of Company stock.

The table below presents the summary of cash

flow information for the fiscal years indicated:

Net cash provided by operating activities

Net cash provided by investing activities

3 unchanged sentences

of accounts receivable, purchase of inventory, and payment of accounts payable.

The increase in cash provided by operating activities

compared to the prior year primarily relates to the collection of trade receivables and the increase in contract liabilities for

the collection of customer advances offset, in part, by an increase in prepaid expenses and other current assets and the decline

in net income.

Net cash provided by investing activities decreased in the twelve months ended June 30, 2020 as compared to the

same period in 2019 primarily due to the reinvestment of maturing investments when compared to the same period in 2019.

prior period, cash received from maturing investments was used, in part, for the payment of the special dividend.

in cash used in financing activities in the current period when compared to the prior period is primarily due to the fact that

a special dividend totaling $1.00 per share was declared and paid in the prior period.

The Company currently believes that

the cash flow generated from operations and when necessary, from cash and cash equivalents will be sufficient to meet its long-term

funding requirements for the foreseeable future.

The decrease in cash provided by operating activities

compared to the prior year primarily relates to the decrease in net income, the increase in inventory purchases, the decrease in cash

collected from customers as cash advances and an increase in payments to vendors offset, in part, by an increase in trade accounts receivables

Net cash provided by investing activities increased in the twelve months ended June 30, 2021 as compared to the same period

in 2020 primarily due to maturing investments that were not reinvested during this period when compared to the same period last year.

Cash used in financing activities decreased during the fiscal year ended June 30, 2021.

The decrease is primarily due to the suspension

and non-payment of the quarterly dividend during the last two quarters of the fiscal year and a decrease in cash proceeds collected from

the exercise of stock options, offset by the decrease in the purchase of treasury stock as compared to the same period last year.

The Company currently believes that the

cash flow generated from operations and when necessary, from cash and cash equivalents will be sufficient to meet its long-term funding

requirements for the foreseeable future.

During the fiscal years ended June 30,

2021 and 2020, the Company expended $43,554 and $214,421, respectively, for plant improvements and new equipment.

has budgeted approximately $200,000 for new equipment and plant improvements in fiscal year 2021.

Management anticipates that the

funds required will be available from current operations.

The Company has budgeted

approximately $200,000 for new equipment and plant improvements in fiscal year 2022.

Management anticipates that the funds required will

be available from current operations.

Management believes that the Company's

reserve for bad debts of $3,000 is adequate given the customers with whom the Company does business.

Historically, bad debt expense

has been minimal.

Historically, bad debt expense has

been minimal.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis