What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-09-22 compared with 2021-09-24 · 188 added, 150 removed, 67 unchanged (83% of the section changed)

1 unchanged sentence

Business Outlook

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.

Management expects revenues in fiscal year 2023 to

be higher than revenues during fiscal year 2022 and expects net income per share to be higher in fiscal 2023 as compared to the net income

per share realized during fiscal year 2022.

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.

Creating consistency

in our quarter to quarter financial performance will remain a challenge as we navigate a current difficult environment of inflation and

parts shortages.

We saw improvement to our operations in the second

half of fiscal year 2022 and expect continued improvement in fiscal year 2023.

However, we continue to be constrained by (i) engineering

design changes required to meet customer requirements, (ii) delays in obtaining timely resolutions on issues encompassing build to print

customer-owned drawings, and (iii) an increase in lead times for many parts, including certain electronic components due to industry shortages

and volatility within the power electronics industry.

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.

Effects from global events and the resulting supply

chain disruptions continue to place pressure on the cost of raw materials, freight, utility, labor and other production and administrative

These inflationary cost challenges are expected to continue to have a negative impact on operating income in fiscal year 2023.

Volatile raw material indexes and shortages have led to wide-spread vendor price increases.

For our executed fixed-priced contracts, we

will continue to either singularly or combined be 1) required to absorb the increased costs 2) continue to mitigate costs down through

the identification of additional supply chain buying strategies or 3) submit for price remediation assistance from our customers.

exposure on future fixed-priced contracts, we continue to incorporate inflationary increases to product quotations provided to our customers,

some of which have resulted in significant price increases.

Additionally, to minimize our exposure, we have, in many instances, reduced

the time in which certain product quotations remain valid and have also extended lead times for product deliveries.

We continue to work

with our customers to mitigate any adverse impact upon our ability to service their requirements.

Management continues to closely monitor the impact

of evolving workforce labor constraints, primarily from the effects from the pandemic, on our planned delivery schedules.

Although declining,

we continue to experience periodic disruptions from workforce absences due to COVID-19 illnesses and direct contact exposures, resulting

in self-isolating protocols to be followed to ensure the safety of company personnel.

Disruptions from workforce turnover has stabilized.

Combined, with supply chain constraints, future unforeseen labor disruptions could delay shipments and result in missing our backlog fulfillment

projections and recognizing lower operating income.

Successful conversion of engineering program backlog

4 unchanged sentences

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.

which may arise from technical and schedule delays and increased raw material costs could negatively impact the timing of the conversion

of backlog into sales, or the profitability of such sales.

We continue to experience technical and schedule delays with certain

major development programs.

To date, we have been able to resolve various technical and scheduling delays and continue to work with our

customers on newly arising delays.

Engineering programs in both the funded and unfunded portions of the current backlog aggregate $7.3

The Company currently expects new orders in fiscal

2023 to be greater than those received in fiscal year 2022.

As market factors including competition and product costs impact gross profit

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

During fiscal year 2022 the Company received $43.2

million in new orders.

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

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,

Our total backlog at June 30, 2022 was approximately $76.8 million, as compared to $65.6 million at June 30, 2021.

Currently, we expect a minimum of $35 million of orders comprising the June 30, 2022 backlog will be filled during the fiscal year ending

June 30, 2023.

This $35 million will be supplemented by shipments which may be made against orders received during the 2023 fiscal year.

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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.

approximately 57.2% of the Company’s total sales in fiscal year 2022 and four significant customers represented approximately 59.4%

of the Company’s total sales in fiscal year 2021.

These sales are in connection with multiyear programs in which the Company is

a significant contractor.

The June 30, 2022 backlog of $76.8 million included orders from five customers that represent approximately

16%, 16%, 15%, 13%, and 12%, respectively, of the total backlog.

The June 30, 2021 backlog of $65.6 million included orders from five

customers that represented approximately 15%, 15%, 14%, 13%, and 10%, respectively, of the total backlog.

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

4 unchanged sentences

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.

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

Capital expenditures, primarily for machinery and equipment and for

a building roof restoration project not completed in fiscal 2022 due to the backorder of materials, are expected to approximate $500,000

for fiscal year 2023.

A majority of these expenditures will be made to stay competitive in the marketplace and to meet the needs of current

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, 2022 and 2021

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.

were $32,104,774 and $27,734,598, respectively, an approximate 16% increase.

The increase in net sales in fiscal year 2022 is primarily

due to an increase in magnetic and power supply shipments.

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.

within firm contracts are often subject to delivery schedules which also contributes to sales fluctuations between comparable periods.

We saw improvement to our operations in the second

half of the year which eased our previous inability to ship on specific contracts.

We processed and converted certain past due supply

chain deliveries into product shipments and completed certain past due engineering milestone deliverables.

We expect continued improvement

on current engineering delays as new employees come up to speed on contracts and related statement of work specifications and material

In addition, contracts impeded by actions required from our customers have been resolved or are moving forward towards resolution.

However, the impact of ongoing global events, most notably the COVID-19 pandemic, is expected to continue to impact operational instability

primarily in our supply chain, with increased lead times and increased costs from inflationary pricing.

Unplanned employee absences due

to sickness and self-isolating protocols continues, but have been significantly less when compared to the prior year.

Disruptions from

workforce turnover has stabilized.

Our focus remains to work with our customers and suppliers to identify alternative strategies to reduce

lead times and maximize sales and operating income.

Specific to net sales for the twelve month periods

discussed above, the sales fluctuations when compared to the same periods last year were primarily the direct result of an unplanned facility

closure which occurred in March 2021 due to a significant workforce COVID-19 exposure.

The closure lasted approximately 10 days with the

facility re-opening at less than full capacity.

In addition, the increase in sales in the current fiscal year was influenced by product

mix, contractual due dates, and our ability to deliver on certain past due customer orders which had been delayed due to extended raw

material lead times.

Specific to magnetic shipments, sales increased from more shipments on specific contracts related to a family of

power distribution transformers for a single customer when compared to the prior year.

In addition, an increase in magnetic sales is attributable

to increased deliveries against a large magnetics contract for transformers originally designed in-house and an increase in milestone

deliveries on a large on-going development program for a power distribution panel.

Specific to power supply shipments, the increase in

sales is primarily attributable to product supporting the rail industry when compared to a year ago, also attributable to the timing of

deliveries on existing contracts and additional follow-on orders received.

Gross profits for the twelve months ended June 30,

2022 and 2021 were $5,472,158 and $3,359,607, respectively.

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 (loss) are overall sales

levels and product mix.

The gross profits on mature products and build to print contracts are typically higher as compared to products

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.

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.

Gross profit as a percentage of sales was 17% and 12.1%, for the same periods,

respectively.

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

The gross profits on mature products and build to print contracts are typically higher as compared to products 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 improvement in gross profit in the twelve months

ended June 30, 2022 as compared to the same period in 2021 resulted from an increase in sales and overall product mix comprising shipments.

In addition, gross profit for the twelve month period improved when compared to the prior year as specific items which negatively impacted

prior year results did not have a negative impact on gross profit recognized in the current year.

Reductions to gross profit in the prior

year included lower sales as the result of an unplanned facility shutdown in the third quarter of last year and the costs incurred for

an inventory write-down for a design and production contract serving the airline industry which was cancelled by the customer during the

prior fiscal year and with respect to which the Company was unsuccessful in being awarded restitution.

Last year, two specific engineering

design and production contracts, on which we incurred increased costs, had a larger negative impact on gross profit when compared to the

current year.

Specific to the current fiscal year, the Company recognized higher gross profit on increased sales, primarily from mature

power supply, magnetic and build to print shipments when compared to the same period last year.

Additionally, the Company showed an improvement

to gross profit on a specific power supply contract resulting from adjustments recovered from the customer for costs previously incurred.

Finally, the Company was successful in securing several additional equitable adjustments on other contracts in the second half of the

fiscal year which had a favorable impact on gross profit.

These improvements to gross profit were offset, in part, by increased costs,

primarily labor, incurred on a power supply engineering design and production contract and a build to print power supply contract requiring

engineering efforts, both of which contracts had no adverse impact on the prior year results.

Finally, gross profit was reduced by an

unforeseen significant increase in material costs on a large production contract, a direct result of inflationary and volatile pricing

for certain raw materials and components.

We have submitted a formal request to the customer for an equitable adjustment to this long-term

fixed price contract supporting the US military.

There is no guaranty that the customer will agree to a pricing adjustment.

Selling, general and administrative expenses were

$3,942,991 for the fiscal year ended June 30, 2022;

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

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.

an increase of $157,245 compared to the fiscal year ended June 30, 2021.

is attributable to costs incurred as the result of a change in senior management which occurred in the second quarter of fiscal 2022,

higher costs incurred to recruit and fill company-wide position vacancies, an increase in professional service expenses, an increase in

travel costs, and an increase in utility expenses.

These increases were offset, in part, by a decrease in overall employee compensation

costs for program management personnel due to a reduction in headcount when compared to the same period last year, and a decrease in board

of director’s fees due to a reduction of two non-employee directors.

Other income for the fiscal year ended June 30, 2022

and 2021 was $63,914 and $57,942, respectively.

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.

The increase is primarily due to an increase in other income primarily composed of income

from scrap sales, offset, in part, by a decrease in interest income.

Interest income is a function of the level of investments and investment

strategies that generally tend to be conservative.

The Company’s effective tax rate was a provision

of 20.6% in the fiscal year 2022 and a benefit of 50.7% in fiscal year 2021.

The effective tax rate in fiscal 2022 and 2021 varies from

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

The decrease in the effective

tax rate between periods is the direct result of higher income before taxes in the current fiscal year and a decreased benefit derived

from fewer ESOP dividends paid on allocated shares.

In the prior fiscal year, the higher effective tax rates was primarily due to the

incurred net operating loss before taxes, in addition to the benefits received in the prior fiscal year on higher ESOP dividends paid

as well as a benefit received on the tax rate differential associated with the net operating loss carryback which resulted from the net

loss incurred in the prior fiscal year.

The Company generated net income for fiscal year 2022

of $1,265,127 or $0.52 per share, basic and diluted, compared to net loss of $(181,543) or $(0.08) per share, basic and diluted, for fiscal

The increase in net income in the twelve months ended June 30, 2022 compared to the same period in 2021 is primarily attributable

to higher sales, a higher gross profit margin percentage, a slight increase in other income offset, in part, by an increase in selling,

general, and administrative expenses and an increase in tax expense, all discussed above.

Liquidity and Capital Resources

8 unchanged sentences

on outstanding standby letters of credit agreements aggregated to zero at June 30, 2022 and 2021.

The line of credit is reviewed annually

in November for renewal by December 1 st .

The existing line of credit was extended

and expires February 28, 2023.

The Company's working capital as of June 30,

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

2022 and 2021 was approximately $29.5 million and $27.5 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.

at the ESOP participants’ request at the fair market value.

During the twelve months ended June 30, 2022 and 2021, the Company did

not repurchase any shares held by the ESOP.

Under existing authorizations from the Company's Board of Directors, as of June 30, 2022,

3 unchanged sentences

Net cash provided by operating activities

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Net cash used in financing activities

2 unchanged sentences

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

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 increase in cash provided by operating activities

compared to the prior year primarily relates to the increase in net income, the decrease in inventory purchases offset, in part, by a

decrease in trade accounts receivables collected and the decrease in cash collected from customers as cash advances.

Net cash used in

investing activities increased in the twelve months ended June 30, 2022 as compared to the same period in 2021 primarily due to the reinvestment

of matured securities when compared to the same period last year.

During the twelve months ended June 30, 2022, there was no cash used

for financing activities primarily resulting from the suspension of dividend payments.

In the prior year, cash used in financing activities

resulted from the payment of regular dividends for the first two fiscal quarters.

The Company currently believes that the

12 unchanged sentences

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