What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-09-21 compared with 2022-09-22 · 143 added, 181 removed, 74 unchanged (81% of the section changed)

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per share realized during fiscal year 2023.

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

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

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

We successfully navigated through many of the

issues which constrained our ability to recognize revenue in fiscal 2023 related to select engineering design contracts and build to

print contracts which relied upon customer-owned designs to execute.

While supply chain disruptions, including extended lead times

and part obsolescence, continue to affect our production, we are better able to manage these factors and adequately factor lead

times into internal planning schedules and new customer quotations.

Inflationary costs are expected to continue but are not expected

to have a significant impact on operating income in fiscal year 2024.

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 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

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

Cost overruns which may arise from technical and schedule delays and increased raw material costs could negatively

impact the timing of the conversion of backlog into sales, or the profitability of such sales.

Engineering programs in both the

funded and unfunded portions of the current backlog aggregate $8.4 million.

We made significant improvement in filling many

of our open positions in the second half of the year.

The labor workforce remains stable.

Management continues to closely monitor

workforce labor requirements to support our sales backlog and planned delivery schedules.

Longer time-to-hire challenges remain for

certain positions due to specific skillsets required for those positions and the fact fewer workers, in general, are seeking

Unemployment rates in the local geographic region are lower than the national average.

Where possible, the Company

continues to offer on-the-job training and when necessary continues to recruit personnel outside the local region.

Combined with

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

projections and recognizing lower operating income.

The Company currently expects new orders in fiscal

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

During fiscal year 2022 the Company received $43.2

During fiscal year 2023, the Company received approximately

$42.4 million in new orders.

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.

In addition to the backlog, the Company currently

has outstanding opportunities representing in excess of $74.6 million in the aggregate as of August 31, 2022, 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 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.

Our total backlog at June 30, 2023 was approximately $83.6 million, as compared to approximately $76.8 million

at June 30, 2022.

Currently, we expect a minimum of $39.5 million of orders comprising the June 30, 2023 backlog will be filled during

the fiscal year ending June 30, 2024.

This $39.5 million will be supplemented by shipments which may be made against orders received

during the 2024 fiscal year.

In addition to the backlog, the Company currently has outstanding opportunities representing in excess of

$69 million in the aggregate as of August 31, 2023, for both repeat and new programs.

The outstanding quotations encompass various new

and previously manufactured power supplies, transformers, and subassemblies.

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.

Our sales strategy includes identifying and obtaining

multiple new engineering design and development contracts in any given fiscal year to ensure optimal utilization of our engineering personnel

in addition to securing follow-on production awards for product previously designed in-house, as well as, build to print opportunities.

The Company targets those programs and opportunities which will generate future longer-term production tails in ensuing years.

From time to time, we accept work associated with engineering design studies.

While unlikely to result in near-term follow-on orders,

this positions us competitively on future awards and expands our engineering team's skillset.

Management continues to pursue opportunities with

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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 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.

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 and facility upgrades are not expected to exceed $300,000 for fiscal year 2024.

A majority of these expenditures will be

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

In addition, the Company is expected to

spend an amount, not to exceed $7.1 million, towards a facility and capital equipment upgrade under an award issued to us by the

United States Navy.

Incurred spending is reimbursable through a milestone plan.

The Company is expected to have an initial

cash outlay to satisfy income tax obligations arising from the value of the award.

Expectations are that the working capital will be

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

Management along with the Legal

Affairs, Strategic Planning, and M&A 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

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were $35,592,323 and $32,104,774, respectively, an approximate 10.9% 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.

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

Deliverables within firm contracts are often subject to delivery schedules which also contributes to sales fluctuations between

comparable periods.

The increase in net sales in fiscal year 2023 is primarily due to an increase in shipments on contracts related to

a family of power distribution transformers for a single customer when compared to sales recognized in the prior year.

Sales in the current

year increased on multiple new and repeat contracts which had no or significantly fewer comparable sales in the same period last year,

primarily related to build to print contracts and, to a lesser extent, magnetic and power supply deliverables.

In addition, sales

increased in the current year from a large production contract for a power supply previously designed by the Company which had no comparable

sales in the prior period and from greater sales on a large engineering design and production contract which had significantly fewer

sales in the prior year.

These increases were offset, in part, by decreases in sales, between the comparable periods, due to contract

completion, timing of contractual delivery schedules and certain programs impeded by longer material lead times.

Gross profits for the twelve months ended June 30,

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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

The primary factors in determining the change in gross profit and net income 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.

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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.

The improvement in gross profit for the twelve months

ended June 30, 2023 when compared to the same period last year resulted from an increase in sales and a higher overall gross profit percentage

comprising those shipments which was influenced by product mix.

In the current period, gross profit was favorably impacted from higher

sales and improved margins on a specific magnetics contract and certain build to print contracts, resulting from manufacturing improvements.

The current period gross profit was negatively impacted by significant costs incurred on a certain fixed-priced engineering design contract

for a power supply due to the ongoing unforeseen complexity of the design and the identification of additional costs due to the unavailability

of mil-spec rated parts in the marketplace resulting from part obsolescence or exceptionally long lead times.

The prior year gross profit

was negatively impacted by certain programs which had higher sales in the prior year and contributed less to gross profit as the result

of cost overruns when compared to the same period this year.

These cost overruns included labor from both production and engineering

efforts made and the impact of inflationary pricing on materials for certain fixed-price contracts.

In addition, to a lesser extent,

specific to the prior year, gross profit was negatively impacted by the expensing of remaining development costs formerly capitalized

in inventory on a specific engineering design program in which our customer had delayed unit qualification testing and for which production

units were not expected to be manufactured in the near term.

Selling, general and administrative expenses were

$3,750,524 for the fiscal year ended June 30, 2023;

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.

a decrease of $192,467 compared to the fiscal year ended June 30, 2022.

were incurred for the twelve months ended June 30, 2023, comparably, as the prior year spending included specific non-recurring costs

attributed to a change in senior management.

In addition, fewer costs were incurred in the current period when compared to the prior period

resulting from a decrease in board of directors fees due to a reduction of two non-employee directors and lower professional recruiting

costs incurred.

The decreases in the current period were offset, in part, by increases in conference and training expenditures incurred.

Other income for the fiscal year ended June 30, 2023

and 2022 was $406,453 and $63,914, respectively.

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

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

The increase is primarily due to the increase in interest income resulting from an increase

in investment securities and an increase in fixed interest rates.

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

strategies that generally tend to be conservative.

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’s effective tax rate was approximately

21.9% in the fiscal year 2023 and approximately 20.6% in fiscal year 2022.

The effective tax rate in fiscal 2023 is greater than the

statutory tax rate mainly due to the permanent difference for incentive stock option expense recorded for book purposes which is not

deductible for tax purposes.

In the current year, there was no benefit received from ESOP dividends paid on allocated shares due to the

suspension of the company dividend in place through February 2023.

The effective tax rate in fiscal 2022 was less than the statutory

tax rate mainly from the benefit derived from the ESOP dividends paid on allocated shares prior to the dividend suspension.

The effective

tax rate in the twelve month period ended June 30, 2023 was higher than the prior year as the direct result of a higher income before

taxes in the current fiscal year offset, in part, by a decreased benefit derived from ESOP dividends paid on allocated shares.

The Company generated net income for fiscal year

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.

2023 of $3,677,131 or $1.50 and $1.49 per share, basic and diluted, compared to net income of $1,265,127 or $0.52 per share, basic

and diluted, for fiscal year 2022.

The increase in net income in the twelve months ended June 30, 2023 compared to the same period

in 2022 is primarily attributable to higher sales, a higher gross profit margin percentage, an increase in other income, and a

decrease in selling, general, and administrative expenses, offset in part, by an increase in tax expense, all discussed above.

Liquidity and Capital Resources

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Net cash provided by operating activities

Net cash (used in) provided by investing activities

Net cash used in investing activities

Net cash used in financing activities

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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.

compared to the prior year primarily relates to the increase in net income and an increase in cash collected from customer advances,

offset, in part, by an increase in prepaid expenses and other current assets, an increase in inventories, and a decrease in other accrued

Net cash used in investing activities increased in the twelve months ended June 30, 2023 as compared to the same period in

2022 primarily due to an increase in investment securities.

Cash used in financing activities for the twelve months ended June 30, 2023

relates to dividend payments on common stock.

The Company currently believes that the

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be available from current operations.

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

the Company is expected to spend an amount, not to exceed $7.1 million, towards a facility and capital equipment upgrade under an award

issued to us by the United States Navy.

Incurred spending is reimbursable through a milestone plan.

Management believes that the Company's

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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