What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-09-27 compared with 2023-09-21 · 180 added, 159 removed, 58 unchanged (85% of the section changed)

1 unchanged sentence

Business Outlook

Management expects revenues in fiscal year 2024 to

be higher than revenues during fiscal year 2023 and expects net income per share to be higher in fiscal 2024 as compared to the net income

per share realized during fiscal year 2023.

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

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.

Management expects revenues in fiscal year 2025

to be higher than revenues recognized during fiscal year 2024 and expects net income per share to exceed fiscal 2023 reported results,

however net income per share is anticipated to fall below fiscal 2024 results.

This expectation is driven primarily by orders already

in our backlog that will be shipped in fiscal year 2025 with higher anticipated aggregate costs than the product mix shipped during fiscal

Gross profit on fiscal 2025 shipments will be reduced by the increase in overhead costs incurred specific to the pension withdrawal

obligation recorded in fiscal 2024, explained in greater detail in Financial Statement Note 7.

Pension Expense.

Overhead costs will

be reduced, in future years, from the Company’s withdrawal from the plan, as recurring annual contribution payments to the plan

will no longer be required.

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.

Ongoing demand in the power electronics industry across

multiple manufacturing sectors continues to create shortages and extended lead times.

In some instances, waiting times for certain components

approach a year or more.

We adequately factor supplier-provided lead times into internal planning schedules and new customer quotations.

From time to time, we encounter part obsolescence which requires us to identify an alternate part suitable for use.

We continue to work

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

Factors which may arise

after the placement of the customer’s order may cause us to miss projected delivery dates.

Inflationary costs are expected to continue

but are not expected to have a significant impact on operating income in fiscal year 2025.

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.

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 employment.

Unemployment rates in the local geographic region trend lower than the national average which has created a competitive

recruiting environment.

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, 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.

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, the requirements to obtain customer approval at various milestones, and extended delivery lead times on

material required for prototypes.

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 $10.2 million.

The Company currently expects new orders in fiscal

2025 to be greater than those received in fiscal year 2024.

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 2023, the Company received approximately

$42.4 million in new orders.

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.

During fiscal year 2024, the Company received approximately $52.4 million

in new orders.

Included in new order bookings are repeat production orders for multi-year purchases with deliveries expected to extend

for several years.

In addition to the backlog, the Company currently has outstanding opportunities representing in excess of $130

million in the aggregate as of August 31, 2024, 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.

Included in outstanding opportunities is a large

multi-year purchase from a single customer for several products currently being manufactured by the Company, expected to be formalized

prior to December 31, 2024.

Outstanding opportunities encompass various new and previously manufactured power supplies, transformers,

and subassemblies.

We consider the value of those opportunities we believe are likely to be awarded based on factors which include:

quotation status, communicated award dates, historical ordering, public information on defense programs and program funding, discussion

with customers, and our cost competitiveness.

However, there can be no assurance that the Company will acquire any of the outstanding

opportunities described above, many of which are subject to allocations of the United States defense spending and factors affecting the

defense industry, as well as, the fact many solicitations we receive for the procurement of goods and services takes place by competitive

Our sales strategy includes identifying and obtaining

2 unchanged sentences

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.

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

7 unchanged sentences

equipment and facility upgrades, are not expected to exceed $500,000 for fiscal year 2025.

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.

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.

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.

The Company was awarded $7.4 million in

funding during the second quarter of fiscal year 2023 in support of facility and capital equipment upgrades for testing and

qualification for the United States Navy.

The funding is part of the Navy’s investment to improve and sustain the Surface

Combatant Industrial Base.

The work is being conducted on the Company’s property in Saratoga Springs, NY, with completion

slated for the end of calendar year 2024.

The Company expects to be paid within 30 days after the submission of three milestone

invoices, but will not be paid for expenses incurred in excess of the specified milestone payment limits.

The Company will record

the receipt of milestone payments received as a reduction from the cost of the assets.

As of June 30, 2024 milestone reimbursements

received totaled $4,228,722.

Included in property, plant, and equipment at June 30, 2024 was $965,392 not yet reimbursed under the

funding award.

As of June 30, 2024, the Company anticipates spending the remaining $2.3 million, allowable under the award, during

Results of Operations

1 unchanged sentence

2023 were $38,736,319 and $35,592,323, respectively, an approximate 8.8% increase.

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,

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 contract delivery schedules.

Deliverables within

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

in fiscal year 2024 were higher when compared to the prior year primarily from (i) increased shipments on several large multi-year contracts

for transformers and power distribution panels, and (ii) increased shipments on several power supply contracts primarily supporting AESA

radar programs and off-highway vehicle production builds.

These increases were offset, in part, by a decrease in overall build to print

sales which, in several instances, had specific contracts with significantly fewer or no sales in the current reporting period as compared

to the same period last year due to order completion or planned customer delivery schedules.

Gross profits for the years ended June

30, 2024 and 2023 were $10,653,060 and $8,050,538, respectively.

Gross profit as a percentage of sales was 22.6% and 17.0%, for the same periods,

respectively.

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

Gross profit as a percentage of sales was 27.5% and 22.6%, for the same

periods, respectively.

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

1 unchanged sentence

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

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;

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

The increase in gross profit for the year ended June

30, 2024 when compared to the same period last year resulted primarily from (i) sales levels and general product mix, (ii) higher than

average profit margins on one-time sales to certain customers, and (iii) higher sales on a large follow-on order for power distribution

panels which had fewer sales and higher costs in the prior year related to engineering design efforts.

Moreover, the gross profit in fiscal

year 2023 had been negatively impacted by significant unanticipated costs incurred on several fixed-priced engineering design contracts

and a specific build to print contract, all for power supplies, due to unforeseen complexities of the designs.

The improvement in

the gross profit in fiscal year 2024 was offset, in part, by increased costs incurred on a recurring production job and a new engineering

development job.

Finally, gross profit in the current year was reduced by an increase in the overhead costs on shipments, resulting from

the recorded pension withdrawal obligation established in the last quarter of the current fiscal period, explained in greater detail in

Financial Statement Note 7.

Pension Expense.

Selling, general and administrative expenses

were $4,113,608 for the fiscal year ended June 30, 2024;

an increase of $363,084 compared to the fiscal year ended June 30, 2023.

The increase in spending for the year ended June 30, 2024 compared to the same period in 2023 mainly relates to the increase in

employee compensation costs which includes a new business development employee.

and to a lesser extent, expenses increased related to travel expenses, recruiting expenses, and freight costs incurred on

outgoing shipments.

These increases were offset, in part, by a decrease in utility and outside selling costs related to non-employee

sales representatives.

Other income for the fiscal years ended June 30,

2024 and 2023 was $755,562 and $406,453, respectively.

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 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 approximately

20.3% in the fiscal year 2024 and approximately 21.9% in fiscal year 2023.

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

The effective tax rate in fiscal 2024 is less than the statutory

tax rate mainly due to the benefit received from ESOP dividends paid on allocated shares and a benefit from foreign derived intangible

income, offset in part by permanent differences related to incentive stock options.

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.

During fiscal 2023, there was no benefit received from ESOP dividends paid on allocated shares due to the

suspension of the company dividend through February 2023.

The effective tax rate in the year ended June 30, 2024 was lower

than the comparable prior year primarily from the benefit derived from ESOP dividends paid on allocated shares, greater benefit derived

from foreign derived intangible income and a benefit derived from the exercise of incentive stock options in the current period when compared

to same period in the prior year.

The Company generated net income for fiscal year

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.

2024 of $5,815,140 or $2.34 and $2.29 per share, basic and diluted, compared to net income of $3,677,131 or $1.50 and $1.49 per share,

basic and diluted, for fiscal year 2023.

The increase in net income in the year ended June 30, 2024 compared to the same period

in 2023 is primarily attributable to higher sales, a higher gross profit margin percentage, an increase in other income, offset in part,

by an increase in selling, general, and administrative expenses and an increase in the provision for income taxes.

Liquidity and Capital Resources

12 unchanged sentences

and 2023 was approximately $38 million and $33.2 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, 2023 and 2022, the Company did

The Company may at times be required to repurchase shares at

the ESOP participants’ request at the fair market value.

During the years ended June 30, 2024 and 2023, the Company did

not repurchase any shares held by the ESOP.

1 unchanged sentence

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:

The table below presents the summary of cash flow

information for the fiscal years indicated:

Net cash provided by operating activities

5 unchanged sentences

The increase in cash provided by operating activities

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

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

compared to the prior year primarily relates to an increase in net income, a decrease in prepaid expenses and other current assets, a

decrease in inventory, an increase in accounts payable and other accrued expenses, offset in part, by a decrease in contract liabilities,

and an increase in trade accounts receivable.

Net cash used in investing activities

increased in the year ended June 30, 2024 as compared to the same period in 2023 due to an increase in investment securities when

compared to the same period last year, in addition to additions to property, plant and equipment, partially offset by proceeds

received from the grant award.

Cash used in financing activities for the year ended June 30, 2024 relates primarily to

dividend payments on common stock, offset in part, by proceeds from the exercise of stock options.

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

2023 and 2022, the Company expended $512,016 and $303,561, respectively, for plant improvements and new equipment.

The Company has budgeted

approximately $300,000 for new equipment and plant improvements in fiscal year 2024.

Management anticipates that the funds required will

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

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.

30, 2024 and 2023, the Company expended $5,164,165 and $512,016, respectively, for plant improvements and new equipment, of which $4,886,113

and $249,705, respectively, was either reimbursed or eligible to be reimbursed under a not to exceed $7.4 million award received by the

The award received by the Company is in support of facility and capital equipment upgrades for testing and qualification for

the United States Navy.

This funding award is part of the Navy’s investment to improve and sustain the Surface Combatant Industrial

Separately, the Company has budgeted approximately $500,000 for new equipment and plant improvements in fiscal year 2025, not reimbursable

under the funding award.

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

current contracts.

Management believes that the

Company's allowance for credit losses of $3,000 is adequate given the customers with whom the Company does business based on

historical experience, current economic market conditions, performance of specific account reviews, and other factored

considerations to include, but not limited to, contracts covered by government funding and the overall health of the industry.

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