# Espey MFG & Electronics Corp: Form 10-Q for the period ended Mar 31, 2021

- Company: [Espey MFG & Electronics Corp](/companies/esp.md) (CIK 33533)
- Form: 10-Q
- Filed: 2021-05-17
- Accepted by EDGAR: May 17, 2021, 16:15 ET
- Period: 2021-03-31
- Accession: 0001174947-21-000552
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/33533/000117494721000552/form10q-26147_esp.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/33533/000117494721000552/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-01-01 to 2021-03-31 | $4.2m | us-gaap:Revenues |
| Revenue | 9 months, 2020-07-01 to 2021-03-31 | $18.4m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2021-01-01 to 2021-03-31 | $4.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2020-07-01 to 2021-03-31 | $16.8m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2021-01-01 to 2021-03-31 | −$187.2k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2020-07-01 to 2021-03-31 | $1.7m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2021-01-01 to 2021-03-31 | $990.3k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2020-07-01 to 2021-03-31 | $2.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-01-01 to 2021-03-31 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2020-07-01 to 2021-03-31 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2021-01-01 to 2021-03-31 | −$100.3k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2020-07-01 to 2021-03-31 | −$94.5k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-01-01 to 2021-03-31 | −$1.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2020-07-01 to 2021-03-31 | −$1.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-01-01 to 2021-03-31 | −$0.44 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2020-07-01 to 2021-03-31 | −$0.44 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-01-01 to 2021-03-31 | −$0.44 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2020-07-01 to 2021-03-31 | −$0.44 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-01-01 to 2021-03-31 | 2,405,670 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2020-07-01 to 2021-03-31 | 2,403,641 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2020-07-01 to 2021-03-31 | $2.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2020-07-01 to 2021-03-31 | $34.3k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2020-07-01 to 2021-03-31 | $1.2m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2021-03-31 | $8.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-03-31 | $33.6m | us-gaap:AssetsCurrent |
| Total assets | at 2021-03-31 | $36.7m | us-gaap:Assets |
| Current liabilities | at 2021-03-31 | $7.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-03-31 | $7.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2021-03-31 | $29.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,590 characters.

Overview

Espey Mfg. & Electronics Corp. (“Espey”) is a power electronics design and original equipment manufacturing (OEM) company with a long history of developing and delivering highly reliable products for use in military and severe environment applications. Design, manufacturing, and testing is performed in our 150,000+ square foot facility located at 233 Ballston Ave, Saratoga Springs, New York. Espey is classified as a “smaller reporting company” for purposes of the reporting requirements under the Securities Exchange Act of 1934, as amended. Espey’s common stock is publicly-traded on the NYSE American under the symbol “ESP.”

Espey began operations after incorporation in New York in 1928. We strive to remain competitive as a leader in high power energy conversion and transformer solutions through the design and manufacture of new and improved products by using advanced and “cutting edge” electronics technologies.

Espey is ISO 9001:2015 and AS9100:2016 certified. Our primary products are power supplies, power converters, filters, power transformers, magnetic components, power distribution equipment, UPS systems, antennas and high power radar systems. The applications of these products include AC and DC locomotives, shipboard power, shipboard radar, airborne power, ground-based radar, and ground mobile power.

Espey services include design and development to specification, build to print, design services, design studies, environmental testing services, metal fabrication, painting services, and development of automatic testing equipment. Espey is vertically integrated, meaning that the Company produces individual components (including inductors), populates printed circuit boards, fabricates metalwork, paints, wires, qualifies, and fully tests items, mechanically, electrically and environmentally, in house. Portions of the manufacturing and testing process are subcontracted to vendors from time to time.

The Company markets its products primarily through its own direct sales organization and through outside sales representatives. Business is solicited from large industrial manufacturers and defense companies, the government of the United States, foreign governments and major foreign electronic equipment companies. Espey is also on the eligible list of contractors with the United States Department of Defense. We pursue opportunities for prime contracts directly with the Department of Defense and are generally automatically solicited by Department of Defense procurement agencies for their needs falling within the major classes of products produced by the Company. Espey contracts with the Federal Government under cage code 20950 as Espey Mfg. & Electronics Corp.

There is competition in all classes of products manufactured by the Company, ranging from divisions of the largest electronic companies, to many small companies. The Company's sales do not represent a significant share of the industry's market for any class of its products. The principal methods of competition for electronic products of both a military and industrial nature include, among other factors, price, product performance, the experience of the particular company and history of its dealings in such products.

Our business is not seasonal. However, the concentration of our business in the rail industry, and in equipment for military applications and industrial applications, and our customer concentrations expose us to on-going associated risks. These risks include, without limitation, fluctuating requirements for power supplies in the rail industry, dependence on appropriations from the United States Government and the governments of foreign nations, program allocations, the potential of governmental termination of orders for convenience, and the general strength of the industry sectors in which our customers transact business.

In order to compete effectively for new business, in some cases we have invested in upfront design costs, thereby reducing initial profitability as a means of procuring new long-term programs. As part of our strategy, we adjust our pricing in order to achieve a balance which enables us both to retain repeat programs while being more competitive in bidding on new programs.

We continue to place an emphasis on securing “build to print” opportunities, which will allow production work to go directly to the manufacturing floor, limiting the impact on our engineering staff. This allows us to keep our manufacturing team busy while the products are being developed in-house to production.

The total backlog at March 31, 2021 was approximately $67.3 million, which included $43.6 million from five significant customers, compared to $59.8 million at March 31, 2020, which included $32.7 million from four significant customers. The Company’s total backlog represents the estimated remaining sales value of work to be performed under firm contracts. The funded portion of this backlog at March 31, 2021 is approximately $65.2 million. This includes items that have been authorized and appropriated by Congress and/or funded by the customer. The unfunded backlog at March 31, 2021 is approximately $2.1 million and represents two firm multi-year orders from a single customer for which funding has not yet been appropriated by Congress or funded by our customer. While there is no guarantee that future budgets and appropriations will provide funding for individual programs, management has included in unfunded backlog only those programs that it believes are likely to receive funding based on discussions with customers and program status. The unfunded backlog at March 31, 2020 was $1.2 million, comprised of one of the same multi-year orders from a single customer. Contracts are subject to modification, change or cancellation, and the Company accounts for these changes as they are probable and estimable. The Company evaluates the impact of any scope modifications and will adjust reserves as information is known and estimable.

Successful conversion of engineering program backlog into sales is largely dependent on the execution and completion of our engineering design efforts. It is not uncommon to experience technical or scheduling delays which arise from time to time as a result of, among other reasons, design complexity, the availability of personnel with the requisite expertise, and the requirements to obtain customer approval at various milestones. Cost overruns which may arise from technical and schedule delays could negatively impact the timing of the conversion of backlog into sales, or the profitability of such sales. We continue to experience technical and schedule delays with our major development programs. However, these delays are being resolved as they arise and we do not expect any negative impact on our customer order fulfillment projections for the remainder of fiscal year 2021 or fiscal year 2022. As of April 2021, we received qualification approval on a large 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 $8.6 million.

In March 2021, we experienced an unplanned facility closure resulting from COVID-19 exposures. With a large number of our on-site workforce testing positive to the virus or required to self-isolate due to an identified direct exposure, operations were suspended for approximately 10 days. The facility did not re-open at full capacity, with employees returning upon proper clearance based on established internal protocols. This closure had a significant impact on our employees’ morale and our ability to manufacture and ship during the current fiscal quarter. Although we continue to experience disruptions from workforce absenses, currently we are fully operational. Global supply chain disruptions from closures has had an impact on our ability to ship product during fiscal year 2021. As the effects of the pandemic continue world-wide, we will continue to experience some trickle-down effects to our direct supply base which will impact our ability to ship some scheduled deliveries for the foreseeable future.

The pandemic has had a direct effect on at least one key customer of the Company with a resulting significant impact on the Company. Subsequent to fiscal year ended June 30, 2020, the Company received a request from a customer to stop work temporarily on a design and production contract for a product to be used in the airline industry for a minimum of 120 days. As of December 31, 2020, the contract was cancelled by the customer and as a result the Company’s sales backlog was reduced by $0.4 million and $1.7 million during the three and nine months ended March 31, 2021, respectively. The impact to the financial statements for this reduction is discussed in Results of Operations, below. The Company is reviewing potential contractual remedies.

Management expects revenues in fiscal year 2021 to be lower than revenues during fiscal year 2020, and expects the net income per share to be lower in fiscal year 2021 than the net income per share during fiscal year 2020. These expectations are driven by orders already in our sales backlog, the impact of workforce and supplier constraints primarily resulting from the effects from the pandemic, an inventory write-off incurred due to a cancelled contract supporting the airline industry also a result of the pandemic, and projected increased costs on several programs beyond initial expectations adversely impacting net income, additionally discussed in Results of Operations.

The Company currently expects new orders in fiscal 2021 to exceed the $40.9 million in new orders received in fiscal year 2020. As market factors including competition and product costs impact gross profit margins, management will continue to evaluate our sales strategy, employment levels, and facility costs.

New orders received in the first nine months of fiscal year 2021 were $30.8 million as compared to $33.6 million new orders received in the first nine months of fiscal 2020. It is presently anticipated that a minimum of $12.8 million of orders comprising the March 31, 2021 backlog will be filled during the fiscal year ending June 30, 2021. The minimum of $12.8 million does not include any shipments, which may be made against orders subsequently received during the fiscal year ending June 30, 2021. The estimate of the March 31, 2021 backlog to be shipped in fiscal year 2021 is subject to future events, which may cause the amount of the backlog actually shipped to differ from such estimate.

In addition to the backlog, the Company currently has outstanding opportunities representing approximately $90 million in the aggregate as of May 3, 2021 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.

A significant portion of the Company’s business is the production of military and industrial electronic equipment for use by the U.S. and foreign governments and certain industrial customers. Net sales to five significant customers represented 66.1% of the Company’s total sales for the three-month period ended March 31, 2021. Net sales to one significant customer represented 33% of the Company’s total sales for the three-month period ended March 31, 2020. Net sales to four significant customer represented 57.3% of the Company’s total sales for the nine-month period ended March 31, 2021. Net sales to one significant customer represented 27.7% of the Company’s total sales for the nine-month period ended March 31, 2020. This high concentration level with these customers presents significant risk. A loss of one of these customers or programs related to these customers 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.

Critical Accounting Policies and Estimates

Management believes our most critical accounting policies include revenue recognition and cost estimation on our contracts.

Revenue

The majority of our net sales is generated from contracts with industrial manufacturers and defense companies, the Department of Defense, other agencies of the government of the United States and foreign governments for the design, development and/or manufacture of products. We provide our products and design and development services under fixed-price contracts. Under fixed-price contracts we agree to perform the specified work for a pre-determined price. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss.

We account for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. We assess each contract at its inception to determine whether it should be combined with other contracts. When making this determination, we consider factors such as whether two or more contracts were negotiated and executed at or near the same time, or were negotiated with an overall profit objective.

We evaluate the products or services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. Significant judgment is required in determining performance obligations. We determine the transaction price for each contract based on the consideration we expect to receive for the products or services being provided under the contract. The transaction price for each performance obligation is based on the estimated standalone selling price of the product or service underlying each performance obligation. Transaction prices on our contracts subject to the Federal Acquisition Regulations (FAR) are typically based on estimated costs plus a reasonable profit margin.

We recognize revenue using the output method based on the appraisal of results achieved and milestones reached or units delivered based on contractual shipment terms, typically shipping point.

Inventory

Raw materials are valued at the lower of cost (average cost) or net realizable value. Balances for slow-moving and obsolete inventory are reviewed on a regular basis by analyzing estimated demand, inventory on hand, sales levels, market conditions, and other information and reduce inventory balances based on this analysis.

Inventoried work relating to contracts in process and work in process is valued at actual production cost, including factory overhead incurred to date. Contract costs include material, subcontract costs, labor, and an allocation of overhead costs. Work in process represents spare units and parts and other inventory items acquired or produced to service units previously sold or to meet anticipated future orders. Provision for losses on contracts is made when the existence of such losses becomes probable and estimable. The provision for losses on contracts is included in other accrued expenses on the Company’s balance sheet. The costs attributed to units delivered under contracts are based on the estimated average cost of all units expected to be produced. Certain contracts are expected to extend beyond twelve months.

The estimation of total cost at completion of a contract is subject to numerous variables involving contract costs and estimates as to the length of time to complete the contract. Given the significance of the estimation processes and judgments described above, it is possible that materially different amounts of expected sales and contract costs could be recorded if different assumptions were used, based on changes in circumstances, in the estimation process. When a change in expected sales value or estimated cost is determined, the change is reflected in current period earnings.

Contract Liabilities

Contract liabilities include advance payments and billings in excess of revenue recognized.

Results of Operations

Net sales decreased for the three months ended March 31, 2021 to $4,205,068 as compared to $6,191,300 for the same period in 2020. Net sales for the nine months ended March 31, 2021 decreased to $18,432,648 as compared to $19,401,793 for the same period in 2020. For the three and nine months ended March 31, 2021, sales decreased due to a decline in power supply and magnetic 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 those programs including contract value, scope of work and duration. Deliverables within firm contracts are often subject to delivery schedules. Internal and external contraints, at times, impact our ability to ship. Sales results during the three and nine months ended March 31, 2021 were significantly impacted by our inability to manufacture and ship product during the current fiscal quarter due to an unplanned facility closure which occurred in March 2021 resulting from a significant workforce COVID-19 exposure. This closure lasted approximately 10 days with the facility re-opening at less than full capacity. Also impacting sales during the current fiscal year, specific to power supply shipments, is the decline in procurement for product supporting the the rail industry. This decline has been 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. As of April 2021, we received qualification approval on a large significant engineering design and production contract which allows us to begin the manufacturing of end units.

Gross (loss) profits for the three months ended March 31, 2021 and 2020 were $(187,154) and $ 910,933, respectively. Gross (loss) profit as a percentage of sales was approximately (4.5)% and 14.7%, for the same periods, respectively. For the nine months ended March 31, 2021 and 2020, gross profits were $1,653,681 and $3,527,429, respectively. Gross profit as a percentage of sales was approximately 9.0% and 18.2%, 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 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 decrease in sales during the current fiscal quarter primarily resulting from the unplanned facility shutdown due to the COVID-19 pandemic had a significant inpact on gross profit recognized during the three and nine months ended March 31, 2021.

Several factors contributed to a decrease in the gross profit and the gross profit percentage in the three months ended March 31, 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 anticipated labor costs and the other primarily consisting of unforeseen material escalation costs to complete the production builds. Second, the Company wrote down the remaining 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 current fiscal year. The Company is currently reviewing its legal options. Collections in respect of this contract which may be received in the future will be recognized in income, if and when received. The gross profit percentage decreased in the nine months ended March 31, 2021 as compared to the same period in 2020 primarily from product mix, specifically on build to print shipments which yielded lower margins on a higher sales base when compared to the same period last year. This is largely attributed to a specific contract which had no comparable sales in the prior period. In addition, the gross profit percentage was negatively impacted by the increase in costs recognized on two design and production contracts and the inventory adjustment made to a specific contract supporting the airline industry, both discussed above.

Selling, general and administrative expenses were $990,311 for the three months ended March 31, 2021, a decrease of $66,723, compared to the three months ended March 31, 2020. Selling, general and administrative expenses were $2,850,415 for the nine months ended March 31, 2021, a decrease of $540,573 compared to the nine months ended March 31, 2020. The decrease for the three months ended March 31, 2021 as compared to the same period in 2020 relates primarily to the decrease in employee compensation, travel, reduction in outside services supporting sales leads, and a decrease in outgoing freight costs due to a decrease in shipments. These decreases were offset in part by an increase in audit fees due to the timing of progress billings. The decrease for the nine months ended March 31, 2021 as compared to the same period in 2020 relates primarily to the decrease in employee compensation, travel, conference and training expenditures, reduction in outside services supporting sales leads, a decrease in board of director’s fees due to a reduction of one director, and a decrease in outgoing freight costs due to a decrease in shipments. These decreases were offset in part by an increase in outside selling costs for commissions paid on certain contracts. Employee compensation decreased due to a reduction in workforce and cost reduction measures implemented that included forgoing cost of living increases and the payment of bonuses during the current fiscal year.

Other income for the three months ended March 31, 2021 and 2020 was $7,075 and $23,518, respectively. Other income for the nine months ended March 31, 2021 and 2020 was $40,906 and $109,771, respectively. The decrease for the three and nine months ended is primarily due to the decrease in interest income resulting from a reduction in investment securities and interest rate reductions. Interest income is a function of the level of investments and investment strategies that generally tend to be conservative.

The Company’s effective tax rates for the three and nine months ended March 31, 2021, were approximately 8.6% and 8.2%, respectively, compared to approximately 15.4% and 15.9% for the three and nine months ended March 31, 2020, respectively. The effective tax rate in fiscal 2021 and 2020 is less than the statutory tax rate mainly due to the benefit derived from the ESOP dividends paid on allocated shares. The decrease in the effective tax rate between periods is primarily due to a reduction in income before taxes.

Net loss for the three months ended March 31, 2021, was $(1,070,114) or $(0.44) per share, basic and diluted, compared to net loss of $(103,765) or $(0.04) per share, basic and diluted, for the three months ended March 31, 2020. Net (loss) income for the nine months ended March 31, 2021, was $(1,061,297) or $(0.44) per share, basic and diluted, compared to $206,975 or $0.09 per share, basic and diluted, for the nine months ended March 31, 2020. The decrease in net income in the three and nine months ended resulted from the decrease in gross profit and lower other income offset, in part, by the decrease in selling, general and administrative, all discussed above.

Liquidity and Capital Resources

The Company's working capital is an appropriate indicator of the liquidity of its business, and during the past two fiscal years, the Company, when possible, has funded all of its operations with cash flows resulting from operating activities and when necessary from its existing cash and investments. The Company did not borrow any funds during the last two fiscal years. Management has available a $3,000,000 line of credit to help fund further growth or working capital needs, if necessary, but does not anticipate the need for any borrowed funds in the foreseeable future. Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at March 31, 2021 and 2020. The line of credit is reviewed annually in November for renewal by December 1st.

The Company's working capital as of March 31, 2021 and 2020 was $26.1 million and approximately $27.2 million, respectively. The Company may at times be required to repurchase shares at the ESOP participants’ request at the fair market value. During the three and nine months ended March 31, 2021 the Company did not repurchase any shares held by the ESOP. During the three and nine months ended March 31, 2020 the Company repurchased 0 and 2,180 shares previously held by the ESOP for $0 and $47,949, respectively. Under existing authorizations from the Company's Board of Directors, as of March 31, 2021, management is authorized to purchase an additional $783,460 of Company stock.

The table below presents the summary of cash flow information for the fiscal years indicated:

|  | Nine months Ended March 31, 2021 | 2020 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $2,188,300 | $4,934,111 |
| Net cash provided by (used in) investing activities | 2,099,830 | (248,270) |
| Net cash used in financing activities | (1,201,316) | (1,758,043) |

Net cash provided by operating activities fluctuates between periods primarily as a result of differences in sales and net income, provision for income taxes, the timing of the collection 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 cash collected from customers as advances in contract liabilities, a decrease in net income and an increase in inventory purchases, offset, in part, by a decrease in spending on accounts payable and an increase in trade accounts receivables collected. Net cash provided by investing activities increased in the nine months ended March 31, 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 current period. The decrease is primarily due to the suspension and non-payment of the quarterly dividend during the current fiscal quarter and a decrease in cash proceeds collected from the exercise of stock options offset by the decrease in the purchase of treasury stock as compared to the same period last year.

The Company currently believes that the cash flow generated from operations and when necessary, from cash and cash equivalents will be sufficient to meet its long-term funding requirements for the foreseeable future.

During the nine months ended March 31, 2021 and 2020, the Company expended $34,337 and $210,527, respectively, for plant improvements and new equipment. The Company has budgeted approximately $200,000 for new equipment and plant improvements in fiscal year 2021. Management anticipates that the funds required will be available from current operations.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE

SECURITIES LITIGATION REFORM ACT OF 1995

This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The terms "believe," "anticipate," "intend," "goal," "expect," and similar expressions may identify forward-looking statements. These forward-looking statements represent the Company's current expectations or beliefs concerning future events. The matters covered by these statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including the Company's dependence on timely development, introduction and customer acceptance of new products, the impact of competition and price erosion, supply and manufacturing constraints, potential new orders from customers, the impact of cyber or other security threats or other disruptions to our business, the impact of the COVID-19 pandemic on the United States economy and our operations and other risks and uncertainties. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

## Market risk

As filed, 343 characters.

The Company is a smaller reporting company as defined under Securities and Exchange Commission Rule 12b-2. Pursuant to the exemption available to smaller reporting company issuers under Item 305 of Regulation S-K, quantitative and qualitative disclosures about market risk, the Company is not required to provide the information for this item.

## Controls and procedures

As filed, 830 characters.

(a) The Company's management, with the participation of the Company's chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) There have been no changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Filed May 17, 2021.
Source: SEC EDGAR, the filing index for accession 0001174947-21-000552. Last ingested by Listed: Oct 26, 2026, 09:04 ET. No prices; not investment advice.