Taylor Devices, Inc.: Form 10-K for the period ended May 31, 2025

Taylor Devices, Inc. (referred to herein as the “Company,” “we,” “us” or “our”) was incorporated in the State of New York on July 22, 1955 and is engaged in the design, development, manufacture and marketing of shock absorption, rate control, and energy storage devices for use in various types of machinery, equipment and structures. In addition to manufacturing and selling existing product lines, the Company continues to develop new and advanced technology products.

Principal Products

The Company manufactures and sells a group of very similar products that have many different applications for customers. These similar products are included in one of nine categories, namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs, Vibration Dampers, Machined Springs, Custom Shock and Vibration Isolators, and Custom Actuators. Custom derivations of all of these products are designed and manufactured for many aerospace and defense applications. The following is a summary of the capabilities and applications for these products.

Seismic Dampers are designed to mitigate the effects of earthquakes on structures and represent a substantial portion of the Company’s sales. Fluidicshoks® are small, extremely compact shock absorbers with up to 19,200 inch-pound capacities, produced in 12 standard sizes for primary use in the defense, aerospace and commercial industries. Crane and Industrial Buffers are larger versions of the Fluidicshoks® with up to 10,890,000 inch-pound capacities, produced in more than 50 standard sizes for industrial applications on cranes and crane trolleys, truck docks, ladle and ingot cars, ore trolleys and train car stops. Self-Adjusting Shock Absorbers, which include versions of Fluidicshoks® and crane and industrial buffers, automatically adjust to different impact conditions, and are designed for high cycle application primarily in heavy industry. Liquid Die Springs are used as component parts of machinery and equipment used in the manufacture of tools and dies. Vibration Dampers are used primarily by the aerospace and defense industries to control the response of electronics and optical systems subjected to air, ship, or spacecraft vibration. Machined Springs are precisely controlled mechanical springs manufactured from a variety of materials. These are used primarily for aerospace applications that require custom features that are not possible with conventional wound coil springs. Custom Shock and Vibration Isolators are comprised of various configurations including liquid springs, fluid dampers, elastomeric springs and Pumpkin™ Mounts. They are typically used for defense applications. Custom Actuators are typically of the gas-charged type, using high pressure, that have custom features not available from other suppliers. These actuators are used for special aerospace and defense applications.

Sales and Distribution

The Company uses a technical sales force consisting of Company employees for sales in the United States. From time to time, the Company uses the services of non-employee sales representatives for sales throughout the rest of the world. Specialized technical sales in custom marketing activities outside the U.S. are serviced by these sales representatives under the direction and with the assistance of the Company's in-house technical sales staff. Sales representatives typically have non-exclusive agreements with the Company, which, in most instances, provide for payment of commissions on sales at 5% to 10% of the product's net aggregate selling price. The Company recorded zero and $77,000 of non-employee commission expense for the years ending May 31, 2025 and 2024 respectively. A limited number of foreign sales representatives also have non-exclusive agreements with the Company to purchase the Company's products for resale purposes.

Competition

The Company faces some competition for hydraulic energy absorbers on mature aerospace and defense programs. Other competition in these sectors include the use of competing technologies, not necessarily of similar design as Taylor Devices’ products. For the industrial products group, several foreign companies and two U.S. companies are the Company’s main competitors in the production of crane buffers and industrial shock absorbers.

The Company competes directly against three other firms supplying structural damping devices for use in the U.S. For structural applications outside of the U.S., the Company competes directly with several other firms, particularly in Japan and Taiwan. The Company competes with numerous other firms that supply alternative seismic protection technologies.

Raw Materials and Supplies

The principal raw materials and supplies used by the Company in the manufacture of its products are provided by numerous U.S. and foreign suppliers. The loss of any one of these suppliers would not have a material adverse effect on the Company.

Dependence Upon Major Customers

Sales to three customers accounted for approximately 42% (21%, 15% and 6%, respectively) of our net sales for 2025. Sales to four customers accounted for approximately 40% (21%, 7%, 7% and 5%, respectively) of our net sales for 2024. The loss of any or all of these customers, unless the business is replaced by the Company, would have a material adverse effect on the Company.

Patents, Trademarks and Licenses

The Company holds 24 patents expiring at different times until the year 2042.

Terms of Sale

The Company had no inventory out on consignment and there were no consignment sales for the years ended May 31, 2025 and 2024. No extended payment terms are offered. During the year ended May 31, 2025, delivery time after receipt of orders averaged 8 to 10 weeks for the Company's standard industrial products. Due to the volatility of structural and aerospace/defense programs, we usually require progress payments for larger projects where the Company supplies custom designed components.

Need for Government Approval of Principal Products or Services

Contracts between the Company and the federal government or its independent contractors are subject to termination at the election of the federal government. Contracts are generally entered into on a fixed price basis. If the federal government should limit defense spending, these contracts could be reduced or terminated, which management believes would have a materially adverse effect on the Company.

Research and Development

To accommodate growth and to maintain its presence in current markets, the Company engages in product research and development activities in connection with the design of its products. Occasionally, research and development for products in the aerospace and defense sectors is funded by customers or the federal government. The Company also engages in research testing of its products. For the years ended May 31, 2025 and 2024, the Company expended $444,000 and $388,000, respectively, on product research. For the years ended May 31, 2025 and 2024, government-funded research and development totaled $1,141,000 and $818,000, respectively. For the years ended May 31, 2025 and 2024, customer-funded research and development totaled $228,000 and $477,000, respectively.

Government Regulation

Compliance with federal, state, and local laws and regulations regulating the discharge of materials into the environment has had no material effect on the Company, and the Company believes that it is in substantial compliance with these laws and regulations.

The Company is subject to the Occupational Safety and Health Act ("OSHA") and the rules and regulations promulgated thereunder, which establish strict standards for the protection of employees, and impose fines for violations of such standards. The Company believes that it is in substantial compliance with OSHA and such rules and regulations promulgated thereunder.

The Company is also subject to regulations relating to production of products for the federal government. These regulations allow for frequent governmental audits of the Company's operations and extensive testing of Company products. The Company believes that it is in substantial compliance with these regulations.

Employees

As of May 31, 2025, the Company had 137 total employees, consisting of 135 full-time employees and two part-time employees. The Company has good relations with its employees, and none of the Company’s employees are covered by a collective bargaining agreement.

Risk Management and Strategy

In connection with the operation of the Company’s business, we identify, assess and manage key risks that may affect the Company, including material risks from cybersecurity threats, through our system security plan. Our system security plan is aligned with the 110 controls detailed in the NIST (SP) 800-171 and Department of Defense CMMC Level 2 guidelines for Cybersecurity. We have company-wide security policies, standards and controls that seek to incorporate best practices in security engineering, technology architecture and data protection. Our policies and controls include security measures designed to protect our systems against unauthorized access. We also maintain cybersecurity protection measures covering our information technology systems, including the protection of customer data, vendor data and employee information. We have also implemented specialized training and education programs to guard against cybersecurity incidents, including company-wide communications and presentations, phishing simulations, focused training for specific roles and a general cybersecurity training program required for all employees.

We engage third parties to perform regular reviews of our security controls which includes 24/7/365 security incident and event management as well as vulnerability services and penetration testing. Our processes to identify, assess and manage material risks from cybersecurity threats include risks associated with our use of third-party service providers, including cloud-based platforms. We oversee and identify cybersecurity risks from our third-party service providers in a number of ways, including appropriate due diligence in connection with service provider onboarding, robust security terms and conditions in our third-party service provider contracts and ongoing risk-based monitoring to ensure compliance with our cybersecurity standards. We believe that these policies and controls provide us with an appropriate assessment of potential cybersecurity threats.

As of the date of this Annual Report on Form 10-K (this “Form 10-K”), we are not aware of any risks from any potential cybersecurity threat or from any previous cybersecurity incident that have materially affected or are likely to materially affect our business strategy, results of operations or financial condition. However, the preventative actions we have taken and continue to take to reduce the risk of cybersecurity threats and incidents may not successfully protect against these potential threats and incidents in the future.

Governance

The Company’s Board of Directors is responsible for overseeing management’s identification, assessment and management of key risks, including cybersecurity risks.

Our Director of Information Technology, Mitch Reszczenski, is primarily responsible for assessing and managing our cybersecurity risks. Mr. Reszczenski has over 29 years of extensive information technology experience in highly successful manufacturing, engineering and financial organizations. Mr. Reszczenski provides regular updates on cybersecurity risks and threats and key developments in Company policies, practices and related risk exposures to the Chief Executive Officer and Chief Financial Officer. Additionally, senior management provides an update to the Board of Directors on cybersecurity matters at least once a year, and more often as appropriate. The Board of Directors annually reviews and approves the capital and operating budgets, ultimately reviewing and approving the amount spent by the Company on cybersecurity measures.

Mr. Reszczenski works with senior management to implement and oversee processes for the regular monitoring of our information systems. If a cybersecurity incident involving the Company were to occur, Mr. Reszczenski would engage senior management to initially determine the potential materiality of the incident, the potential need for public disclosure, the timing and extent of the Company’s response and whether any future vulnerabilities are expected. As part of this evaluation, senior management would also identify immediate actions to mitigate the impact and long-term strategies for remediation and prevention of future cybersecurity incidents. After an initial evaluation by senior management, the relevant information regarding the cybersecurity incident and its materiality would be promptly reported to the Company’s Board of Directors for further review and evaluation, including as to whether public disclosure would be required or advisable.

The Company's production facilities occupy approximately six acres on Tonawanda Island in North Tonawanda, New York and are comprised of four interconnected buildings and two adjacent buildings, each of which is owned by the Company. The production facilities consist of a small parts plant (approximately 4,400 square feet), a large parts plant (approximately 13,500 square feet), and include a facility of approximately 7,000 square feet comprised of a test facility, storage area, pump area and the Company's general offices. One adjacent building is a 27,000 square foot seismic assembly and test facility. This building contains overhead traveling cranes to allow dampers to be built up to 45 feet in length. It is also the site of three long bed damper test machines where seismic dampers manufactured by the Company will be tested at maximum force to satisfy customer specifications. Another adjacent building (approximately 2,000 square feet) is used as a training facility. These facilities total more than 54,000 square feet. Adjacent to these facilities, the Company has a remote test facility used for shock testing. This state-of-the-art test facility is 1,200 square feet. The Company owns two additional industrial buildings on nine acres of land in the City of North Tonawanda located 1.4 miles from the Company’s headquarters on Tonawanda Island. Total area of the two buildings is 46,000 square feet. One building includes a machine shop containing custom-built machinery for boring, deep-hole drilling and turning of parts. Another is used for painting and packaging parts and completed units.

Refer to Note 17, “Legal Proceedings,” to the Notes to Consolidated Financial Statements for additional information regarding the Company’s legal proceedings, which is incorporated by reference into this Item 3.

Cautionary Statement

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Information in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-K that does not consist of historical facts are "forward-looking statements." Statements accompanied or qualified by, or containing, words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," "assume" and "optimistic" constitute forward-looking statements and, as such, are not a guarantee of future performance. These statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others: fluctuations in general business cycles and changing economic conditions; variations in timing and amount of customer orders; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. Except as required by law, the Company disclaims any obligation to release publicly any updates or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based.

Application of Critical Accounting Policies and Estimates

The Company's consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. The preparation of the Company's financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported. These estimates, assumptions and judgments are affected by management's application of accounting policies, which are discussed in Note 1, "Summary of Significant Accounting Policies," of the Notes to Consolidated Financial Statements and elsewhere in the accompanying consolidated financial statements. As discussed below, our financial position or results of operations may be materially affected when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. Management believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company's financial statements.

Accounts Receivable

Our ability to collect outstanding receivables from our customers is critical to our operating performance and cash flows. Accounts receivable are stated at an amount management expects to collect from outstanding balances. Management provides for estimated credit losses through a charge to expense and a credit to a valuation allowance based on its assessment of the current status of individual accounts after considering the age of each receivable and communications with the customers involved. Balances that are collected, for which a credit to a valuation allowance had previously been recorded, result in a current-period reversal of the earlier transaction charging expense and crediting a valuation allowance. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable in the current period. The actual amount of accounts written off over the five year period ended May 31, 2025 equaled 0.2% of sales for that period. The balance of the valuation allowance has increased to $564,000 at May 31, 2025 from $29,000 at May 31, 2024 due to the uncertainty of collecting a $751,000 balance overdue on a structural project. The Company is in discussions with the customer regarding payment of this balance.

Inventory

Inventory is stated at the lower of average cost or net realizable value. Average cost approximates first-in, first-out cost.

Maintenance and other inventory represent stock that is estimated to have a product life-cycle in excess of twelve-months. This stock represents certain items the Company is required to maintain for service of products sold, and items that are generally subject to spontaneous ordering.

This inventory is particularly sensitive to technical obsolescence in the near term due to its use in industries characterized by the continuous introduction of new product lines, rapid technological advances, and product obsolescence. Therefore, management of the Company has recorded an allowance for potential inventory obsolescence. Based on certain assumptions and judgments made from the information available at that time, we determine the amount in the inventory allowance. If these estimates and related assumptions or the market changes, we may be required to record additional reserves. Historically, actual results have not varied materially from the Company's estimates. There was $107,000 and $791,000 of inventory disposed of during the years ended May 31, 2025 and 2024, respectively. The provision for potential inventory obsolescence was zero and $386,000 for the years ended May 31, 2025 and 2024, respectively.

Revenue Recognition

Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations.

For contracts with customers in which the Company satisfies a promise to the customer to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time (generally less than one year), using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and overhead. Total estimated costs for each of the contracts are estimated based on a combination of historical costs of manufacturing similar products and estimates or quotes from vendors for supplying parts or services towards the completion of the manufacturing process. Adjustments to cost and profit estimates are made periodically due to changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements. These changes may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Any losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. If total costs calculated upon completion of the manufacturing process in the current period for a contract are more than the estimated total costs at completion used to calculate revenue in a prior period, then the profits in the current period will be lower than if the estimated costs used in the prior period calculation were equal to the actual total costs upon completion. Historically, actual results have not varied materially from the Company's estimates. Other sales to customers are recognized upon shipment to the customer based on contract prices and terms. In the year ended May 31, 2025, 68% of revenue was recorded for contracts in which revenue was recognized over time while 32% was recognized at a point in time. In the year ended May 31, 2024, 59% of revenue was recorded for contracts in which revenue was recognized over time while 41% was recognized at a point in time.

For financial statement presentation purposes, the Company nets progress billings against the total costs incurred and estimated earnings on uncompleted contracts. The asset, "costs and estimated earnings in excess of billings," represents revenues recognized in excess of amounts billed. The liability, "billings in excess of costs and estimated earnings," represents billings in excess of revenues recognized.

Income Taxes

The provision for income taxes provides for the tax effects of transactions reported in the financial statements regardless of when such taxes are payable. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax and financial statement basis of assets and liabilities. The deferred tax assets relate principally to asset valuation allowances such as inventory obsolescence reserves and bad debt reserves and also to liabilities including warranty reserves, accrued vacation, accrued commissions and others. The deferred tax liabilities relate primarily to differences between financial statement and tax depreciation. Deferred taxes are based on tax laws currently enacted with tax rates expected to be in effect when the taxes are actually paid or recovered.

Realization of the deferred tax assets is dependent on generating sufficient taxable income at the time temporary differences become deductible. The Company provides a valuation allowance to the extent that deferred tax assets may not be realized. A valuation allowance has not been recorded against the deferred tax assets since management believes it is more likely than not that the deferred tax assets are recoverable. The Company considers future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance. In future years the Company will need to generate approximately $13.6 million of taxable income in order to realize our deferred tax assets recorded as of May 31, 2025 of $2,848,000. This deferred tax asset balance is 31% ($671,000) higher than at the end of the prior year. The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced. If actual results differ from estimated results or if the Company adjusts these assumptions, the Company may need to adjust its deferred tax assets or liabilities, which could impact its effective tax rate.

The Company's practice is to recognize interest related to income tax matters in interest income / expense and to recognize penalties in selling, general and administrative expenses.

The Company and its subsidiary file consolidated federal and state income tax returns. As of May 31, 2025, the Company had state investment tax credit carryforwards of approximately $493,000 expiring through May 2030.

Results of Operations

A summary of the period-to-period changes in the principal items included in the consolidated statements of income is shown below:

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For the year ended May 31, 2025 (All figures being discussed are for the year ended May 31, 2025 as compared to the year ended May 31, 2024).

The Company's consolidated results of operations showed a 4% increase in net revenues and an increase in net income of 5%. Revenues recorded in the year ended May 31, 2025 for long-term projects (“Project(s)”) were 19% higher than the level recorded in the prior year. We had 37 Projects in process during the year ended May 31, 2025 compared with 39 during the same period last year. Revenues recorded in the year ended May 31, 2025 for other-than long-term projects (non-projects) were 18% lower than the level recorded in the prior year. The number of Projects in-process fluctuates from period to period. The changes from the prior year to the year ended May 31, 2025 are not necessarily representative of future results.

Sales of the Company's products are made to three general groups of customers: industrial, structural and aerospace / defense. The Company saw a 3% increase from last year’s level in sales to structural customers who were seeking seismic / wind protection for either construction of new buildings and bridges or retrofitting existing buildings and bridges along with a 2% increase in sales to customers in aerospace / defense and a 24% increase in sales to customers using our products in industrial applications.

A breakdown of sales to these three general groups of customers, as a percentage of total net revenue for fiscal years ended May 31, 2025 and 2024 is as follows:

Total sales within the U.S. decreased 5% from last year. Total sales to Asia increased to $7.0 million from $2.0 million last year. The shift in domestic and international sales concentration from the prior year is attributable to normal changes in structural project activity. Net revenue by geographic region, as a percentage of total net revenue for fiscal years ended May 31, 2025 and 2024 is as follows:

The gross profit as a percentage of net revenue of 46% in the year ended May 31, 2025 is in line with the same period of the prior year.

At May 31, 2025, we had 142 open sales orders in our backlog with a total sales value of $27.1 million. At May 31, 2024, we had 134 open sales orders in our backlog with a total sales value of $33.1 million. $13.1 million of the current backlog is on Projects already in progress. $18.6 million of the $33.1 million sales order backlog at May 31, 2024 was in progress at that date. 75% of the sales value in the backlog is for aerospace / defense customers compared to 72% at the end of fiscal 2024. As a percentage of the total sales order backlog, orders from structural customers accounted for 19% at May 31, 2025 and 22% at May 31, 2024. The Company expects to recognize revenue for the majority of the backlog during the fiscal year ending May 31, 2026, with the remainder during the fiscal year ending May 31, 2027.

The Company's backlog, revenues, commission expense, gross margins, gross profits, and net income fluctuate from period to period. Total sales in the current period and the changes in the current period compared to the prior period, are not necessarily representative of future results.

Research and Development Costs

Research and development costs increased 14% from the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 4% from the prior year, primarily from increased credit loss expense.

Operating Income

Operating income of $9,627,000 for the year ended May 31, 2025 increased 2% from the prior year, primarily from increased revenue.

Other Income

Other income decreased 2% from the prior year. The decrease was driven by short-term investment interest income.

Provision for Income Taxes

The Company's effective tax rate (ETR) is calculated based upon current assumptions relating to the year's operating results and various tax related items. The ETR for the fiscal year ended May 31, 2025 is 15%, compared to the ETR for the prior year of 18%.

A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows:

The foreign-derived intangible income deduction is a tax deduction provided to corporations that sell goods or services to foreign customers. It became available through the Tax Cuts and Jobs Act of 2017.

Liquidity and Capital Resources, Line of Credit and Long-Term Debt

The Company's primary liquidity requirements depend on its working capital and capital expenditure needs. Working capital consists primarily of cash and short-term investments, inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued expenses and billings in excess of costs and estimated earnings. The Company's primary source of liquidity has been excess cash flow from operations.

Capital expenditures for the year ended May 31, 2025 were $2,602,000 compared to $1,149,000 in the prior year. Current year capital expenditures included new manufacturing machinery, testing equipment, upgrades to technology equipment and assembly / test facility improvements. The Company has commitments to make capital expenditures of approximately $1,853,000 as of May 31, 2025. These capital expenditures will be primarily for new manufacturing and testing equipment.

The Company has a $10,000,000 demand line of credit with M&T Bank, with interest payable at the Company's option of 30, 60 or 90 day SOFR rate plus 2.365%. There is no outstanding balance at May 31, 2025. The line is secured by a negative pledge of the Company's real and personal property and is subject to renewal annually. The bank is not committed to make loans under this line of credit and no commitment fee is charged.

Management believes that the Company's cash on hand, cash flows from operations, and borrowing capacity under the bank line of credit will be sufficient to fund ongoing operations and capital improvements for the next twelve months.

Inventory and Maintenance Inventory

Inventory, at $8,113,000 as of May 31, 2025, is eight percent higher than at the prior year-end. Of this, approximately 89% is work in process, 3% is finished goods, and 8% is raw materials. All of the current inventory is expected to be consumed or sold within twelve months. The level of inventory will fluctuate from time to time due to the stage of completion of the non-project sales orders in progress at the time.

The Company disposed of approximately $107,000 and $791,000 of obsolete inventory during the years ended May 31, 2025 and 2024, respectively.

Accounts Receivable, Costs and Estimated Earnings in Excess of Billings (“CIEB”) and Billings in Excess of Costs and Estimated Earnings (“BIEC”)

The Company combines the totals of accounts receivable, the asset CIEB, and the liability BIEC, to determine how much cash the Company will eventually realize from revenue recorded to date. As the accounts receivable figure rises in relation to the other two figures, the Company can anticipate increased cash receipts within the ensuing 30-60 days.

Accounts receivable of $5,600,000 as of May 31, 2025 includes no retainage by customers on long-term construction projects. The number of an average day's sales outstanding in accounts receivable (DSO) was 32 days at May 31, 2025 and 39 days at May 31, 2024. The Company increased its allowance for estimated credit losses to $564,000 at May 31, 2025 from $29,000 at May 31, 2024 due to the uncertainty of collecting a $751,000 overdue balance on a structural project.

The status of the projects in-progress at the end of the current and prior fiscal years have changed in the factors affecting the year-end balances in the asset CIEB, and the liability BIEC:

There are two more projects in-process at the end of the current fiscal year as compared with the prior year end and the average value of those projects has decreased by 12% between those two dates.

As noted above, CIEB represents revenues recognized in excess of amounts billed. Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill, and collect from the customer, payments in advance of shipments. Unfortunately, provisions such as this are often not possible. The $5,360,000 balance in this account at May 31, 2025 is a 23% increase from the prior year end. This increase reflects the higher aggregate level of the percentage of completion of these Projects as of the current year end as compared with the Projects in process at the prior year end. Generally, if progress billings are permitted under the terms of a project sales agreement, then the more complete the project is, the more progress billings will be permitted. The Company expects to bill the entire amount during the next twelve months. 38% of the CIEB balance as of the end of the last fiscal quarter, February 28, 2025, was billed to those customers in the current fiscal quarter ended May 31, 2025. The remainder will be billed as the projects progress, in accordance with the terms specified in the various contracts.

The year-end balances in the CIEB account are comprised of the following components:

As noted above, BIEC represents billings to customers in excess of revenues recognized. The $4,382,000 balance in this account at May 31, 2025 is in comparison to a $5,601,000 balance at the end of the prior year. The balance in this account fluctuates in the same manner and for the same reasons as the account "costs and estimated earnings in excess of billings," discussed above. Final delivery of product under these contracts is expected to occur during the next twelve months.

The year-end balances in this account are comprised of the following components:

Accounts payable, at $1,119,000 as of May 31, 2025, is 22% less than the prior year end. This decrease is normal fluctuation of this account and is not considered to be unusual. The Company expects the current accounts payable amount to be paid during the next twelve months.

Accrued expenses of $4,072,000 decreased 13% from the prior year level of $4,664,000. This change is due to decreases in accrued incentive compensation.

(a) Evaluation of disclosure controls and procedures.

The Company's chief executive officer (its principal executive officer) and chief financial officer (its principal financial officer) have evaluated the Company's disclosure controls and procedures as of May 31, 2025 and have concluded that, as of the evaluation date, the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms and that information required to be disclosed in the reports the Company files or submits under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

(b) Management's report on internal control over financial reporting.

The Company's management, with the participation of the Company's chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's management has assessed the effectiveness of the Company's internal control over financial reporting as of May 31, 2025. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -- Integrated Framework, updated in 2013. Based on this assessment, management has concluded that, as of May 31, 2025, the Company's internal control over financial reporting is effective.

(c) Changes in internal control over financial reporting.

There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter ended May 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company's control over financial reporting.