TAYLOR DEVICES: Discussion and analysis by management of the financial position and operating results. (form 10-K)
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 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. The 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. 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. -8- Table of Contents
Application of critical accounting methods 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", 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 probable uncollectible accounts through a charge to earnings 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 earnings 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, 2021equaled less than 0.3% of sales for that period. The balance of the valuation allowance has decreased to $7,000at May 31, 2021from $211,000at May 31, 2020. Management does not expect the valuation allowance to materially change in the next twelve months for the current accounts receivable balance. Inventory
Inventories are valued at the lower of average cost or net realizable value. The average cost approximates the cost of first in, first out.
Maintenance and other inventories represent inventory with an estimated product life cycle of more than twelve months. This stock represents certain items that the Company is required to maintain in order to service the products sold, and items that are generally the subject of spontaneous orders.
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. During fiscal 2021, the Company began a thorough review of the facilities including the flow of inventory through the factory and warehouse areas to determine the most efficient utilization of available space. Inventory purchasing practices and stocking levels were also evaluated and it was determined that a significant portion of the older items would be disposed of while the allowance for potential inventory obsolescence would be increased as more items are identified for disposal.
$1,101,000of inventory was disposed of during the year. The provision for potential inventory obsolescence was $1,500,000and $180,000for the years ended May 31, 2021and 2020. 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. -9- Table of Contents
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, 2021, 43% of revenue was recorded for contracts in which revenue was recognized over time while 57% was recognized at a point in time. In the year ended May 31, 2020, 57% of revenue was recorded for contracts in which revenue was recognized over time while 43% was recognized at a point in time. For financial statement presentation purposes, the Company nets progress billings against the total costs incurred 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
$3.9 millionof taxable income in order to realize our deferred tax assets recorded as of May 31, 2021of $815,000. This deferred tax asset balance is 2% ( $15,000) less 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. From
-10- Table of Contents Results of Operations
A summary of the changes from period to period of the main items included in the consolidated statements of earnings is presented below:
Summary comparison of completed years
Increase / (Decrease) Sales, net
$ (5,872,000 )Cost of goods sold $ 190,000Selling, general and administrative expenses $ (407,000 )Income before provision for income taxes $ (2,734,000 )Provision for income taxes $ (767,000 )Net income $ (1,967,000 )
For the year ended
Year ended May 31 Change 2021 2020 Amount Percent Net Revenue
$ 22,510,000 $ 28,382,000 $ (5,872,000 )-21 % Cost of sales 19,335,000 19,145,000 190,000 1 % Gross profit $ 3,175,000 $ 9,237,000 $ (6,062,000 )-66 % … as a percentage of net revenues 14 % 33 % The Company's consolidated results of operations showed a 21% decrease in net revenues and a decrease in net income of 65%. Revenues recorded in the current period for long-term construction projects ("Project(s)") were 41% lower than the level recorded in the prior year. We had 41 Projects in process during the current period compared with 41 during the same period last year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 7% more than the level recorded in the prior year. The number of Projects in-process fluctuates from period to period. The changes from the prior period to the current period 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 35% decrease from last year's level in sales to structural customers whowere seeking seismic / wind protection for either construction of new buildings and bridges or retrofitting existing buildings and bridges along with a 5% decrease in sales to customers in aerospace / defense offset by a 10% increase in sales to customers using our products in industrial applications. The significant decrease in sales to structural customers is primarily from domestic customers. Many prospective customers in the construction field had been delaying orders for several months as they considered the potential effects of the current COVID pandemic on the economy. Slightly more than half of the sales order bookings to structural customers were recorded in the final four months of the fiscal year, including $6.4 millionin the fourth quarter. All of these will be deliverable in fiscal 2022. A breakdown of sales to these three general groups of customers, as a percentage of total net revenue for fiscal years ended May 31, 2021and 2020 is as follows: Year ended May 31 2021 2020 Industrial 10 % 7 % Structural 45 % 55 % Aerospace / Defense 45 % 38 % -11- Table of Contents
Total sales within
North Americadecreased 34% from last year. Total sales to Asiaincreased 52% from the prior year. Net revenue by geographic region, as a percentage of total net revenue for fiscal years ended May 31, 2021and 2020 is as follows: Year ended May 31 2021 2020 North America 70 % 85 % Asia 20 % 11 % Other 10 % 4 % The gross profit as a percentage of net revenue of 14% in the current period is less than the 33% recorded in the same period of the prior year. The significant decrease in gross profit as a percentage of revenue is primarily due to the significant reduction in domestic sales to structural customers along with the 58% increase in research and development costs incurred as discussed above. At May 31, 2020, we had 102 open sales orders in our backlog with a total sales value of $9.8 million. At May 31, 2021, we had 132 open sales orders in our backlog with a total sales value of $22.0 million. $9.3 millionof the current backlog is on Projects already in progress. $2.2 millionof the $9.8 millionsales order backlog at May 31, 2020was in progress at that date. 43% of the sales value in the backlog is for aerospace / defense customers compared to 63% at the end of fiscal 2020. As a percentage of the total sales order backlog, orders from structural customers accounted for 55% at May 31, 2021and 32%
May 31, 2020.
The Company’s backlog, revenues, commissions, gross margins, gross profit and net profit fluctuate from period to period. Total sales for the current period and changes in the current period from the previous period are not necessarily representative of future results.
Selling, general and administrative expenses
Year ended May 31 Change 2021 2020 Amount Percent Outside Commissions
$ 719,000 $ 1,081,000 $ (362,000 )-33 % Other SG&A 4,808,000 4,853,000 (45,000 ) -1 % Total SG&A $ 5,527,000 $ 5,934,000 $ (407,000 )-7 % … as a percentage of net revenues 25 % 21 % Selling, general and administrative expenses decreased slightly from the prior year. Outside commission expense decreased 33% from last year's level due to the significant decrease in the level of commissionable sales recorded in the current period as compared to the prior period. Other selling, general and administrative expenses decreased only slightly from last year. The above factors resulted in operating loss of $2,352,000for the year ended May 31, 2021, down significantly from the $3,303,000operating income in the prior year.
Other income during the period includes
$2,972,000of financial assistance provided by the U.S.federal government as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act and the Consolidated Appropriations Act of 2021 (CAA), discussed below: a.) $1,462,000of income due to the forgiveness of the loan by the Small Business Administration(SBA) under the Paycheck Protection Program (PPP), and b.) $1,510,000of Employee Retention Credit income. 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, 2021is -56%, compared to the ETR for the prior year of 11%. -12- Table of Contents
A reconciliation of the provision for income taxes at the statutory rate to the provision for income taxes at the Company’s effective rate is as follows:
Computed tax provision at the expected statutory rate
$ 143,000 $ 718,000Tax effect of permanent differences: Research tax credits (218,000 ) (272,000 ) Foreign-derived intangible income deduction - (100,000 ) U.S. Government PPP loan forgiven (307,000 )
- Other permanent differences 42,000 40,000 Other (41,000 ) -
$ (381,000 ) $ 386,000
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 Public Law 115-97, known as the Tax Cuts and Jobs Act. The legislation that created the PPP and permitted the SBA to forgive loans made through the PPP also directed that the forgiven loan would not be taxable income to the recipient. Stock Options
The Company has stock option plans which provide for the granting of unqualified or incentive stock options to officers, key employees and non-employee directors. The options granted under the plans may be exercised over a period of ten years. Options not exercised at the end of the term expire.
The Company measures compensation cost arising from the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee is required to provide service in exchange for the award. The Company recognized
$154,000and $143,000of compensation cost for the years ended May 31, 2021and 2020. The fair value of each stock option grant has been determined using the Black-Scholes model. The model considers assumptions related to exercise price, expected volatility, risk-free interest rate, and the weighted average expected term of the stock option grants. The Company used a weighted average expected term. Expected volatility assumptions used in the model were based on volatility of the Company's stock price for the thirty-month period immediately preceding the granting of the options. The Company issued stock options in August 2020and April 2021. The risk-free interest rate is derived from the U.S.treasury yield.
The following assumptions were used in the Black-Scholes model to estimate the fair market value of the Company’s stock option grants:
August 2020 April 2021 Risk-free interest rate: 1.750 % 2.625 % Expected life of the options: 3.9 years 4.0 years
Expected share price volatility: 34 % 32 % Expected dividends: zero zero These assumptions resulted in estimated fair-market value per stock option:
$ 2.88 $ 3.49-13- Table of Contents The ultimate value of the options will depend on the future price of the Company's common stock, which cannot be forecast with reasonable accuracy. A summary of changes in the stock options outstanding during the year ended May 31, 2021is presented below. Weighted- Number of Average Options Exercise Price
Options outstanding and exercisable at May 31, 2020: 252,250 $
11.52 Options granted: 47,250
$ 11.26Less: Options exercised: 13,000 $ 6.34 Less: Options expired: 18,750 $ 13.31
Options outstanding and exercisable at
11.60 Closing value per share on NASDAQ at May 31, 2021:
Capital resources, line of credit and long-term debt
The Company's primary liquidity is dependent upon its working capital needs. These are primarily inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued commissions, billings in excess of costs and estimated earnings, and debt service. The Company's primary sources of liquidity have been operations and bank financing. Capital expenditures for the year ended
May 31, 2021were $1,622,000compared to $1,231,000in the prior year. Current year capital expenditures included new manufacturing machinery, testing equipment, paint booths system, upgrades to technology equipment and assembly / test facility improvements. The Company has commitments to make capital expenditures of approximately $400,000as of May 31, 2021. During fiscal 2020, the Company received a loan totaling $1,462,000from the SBA under the Paycheck Protection Program of the CARES Act, in response to the Coronavirus pandemic described below. The total amount of the loan was forgiven during fiscal 2021 under provisions of the CARES Act. The Company has a $10,000,000demand line of credit from a bank, with interest payable at the Company's option of 30, 60 or 90 day LIBOR rate plus 2.25%. There is no outstanding balance at May 31, 2021or May 31, 2020. The outstanding balance on the line of credit fluctuates as the Company's various long-term projects progress. The line is secured by a negative pledge of the Company's real and personal property. This line of credit is subject to the usual terms and conditions applied by the bank and is subject to renewal annually.
The bank does not undertake to grant loans under this line of credit and no commitment commission is charged.
Inventory and maintenance Inventory
May 31, 2021 May 31, 2020 Increase /(Decrease) Raw materials
$ 503,000 $ 658,000 $ (155,000 )-24 % Work in process 5,076,000 8,586,000 (3,510,000 ) -41 % Finished goods 256,000 863,000 (607,000 ) -70 % Inventory 5,835,000 78 % 10,107,000 92 % (4,272,000 ) -42 %
Maintenance and other inventories 1,613,000 22% 879,000
8 % 734,000 84 % Total
$ 7,448,000100 % $ 10,986,000100 % $ (3,538,000 )-32 % Inventory turnover 2.1 1.7 Inventory, at $5,835,000as of May 31, 2021, is 42% less than the prior year-end. Of this, approximately 87% is work in process, 4% is finished goods, and 9% 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. -14- Table of Contents
The Company continues to rework slow-moving inventory, where applicable, to convert it to product to be used on customer orders. During fiscal 2021, the Company began a thorough review of the inventory to identify and dispose of items that had not been used for several years and were unlikely to be used in the foreseeable future. The Company disposed of approximately
$1,101,000and $46,000of obsolete inventory during the years ended May 31, 2021and 2020, respectively.
Accounts receivable, estimated costs and revenues in excess of billing (“CIEB”) and billings in excess of estimated costs and revenues (“BIEC”)
May 31, 2021 May 31, 2020
Accounts and other debtors
(1,698,000 ) -29 % Less: Other receivable 741,000 -
Accounts receivable 3,380,000 5,819,000 (2,439,000 ) -42 % CIEB 1,500,000 1,755,000 (255,000 ) -15 % Less: BIEC 1,362,000 737,000 625,000 85 % Net
$ 3,518,000 $ 6,837,000 $ (3,319,000 )-49 %
Number of sales per average day
outstanding in accounts receivable (DSO) 42 68
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
$3,380,000as of May 31, 2021includes approximately $201,000of amounts retained by customers on long-term construction projects. The Company expects to collect all of these amounts, including the retained amounts, during the next twelve months. The number of an average day's sales outstanding in accounts receivable (DSO) decreased to 42 days at May 31, 2021from 68 days as of May 31, 2020. The DSO is a function of 1.) the level of sales for an average day (for example, total sales for the past three months divided by 90 days) and 2.) the level of accounts receivable at the balance sheet date. The level of sales for an average day in the fourth quarter of the current fiscal year is only 6% less than in the fourth quarter of the prior year. The level of accounts receivable at the end of the current fiscal year is 42% less than the level at the end of the prior year. The level of accounts receivable at the end of the current year is significantly less that last year due to 1.) the collection in the current year of amounts owed on some larger Projects that had been completed in the prior year and 2.) the lower level of sales in the current year. The combination of the decrease in the level of an average day's sales along with the decrease in the level of accounts receivable caused the DSO to decrease by 26 days from last year-end to this year-end. The Company expects to collect the net accounts receivable balance, including the retainage, during the next twelve months.
The other debtor is an employee retention credit amount claimed by the company for the second calendar quarter of 2021 and is expected to be received in the third calendar quarter of 2021.
The status of ongoing projects at the end of the current fiscal year and previous fiscal years has changed in factors affecting the year-end balances to CIEB assets and BIEC liabilities:
2021 2020 Number of projects in progress at year-end 14 15 Aggregate percent complete at year-end 32 %
80% Average total value of ongoing projects at the end of the year
Percentage of total value invoiced to customer 30 % 74 %
There is one fewer project 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 increased by 16% between those two dates. -15- Table of Contents 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
$1,500,000balance in this account at May 31, 2021is a 15% decrease from the prior year-end. This decrease reflects the lower 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. 42% of the CIEB balance as of the end of the last fiscal quarter, February 28, 2021, was billed to those customers in the current fiscal quarter ended May 31, 2021. 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: May 31, 2021 May 31, 2020 Costs $ 2,362,000 $ 2,615,000Estimated earnings 410,000 540,000 Less: Billings to customers 1,272,000 1,400,000 CIEB $ 1,500,000 $ 1,755,000Number of projects in progress 9 10 As noted above, BIEC represents billings to customers in excess of revenues recognized. The $1,362,000balance in this account at May 31, 2021is in comparison to a $737,000balance 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 for this account include the following:
May 31, 2021 May 31, 2020 Billings to customers
$ 2,741,000 $ 7,794,000Less: Costs 1,011,000 3,781,000 Less: Estimated earnings 368,000 3,276,000 BIEC $ 1,362,000 $ 737,000Number of projects in progress 5 5
Accounts payable, at
$1,787,000as of May 31, 2021, is 30% more than the prior year-end. This significant increase is due to the increase in customer orders received during the final months of the current fiscal year that will be manufactured and shipped to the customers in the coming months. The Company expects the current accounts payable amount to be paid during the next twelve months. Commission expense on applicable sales orders is recognized at the time revenue is recognized. The commission is paid following receipt of payment from the customers. Accrued commissions as of May 31, 2021are $269,000. This is 12% less than the $306,000accrued at the prior year-end. This decrease is generally due to the decrease in the level of sales, discussed above. The Company expects the current accrued amount to be paid during the next twelve months.
Other accrued charges from
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, capital improvements and share repurchases (if any) for
the next twelve months. -16- Table of Contents Coronavirus Pandemic On
January 31, 2020, the United StatesSecretary of Health and Human Services(HHS) declared a public health emergency related to the global spread of coronavirus COVID-19, and a pandemic was declared by the World Health Organizationin February 2020. Efforts to fight the widespread disease included limiting or closing many businesses and resulted in a severe disruption of operations for many organizations. Financial markets also fluctuated significantly during this time. The extent of the impact of COVID-19 on the Company's operational and financial performance was significant in fiscal 2021. While the use of vaccinations world-wide have apparently slowed spread of the disease, the extent of the impact of COVID-19 on the Company's operational and financial performance in fiscal 2022 will depend on further developments, including the duration and spread of the outbreak, impact on customers, employees, and vendors, all of which cannot be predicted. Company management currently does not have reason to believe that the COVID-19 pandemic will adversely affect our ability to meet our obligations to our customers. Our top priorities continue to be the health and safety of our employees and their families along with supporting our customers. Thanks to the careful adherence to our COVID-19 safety measures by our workforce as well as our customers and suppliers, we remain in a strong position with respect to being able to process existing orders and we are quite prepared to process new orders as they are secured. Our high-spirited, healthy workforce continues to adjust their work schedules as the needs arise. The majority of our customers remain open to continue to receive shipments from us and issue new purchase orders to us. Many of our domestic structural customers froze operations while they attempted to determine the extent and impact of the pandemic on their projects. We noticed a thawing in this domestic market during the final four months of the fiscal year as customers appeared to gain confidence in the future of our economy. This has resulted in an increase in the volume of domestic sales orders. While these new orders had very little impact on the 2021 fiscal year, they have provided a strong base for the next fiscal year. The liquidity of the Company remains strong at this time. However, the pandemic is not over and the economy has not fully recovered yet. Management remains concerned about variants of the virus as well as the uncertainty of the when or how the virus may affect some of our customers' purchasing plans. The economic downturn did have a negative impact on our operations and for this reason, we have applied for and have received assistance from the federal government under various provisions of the CARES Act and CAA, as discussed above. Our Supply Chain Managementteam is in communication with our partners around the globe so that we can be updated on any delays that may occur. Increases in global demand for materials such as steel have caused sharp cost increases as the various economies improve around the world. We have faced longer lead times to procure some materials. Management is monitoring this situation and adjusting our sourcing as necessary. -17- Table of Contents
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