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Nature of Operations and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

Accounting Pronouncements and Policies

In August 2018, the FASB issued ASU

2018-13,

Fair Value Measurement - Disclosure Framework (Topic 820) (ASU

2018-13).

The updated guidance improves the disclosure requirements on fair value measurements, including, among other things, addition of certain disclosures related to level 3 fair value measurements, and removal of disclosure requirements for (i) the amount and reasons for transfers between level 1 and level 2 of the fair value hierarchy, and (ii) policy and timing of transfers between fair value hierarchy levels. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU

2018-13

in the first quarter of fiscal 2021. The application of this guidance did not have a material effect on our disclosures.

No other accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s consolidated financial statements.

Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Earnings per Share

The consolidated financial statements include basic and diluted earnings (loss) per share (“EPS”) information. Basic EPS is based on the weighted-average number of shares outstanding. Diluted EPS is based on the sum of the weighted-average number of shares outstanding plus common stock equivalents.

There were no weighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation at September 30, 2022. For the year ended September 30, 2021, the weighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation were 236,000, which equates to 116,000 dilutive common stock equivalents. Weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted EPS calculation because they were anti-dilutive, were zero in 2022 and 2021.

The following presents the calculation of the basic and diluted EPS for the years ended September 30, 2022 and 2021:


	2022								2021
	Net Loss			Shares		EPS			Net Income		Shares		EPS
Basic EPS	$	(372,000	)		14,658,000	$	(0.03	)	$	5,805,000		14,614,000	$	0.40
Common stock equivalents					—							116,000

Diluted EPS	$	(372,000	)		14,658,000	$	(0.03	)	$	5,805,000		14,730,000	$	0.39

Cash Equivalents

Cash equivalents consist of short-term certificates of deposit and deposits in money market accounts with original maturities of three months or less.

Marketable Securities and Fair Value Measurements

Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated statements of operations. Net changes in unrealized gains and losses are reported in the consolidated statements of operations in the current period.

Fair Value Measurements

The fair value of financial instruments is presented based upon a hierarchy of levels that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The fair value of marketable equity securities (stocks), mutual funds, exchange-traded funds, government securities, and cash and money funds, are substantially based on quoted market prices (Level 1). Corporate bonds are valued using market standard valuation methodologies, including: discounted cash flow methodologies, and matrix pricing or other similar techniques. The inputs to these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, maturity, estimated duration and assumptions regarding liquidity and estimated future cash flows. In addition to bond characteristics, the valuation methodologies incorporate market data, such as actual trades completed, bids and actual dealer quotes, where such information is available. Accordingly, the estimated fair values are based on available market information and judgments about financial instruments (Level 2). Fair values of the Level 2 investments are provided by the Company’s professional investment management firms. From time to time the Company may transfer cash between its marketable securities portfolio and operating cash and cash equivalents.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2022:


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	12,149,000	$	—	$	—	$	12,149,000
Mutual Funds		5,337,000		—		—		5,337,000
Exchange-Traded Funds		4,794,000		—		—		4,794,000
Corporate Bonds		—		37,339,000		—		37,339,000
Government Securities		29,327,000		—		—		29,327,000
Cash and Money Funds		354,000		—		—		354,000

Total	$	51,961,000	$	37,339,000	$	—	$	89,300,000

Net unrealized losses reported during fiscal 2022 on trading securities still held as of September 30, 2022, were $(6,864,000). There were no transfers of investments between Level 1 and Level 2 during the year ended September 30, 2022.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2021:


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	14,734,000	$	—	$	—	$	14,734,000
Mutual Funds		10,357,000		—		—		10,357,000
Exchange-Traded Funds		9,458,000		—		—		9,458,000
Corporate Bonds		—		24,853,000		—		24,853,000
Government Securities		30,999,000		—		—		30,999,000
Cash and Money Funds		4,575,000		—		—		4,575,000

Total	$	70,123,000	$	24,853,000	$	—	$	94,976,000

Net unrealized gains reported during fiscal 2021 on trading securities still held as of September 30, 2021, were $1,302,000. There were no transfers of investments between Level 1 and Level 2 during the year ended September 30, 2021.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, customer deposits and accrued expenses approximate fair value because of the short-term nature of these items.

Foreign Currency Transactions

Gains and losses resulting from foreign currency transactions are included in income and were not significant during the years ended September 30, 2022 and 2021.

Risk Management

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents, marketable securities, and accounts receivable. The Company maintains its cash accounts in various domestic financial institutions which may from time to time exceed federally insured limits. Operating cash is retained in overnight sweep accounts which allow for offsets to treasury service charges. The marketable securities include investments in cash and money funds, mutual funds, exchange traded funds (“ETF’s”), corporate bonds, government securities and stocks through professional investment management firms. Investment securities are exposed to various risks, such as interest rate, market and credit risks.

The Company’s customers are not concentrated in any specific geographic region, but are concentrated in the road and highway construction industry. The Company extends limited credit on parts sales to its customers based upon their credit-worthiness. Generally, the Company requires a significant

up-front

deposit before beginning manufacturing on complete asphalt plant and component orders, and requires full payment subject to hold-back provisions prior to shipment. The Company establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other pertinent information.

Inventories

Inventories are valued at the lower of cost or net realizable value, with cost being determined under the FIFO method and net realizable value defined as the estimated selling price of goods less reasonable costs of completion and delivery. Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on

trade-in

from customers is carried at estimated net realizable value. Unless

specific circumstances warrant different treatment regarding inventory obsolescence, an allowance is established to reduce the cost basis of inventories three to four years old by 50%, the cost basis of inventories four to five years old by 75%, and the cost basis of inventories greater than five years old to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

Changes in the allowance for slow-moving and obsolete inventories are as follows:


	2022			2021
Balance, beginning of year	$	5,397,000		$	4,617,000
Charged to cost of sales		2,966,000			1,355,000
Disposal of inventory, net of recoveries		(171,000	)		(575,000	)

Balance, end of year	$	8,192,000		$	5,397,000

Property and Equipment

Property and equipment are stated at cost (see Note 4). Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the related assets, as follows:


		Years
Land improvements		15
Buildings & improvements		6-40
Equipment		2-10

Impairments

Property and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. No such impairment losses were recorded during the years ended September 30, 2022 and 2021.

Revenues and Expenses

The Company accounts for revenues and related expenses under the provisions of ASU

No. 2014-09.

The following table disaggregates the Company’s net revenue by major source for the years ended September 30, 2022 and 2021:


	2022		2021
Equipment sales recognized over time	$	37,572,000	$	24,093,000
Equipment sales recognized at a point in time		36,898,000		36,671,000
Parts and component sales		23,856,000		21,017,000
Freight revenue		4,709,000		3,497,000
Other		444,000		—

Net revenue	$	103,479,000	$	85,278,000

Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment transfers over time, as the equipment is unique to the specific contract and thus does not create an asset with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract. All incremental costs related to obtaining a contract are expensed as incurred, as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.

Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were $2,118,000 and $1,903,000 at September 30, 2022 and 2021, respectively, and are included in current assets as costs and estimated earnings in excess of billings on the Company’s consolidated balance sheets. The Company anticipates that all of the contract assets at September 30, 2022, will be billed and collected within one year.

Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.

Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers is due as services are completed. Accounts receivable related to contracts with customers for equipment sales were $142,000 and $210,000 at September 30, 2022 and September 30, 2021, respectively.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.

Changes in the accrual for warranty and related costs are composed of the following:


	2022			2021
Balance, beginning of year	$	291,000		$	299,000
Warranties issued		110,000			280,000
Warranties settled		(157,000	)		(288,000	)

Balance, end of year	$	244,000		$	291,000

Provisions for estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.

Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits at September 30, 2022 and September 30, 2021. Customer deposits related to contracts with customers were $5,864,000 and $5,244,000 at September 30, 2022 and 2021, respectively, and are included in current liabilities on the Company’s consolidated balance sheets.

The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as production costs concurrently with the revenue recognition.

All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.

The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability, and also adjusting for any known customer payment issues with account balances in the

less-than-90-day

past due aging category. Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectible. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts. The allowance for doubtful accounts also includes an estimate for returns and allowances. Provisions for estimated returns and allowances and other adjustments, are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using known issues and historical experience.

Changes in the allowance for doubtful acc

nts are composed of the following:


	2022			2021
Balance, beginning of year	$	321,000		$	442,000
Provision for doubtful accounts		194,000			50,000
Provision for estimated returns and allowances		267,000			175,000
Uncollectible accounts written off		(81,000	)		(60,000	)
Returns and allowances issued		(331,000	)		(286,000	)

Balance, end of year	$	370,000		$	321,000

Shipping and Handling Costs

Shipping and handling costs are included in production costs in the consolidated statements of operations.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and primarily consist of taxes currently due, plus deferred taxes (see Note 6 – Income Taxes).

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns using current tax rates. The Company and its domestic subsidiaries file a consolidated federal income tax return.

Deferred tax assets and liabilities are measured using the rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of the change in tax rates is recognized in income in the period that includes the enactment date. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, the Company is more likely than not to realize the benefit of a deferred tax asset and whether a valuation allowance is needed for some portion or all of a deferred tax asset. No such valuation allowances were recorded as of September 30, 2022 and 2021.

The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision in any period will be affected by, among other things, permanent, as well as temporary differences in the deductibility of certain items, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, its tax expense divided by

pre-tax

book income) from period to period. The Company’s effective tax rates for fiscal 2022 and 2021 reflect the impact of the reduced rates under the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) which was signed into law on December 22, 2017.

Comprehensive Income

For the years ended September 30, 2022 and 2021, other comprehensive income is equal to net income.

Reporting Segments and Geographic Areas

The Company has one reporting segment, equipment for the highway construction industry. Based on evaluation of the criteria of ASC 280 – Segment Reporting, including the nature of products and services, the nature of the production processes, the type of customers and the methods used to distribute products and services, the Company determined that its operating segments meet the requirements for aggregation. The Company designs, manufactures and sells asphalt plants and pavers, combustion systems and fluid heat transfer systems, for the highway construction industry and environmental and petrochemical markets. The Company’s products are manufactured at three facilities in the United States. The Company also services and sells spare parts for its equipment.

For fiscal 2022 and 2021, total revenues of $103,479,000 and $85,278,000, and total long-term assets of $16,834,000 and $12,639,000, respectively, were attributed to the United States. Revenues are attributed to geographic areas based on the location of the assets producing the revenues.

Customers with 10% (or greater) of Net Revenues

No customer accounted for 10% or more of fiscal 2022 or 2021 net revenues.

Subsequent Events

Management has evaluated events occurring from September 30, 2022 through the date these consolidated financial statements were filed with the Securities and Exchange Commission for proper recording and disclosure herein.