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1、EDGAR PROOFDated:09/23/2021 04:58 PMPlease return edits/approvals to:EDGARName:SHANNON CARPENTERClient:ESPEY MFG.&ELECTRONICS CORP.Form Type:10-K Job#:26733Proof#:5No.of Pages:43NOTE:The EDGAR Department office hours are 9AM to 5PM EST Monday-Friday excluding Federal Holidays.Please have your author
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4、if no selection is made,filing will be transmitted upon receipt of approval within normal EDGAR Department business hours)OK TO FILE AS ISFILE UPON RECEIPT OF APPROVAL(Same business day if during normal EDGAR Department office hours.)OK TO FILE AS CORRECTED(Only if you include additional changes.Rev
5、ised Proof will not be sent.)FILE ON A FUTURE DATE:(Must be during normal EDGAR Department business hours.Please verify availability.)(specify filing date on line above)SIGNATURE OF AUTHORIZED PERSON:(Your signature is necessary to proceed with EDGAR transmission.)SIGNED:NAME:TITLE:As a filing agent
6、,the EDGAR Department is responsible only for the technological transmission of the file and NOT for content.Fulfillment of legal requirements and SEC regulations in the document content is the sole responsibility of the client.Your authorized signature to file is an indication that the document was
7、 proofed thoroughly for accuracy.Shannon CarpenterAccount Contract AdministratorSubmission Data FileGeneral InformationForm Type*10-K Contact Name Computershare Contact Phone 732-512-3048Filer Accelerated Status*Not ApplicableFiler File NumberFiler CIK*0000033533(ESPEY MFG&ELECTRONICS CORP)Filer CCC
8、*Filer is Shell Company*N Filer is Smaller Reporting Company YesFiler is Voluntary Filer*NFiler is Well Known Seasoned Issuer*N Confirming Copy No Notify via Website only No Return Copy NoSROS*NYSEDepositor CIKPeriod*06-30-2021ABS Asset Class TypeABS Sub Asset Class TypeSponsor CIK Emerging Growth C
9、ompany No Elected not to use extended transition period No(End General Information)Document InformationFile Count*14Document Name 1*form10k-26733_esp.htmDocument Type 1*10-K Document Description 1 10-KDocument Name 2*ex11-1.htmDocument Type 2*EX-11.1 Document Description 2 EX-11.1Document Name 3*ex2
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11、1Document Name 7*ex32-2.htmDocument Type 7*EX-32.2 Document Description 7 EX-32.2Document Name 8*image_002.jpgDocument Type 8*GRAPHIC Document Description 8 GraphicDocument Name 9*esp-20210630.xmlDocument Type 9*EX-101.INS Document Description 9 XBRL Instance FileDocument Name 10*esp-20210630.xsdDoc
12、ument Type 10*EX-101.SCH Document Description 10 XBRL Schema FileDocument Name 11*esp-20210630_cal.xmlDocument Type 11*EX-101.CAL Document Description 11 XBRL Calculation FileDocument Name 12*esp-20210630_def.xmlDocument Type 12*EX-101.DEF Document Description 12 XBRL Definition FileDocument Name 13
13、*esp-20210630_lab.xmlDocument Type 13*EX-101.LAB Document Description 13 XBRL Label FileDocument Name 14*esp-20210630_pre.xmlDocument Type 14*EX-101.PRE Document Description 14 XBRL Presentation File(End Document Information)Notifications Notify via Website only No E-mail 1 (End Notifications)form10
14、k-26733_esp.htm10-K1 of 3510-K2673309/23/2021 04:58 PMUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended June 30,2021Commission File Number I-4383ESPEY MFG.&ELECTRONI
15、CS CORP.(Exact name of registrant as specified in its charter)NEW YORK14-1387171(State of incorporation)(I.R.S.Employers Identification No.)233 Ballston Avenue,Saratoga Springs,New York 12866(Address of principal executive offices)518-584-4100(Registrants telephone number,including area code)Securit
16、ies registered pursuant to Section 12(b)of the ActTitle of each classTrading SymbolName of each exchange on which registeredCommon Stock$.33-1/3 par valueESPNYSE AmericanSecurities registered pursuant to Section 12(g)of the ActNoneIndicate by check mark if the registrant is a well-known seasoned iss
17、uer,as defined in Rule 405 of the Securities Act.Yes NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes NoIndicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of
18、the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes NoIndicate by check mark whether the registrant has submitted electronicall
19、y every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).Yes NoIndicate by check mark whether the registrant is a large accelerate
20、d filer,an accelerated filer,a non-accelerated filer,or a smaller reporting company:Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period fo
21、r complying with any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial repor
22、ting under Section 404(b)of the Sarbanes-Oxley Act(15 U.S.C.7262(b)by the registered public accounting firm that prepared or issued its audit report.Indicate by check mark whether the registrant is a shell company.Yes NoThe aggregate market value of the voting stock held by non-affiliates of the reg
23、istrant was$33,443,664 based upon the closing sale price of$18.92 on the NYSE American on December 31,2020.At September 22,2021 there were 2,702,633 shares outstanding of the registrants Common stock,$.33-1/3 par value.form10k-26733_esp.htm2673309/23/2021 04:58 PM2 of 35DOCUMENTS INCORPORATED BY REF
24、ERENCEPortions of the registrants definitive proxy statement relating to the 2021 Annual Meeting of Shareholders,to be filed with the Securities and Exchange Commission,are incorporated by reference in Part III,Items 10 through 14 on Form 10-K as indicated herein.Forward-Looking StatementsThis Annua
25、l Report on Form 10-K contains forward-looking statements that are based on managements expectations,estimates,projections and assumptions.Words such as“expects,”“anticipates,”“plans,”“believes,”“scheduled,”“estimates”and variations of these words and similar expressions are intended to identify for
26、ward-looking statements.Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995,as amended.These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict.Th
27、erefore,actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors,including,without limitation:?Changing priorities or decreases in the U.S.governments defense budget(including changes in priorities in response to terrorist
28、 threats,improvement of homeland security and general U.S.Government budgetary issues);?The impact of the COVID-19 pandemic on the United States economy and our operations;?Termination of government contracts due to unilateral government action;?Differences in anticipated and actual program performa
29、nce,including the ability to perform under long-term fixed-price contracts within estimated costs,and performance issues with key suppliers and subcontractors;?Potential of changing prices for energy and raw materials;?General strength of the industry sectors in which our customers transact business
30、All forward-looking statements speak only as of the date of this report or,in the case of any document incorporated by reference,the date of that document.All subsequent written and oral forward-looking statements attributable to the Company or any person acting on the Companys behalf are qualified
31、by the cautionary statements in this section.The Company does not undertake any obligation to update or publicly release any revisions to forward-looking statements to reflect events,circumstances or changes in expectations after the date of this report.1 form10k-26733_esp.htm2673309/23/2021 04:58 P
32、M3 of 35PART IItem 1.BusinessGeneralEspey Mfg.&Electronics Corp.(“Espey”)is a power electronics design and original equipment manufacturing(OEM)company with a long history of developing and delivering highly reliable products for use in military and severe environment applications.Design,manufacturi
33、ng,and testing is performed in our 150,000+square foot facility located at 233 Ballston Ave.,Saratoga Springs,New York.Espey is classified as a“smaller reporting company”for purposes of the reporting requirements under the Securities Exchange Act of 1934,as amended.Espeys common stock is publicly-tr
34、aded on the NYSE American under the symbol“ESP.”Espey began operations after incorporation in New York in 1928.We strive to remain competitive as a leader in high power energy conversion and transformer solutions through the design and manufacture of new and improved products by using advanced and“c
35、utting edge”electronics technologies.Espey is ISO 9001:2015 and AS9100:2016 certified.Our primary products are power supplies,power converters,filters,power transformers,magnetic components,power distribution equipment,UPS systems,antennas and high power radar systems.The applications of these produ
36、cts include AC and DC locomotives,shipboard power,shipboard radar,airborne power,ground-based radar,and ground mobile power.Espeys services include design and development to specification,build to print,design services,design studies,environmental testing services,metal fabrication,painting services
37、,and development of automatic testing equipment.Espey is vertically integrated,meaning that the Company produces individual components(including inductors),populates printed circuit boards,fabricates metalwork,paints,wires,qualifies,and fully tests items,mechanically,electrically and environmentally
38、,in house.Portions of the manufacturing and testing process are subcontracted to vendors from time to time.In fiscal years ended June 30,2021 and 2020,the Companys total sales were$27,734,598 and$31,526,231,respectively.Sales to four domestic customers,accounted for 16%,15%,14%and 14%,respectively,o
39、f total sales in 2021.Sales to two domestic customers accounted for 24%,and 14%,respectively,of total sales in 2020.Although we have made improvement in the number of significant customers,this concentration level still presents significant risk.A loss of one of these customers or programs related t
40、o these customers could significantly impact the financial performance of the Company.Historically,a small number of customers have accounted for a large percentage of the Companys total sales in any given fiscal year.Export sales in fiscal years 2021 and 2020 were approximately$2,019,000 and$2,077,
41、000,respectively.The decrease is primarily due to the decrease in magnetic sales offset,in part,by an increase in power supply shipments.Sources of Raw MaterialsThe Company has at least two potential sources of supply for a majority of its raw materials.However,certain components used in its product
42、s are available from a single or a limited number of sources.Despite the risk associated with single or limited source suppliers,the benefits of higher quality goods and timely delivery minimize and often limit any potential risk and can eliminate problems with part failures during production.At tim
43、es replacements are required to cover obsolete parts.Historically,the Company has not typically experienced any significant delays or shortages with respect to the purchase of raw materials and components used in the manufacture of its products.However,over the past several years,the growth and cont
44、inuing demand in the power electronics industry across multiple manufacturing sectors has created volatility and unpredictability in the availability of certain electronic components and,in some cases,continues to create industry shortages.These shortages have and will likely continue to impact our
45、ability to support our customers schedule demands,as lead times for these components have,in some instances,increased from readily available to waiting times of nearly a year or more.In addition,we continue to incur delays in material deliveries from some company suppliers due to the COVID-19 pandem
46、ic.We continue to work with our customers to mitigate any adverse impact upon our ability to service their requirements.The President of the United States continued the imposition of tariffs on steel and aluminum imports from various countries in 2021.Although we are not currently experiencing any s
47、ignificant financial or raw material sourcing issues resulting from the product tariffs,the Company cannot provide any assurance that the existing tariffs,the potential of additional tariffs,and the associated volatility arising from the Administrations foreign trade policies,will not have a negativ
48、e impact on our future earnings by increasing our raw material prices and augmenting the lead time for the availability of raw materials.From time to time the Company must identify parts to replace parts which are no longer produced.2 form10k-26733_esp.htm2673309/23/2021 04:58 PM4 of 35Sales Backlog
49、The total backlog at June 30,2021 was approximately$65.6 million compared to approximately$54.9 million at June 30,2020.The Companys total backlog represents the estimated remaining sales value of work to be performed under firm contracts.The funded portion of this backlog at June 30,2021 is approxi
50、mately$63.5 million.This includes items that have been authorized and appropriated by Congress and/or funded by the customer.The unfunded backlog at June 30,2021 is approximately$2.1 million and represents two firm multi-year orders from a single customer for which funding has not yet been appropria
51、ted by Congress or funded by our customer.While there is no guarantee that future budgets and appropriations will provide funding for individual programs,management has included in unfunded backlog only those programs that it believes are likely to receive funding based on discussions with customers
52、 and program status.The unfunded backlog at June 30,2020 was approximately$1 million,comprised of one of the same multi-year orders from a single customer.Contracts are subject to modification,change or cancellation,and the Company accounts for these changes as they are probable and estimable.The Co
53、mpany evaluates the impact of any scope modifications and will adjust reserves as information is known and estimable.It is presently anticipated that a minimum of$38 million of orders comprising the June 30,2021 backlog will be filled during the fiscal year ending June 30,2022.The minimum of$38 mill
54、ion does not include any shipments which may be made against orders received subsequently to the fiscal year ending June 30,2021.The estimate of the June 30,2021 backlog to be shipped in fiscal year 2022 is subject to future events,which may cause the amount of the backlog actually shipped to differ
55、 from such estimate.Marketing and CompetitionThe Company markets its products primarily through its own direct sales organization and through outside sales representatives.Business is solicited from large industrial manufacturers and defense companies,the government of the United States,foreign gove
56、rnments and major foreign electronic equipment companies.Espey is also on the eligible list of contractors with the United States Department of Defense.We pursue opportunities for prime contracts directly with the Department of Defense and are generally automatically solicited by Department of Defen
57、se procurement agencies for their needs falling within the major classes of products produced by the Company.Espey contracts with the Federal Government under cage code 20950 as Espey Mfg.&Electronics Corp.There is competition in all classes of products manufactured by the Company ranging from divis
58、ions of the largest electronic companies,to many small companies.The Companys sales do not represent a significant share of the industrys market for any class of its products.The principal methods of competition for electronic products of both a military and industrial nature include,among other fac
59、tors,price,product performance,the experience of the particular company and history of its dealings in such products.Our business is not seasonal.However,the concentration of our business in the rail industry,and in equipment for military applications and industrial applications and our customer con
60、centrations expose us to on-going associated risks.These risks include,without limitation,requirements for power supplies in the rail industry,dependence on appropriations from the United States Government and the governments of foreign nations,program allocations,the potential of governmental termi
61、nation of orders for convenience,and the general strength of the industry sectors in which our customers transact business.Future procurement needs supporting the military and the rail industry continue to drive competition.Many of our competitors have invested,and they continue to invest aggressive
62、ly in upfront product design costs and accept lower profit margins as a strategic means of maintaining existing business and enhancing market share.This continues to put pressure on the pricing of our current products and has lowered our profit margins on some of our new business.In order to compete
63、 effectively for new business,in some cases we have invested in upfront design costs,thereby reducing initial profitability as a means of procuring new long-term programs.As part of our strategy,we adjust our pricing in order to achieve a balance which enables us both to retain repeat programs while
64、 being more competitive in bidding on new programs.We continue to place an emphasis on securing“build to print”opportunities,which allows production work to go directly to the manufacturing floor,limiting the impact on our engineering staff.This allows us to keep our manufacturing team busy while th
65、e products being developed in-house transition to production.Research and DevelopmentSome of the Companys engineers and technicians spend varying amounts of time on either the development of new products or improvements to existing products.A majority of the resulting costs we incur relate to resear
66、ch that is required to support a request for quotation from a customer product-specific need usually associated with stringent size and weight requirements.We do very little pure research as our business primarily is driven by customer product needs and custom product development with some customer
67、funding.The Companys expenditures for research and development were approximately$40,912 and$44,738 in fiscal year 2021 and 2020,respectively.3 form10k-26733_esp.htm2673309/23/2021 04:58 PM5 of 35EmployeesThe Company had 150 employees as of August 31,2021.Approximately 39%of the employees are repres
68、ented by the International Brotherhood of Electrical Workers.The current collective bargaining agreement expires on June 30,2022.Relations with the Union are considered good.Government RegulationsCompliance with federal,state and local laws regulating the discharge of materials into the environment,
69、or otherwise relating to the protection of the environment,did not in fiscal year 2021,and the Company believes will not in fiscal year 2022,have a material effect upon the capital expenditures,net income,or competitive position of the Company.The Companys U.S.Government contract and subcontract ord
70、ers are funded by government budgets,which operate on an October-to-September fiscal year.Normally,in February of each year,the President of the United States presents to Congress a proposed budget for the upcoming fiscal year.This budget includes recommended appropriations for every federal agency
71、and is the result of months of policy and program reviews throughout the executive branch.From February through September of each year,the appropriations and authorization committees of Congress review the Presidents budget proposals and establish the funding levels for the upcoming fiscal year in a
72、ppropriations and authorization legislation.Once these levels are enacted into law,the Executive Office of the President administers the funds to the agencies.There are two primary risks associated with this process.First,the process may be delayed or disrupted because of congressional schedules,neg
73、otiations over funding levels for programs or unforeseen world events,which could,in turn,alter the funding for a program or contract.Second,funding for multi-year contracts can be changed by future appropriations,which could affect the timing of funds,schedules and program content.Also,our internat
74、ional sales are denominated in United States dollars.Consequently,a strengthening of the United States dollar against foreign currencies could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors products.U.S.Gover
75、nment Defense Contracts and SubcontractsGenerally,U.S.Government contracts are subject to procurement laws and regulations.Some of the Companys contracts are governed by the Federal Acquisition Regulation(FAR),which lays out uniform policies and procedures for acquiring goods and services by the U.S
76、.Government,and agency-specific acquisition regulations that implement or supplement the FAR.For example,the Department of Defense implements the FAR through the Defense Federal Acquisition Regulation(DFAR).The FAR also contains guidelines and regulations for managing a contract after award,includin
77、g conditions under which contracts may be terminated,in whole or in part,at the governments convenience or for default.If a contract is terminated for the convenience of the government,a contractor is entitled to receive payments for its allowable costs and,in general,the proportionate share of fees
78、 or earnings for the work done.If a contract is terminated for default,the government generally pays for only the work it has accepted.These regulations also subject the Company to financial audits and other reviews by the government of its costs,performance,accounting and general business practices
79、 relating to its contracts,which may result in adjustment of the Companys contract-related costs and fees.Cyber or Other Security Threats or Other DisruptionsWe routinely experience cybersecurity threats in the form of unauthorized attempts to gain access to our sensitive information.The threats we
80、face vary from attacks common to most industries to more advanced attacks with the specific objective of accessing national security information.We believe our threat detection and mitigation processes and procedures are above adequate.The processes and procedures in place are designed to detect,man
81、age and prevent current threats and respond quickly to detect and mitigate new threats.To ensure our systems remain protected,we continually assess and acquire,as appropriate,new available technology and provide employee training to utilize effectively our technological assets.Prior cyberattacks dir
82、ected at us have not had a material impact on our financial results nor restricted us from being awarded contracts from other defense companies or directly from the United States Department of Defense.However,we can provide no assurance that the occurrence of any future event would not adversely aff
83、ect our internal operations,our reputation and competitive advantage,and our future financial results.4 form10k-26733_esp.htm2673309/23/2021 04:58 PM6 of 35Item 2.PropertyThe Companys entire operation,including administrative,manufacturing and engineering facilities,is located in Saratoga Springs,Ne
84、w York.The Saratoga Springs plant,which the Company owns,consists of various adjoining buildings on a 22 acre site,approximately eight acres of which is unimproved.The property is not subject to mortgage indebtedness or any other material encumbrance.The plant has a sprinkler system throughout and c
85、ontains approximately 151,000 square feet of floor space,of which 90,000 is used for manufacturing,24,000 for engineering,33,000 for shipping and climatically secured storage,and 4,000 for offices.The offices,engineering and some manufacturing areas are air-conditioned.In addition to assembly and wi
86、ring operations,the plant includes facilities for varnishing,potting,impregnation and spray-painting operations.The manufacturing operation also includes a complete machine shop,with welding and sheet metal fabrication facilities adequate for substantially all of the Companys current operations.Besi
87、des normal test equipment,the Company maintains a sophisticated on-site environmental test facility.In addition to meeting all of the Companys in-house needs,the machine shop and environmental facilities are available to other companies on a contract basis.Item 3.Legal ProceedingsWe are party to var
88、ious litigation matters and claims arising from time to time in the ordinary course of business.While the results of such matters cannot be predicted with certainty,we believe that the final outcome of such matters will not have a material adverse effect on our business,financial condition,results o
89、f operations or cash flows.Currently,there are no matters pending.Item 4.Mine Safety DisclosuresNot applicable5 form10k-26733_esp.htm2673309/23/2021 04:58 PM7 of 35PART IIItem 5.Market for the Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity SecuritiesPrice Ra
90、nge of Common StockThe table below shows the range of high and low prices for the Companys common stock on the NYSE American(symbol ESP),the principal market for trading in the common stock,for each quarterly period for the last two fiscal years ended June 30:2021HighLowFirst Quarter$20.41$15.97Seco
91、nd Quarter23.0017.48Third Quarter20.8014.49Fourth Quarter16.4714.502020HighLowFirst Quarter$27.00$23.25Second Quarter24.0020.00Third Quarter22.9016.62Fourth Quarter20.0016.75HoldersThe approximate number of holders of record of the common stock was 61 on September 20,2021 according to records of the
92、 Companys transfer agent.Included in this number are shares held in nominee or street name and,therefore,the number of beneficial owners of the common stock is believed to be substantially in excess of the foregoing number.DividendsEffective March 9,2021,the Company suspended the payment of regular
93、quarterly dividends.The Company paid regular cash dividends on common stock of$0.50 per share for the fiscal year ended June 30,2021 and paid regular cash dividends on common stock of$1.00 per share for the fiscal year ended June 30,2020.Our Board of Directors assesses the Companys dividend policy p
94、eriodically.During fiscal year 2021,the Company sold 300,000 shares of its common stock to the Trustees of The Espey Mfg.&Electronics Corp.Employee Stock Ownership Plan Trust(the“ESOP”).The ESOP paid$18.29 per share,for an aggregate purchase price of$5,487,000.The ESOP borrowed from the Corporation
95、an amount equal to the purchase price.The Company did not make any open market purchases of equity securities in the fiscal year 2021 fourth quarter.The following table sets forth information as of June 30,2021 with respect to compensation plans under which equity securities of the Company may be is
96、sued.Equity Compensation Plan InformationNumber of securities toWeighted-averageNumber of Securities remainingbe issued upon exerciseexercise price ofavailable for future issuance underof outstanding options,outstanding options,equity compensation plan(excludingPlan Categorywarrants and rightswarran
97、ts and rightssecurities reflected in column(a)(a)(b)(c)Equity compensation plans approved by304,662$23.37212,988 security holdersEquity compensation plans not approved by security holdersTotal304,662212,9886 form10k-26733_esp.htm2673309/23/2021 04:58 PM8 of 35Item 7.Managements Discussion and Analys
98、is of Financial Condition and Results of OperationsBusiness OutlookManagement expects revenues in fiscal year 2022 to be higher than revenues during fiscal year 2021 and expects to generate net income per share as compared to the net loss per share realized during fiscal year 2021.These expectations
99、 are driven by orders already in our sales backlog.Management continues to closely monitor the impact of evolving workforce and supplier constraints,primarily from the effects from the pandemic,to our planned delivery schedules.We continue to experience disruptions from workforce absences due to COV
100、ID-19 illnesses and direct contact exposures,resulting in self-isolating protocols to be followed to ensure the safety of company personnel.In addition,we are experiencing disruptions from workforce turnover,as local businesses emerging from the pandemic compete for personnel.Many of our positions r
101、equire certain skillsets resulting in longer than average time to fill position vacancies.Some company suppliers continue to incur similar disruptions,in addition to incurring longer lead times on certain raw materials.Successful conversion of engineering program backlog into sales is largely depend
102、ent on the execution and completion of our engineering design efforts.It is not uncommon to experience technical or scheduling delays which arise from time to time as a result of,among other reasons,design complexity,the availability of personnel with the requisite expertise,and the requirements to
103、obtain customer approval at various milestones.Cost overruns which may arise from technical and schedule delays could negatively impact the timing of the conversion of backlog into sales,or the profitability of such sales.We continue to experience technical and schedule delays with certain developme
104、nt programs.However,these delays are being resolved as they arise and we do not expect any negative impact on our customer order fulfillment projections for fiscal year 2022.In April 2021,we received qualification approval on a significant engineering design and production contract which allows us t
105、o begin the manufacturing of end units.Engineering programs in both the funded and unfunded portions of the current backlog aggregate$8.9 million.The Company currently expects new orders in fiscal 2022 to approximate those received in fiscal year 2021.As market factors including competition and prod
106、uct costs impact gross profit margins,management will continue to evaluate our sales strategy,employment levels,and facility costs.During fiscal year 2021 the Company received$38.5 million in new orders.Our total backlog at June 30,2021 was$65.6 million,as compared to$54.9 million at June 30,2020.Cu
107、rrently,we expect a minimum of$38 million of orders comprising the June 30,2021 backlog will be filled during the fiscal year ending June 30,2022.This$38 million will be supplemented by shipments which may be made against orders received during the 2022 fiscal year.In addition to the backlog,the Com
108、pany currently has outstanding opportunities representing in excess of$75.3 million in the aggregate as of August 31,2021,for both repeat and new programs.The outstanding quotations encompass various new and previously manufactured power supplies,transformers,and subassemblies.However,there can be n
109、o assurance that the Company will acquire any of the anticipated orders described above,many of which are subject to allocations of the United States defense spending and factors affecting the defense industry.Four significant customers represented approximately 59.4%of the Companys total sales in f
110、iscal year 2021 and two significant customers represented 38%of the Companys total sales in fiscal year 2020.These sales are in connection with multiyear programs in which the Company is a significant contractor.The June 30,2021 backlog of$65.6 million included orders from five customers that repres
111、ent 15%,15%,14%,13%,and 10%,respectively,of the total backlog.The June 30,2020 backlog of$54.9 million includes orders from four customers that represent 19%,13%,10%,and 10%,respectively,of the total backlog.Although improvement has been made in customer concentrations,this high customer concentrati
112、on level continues to present significant risk.A loss of one of these customers or programs related to these customers,or customer requested deferrals of product delivery could significantly impact the Company.Historically,a small number of customers have accounted for a large percentage of the Comp
113、anys total sales in any given fiscal year.Management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales,mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the lo
114、ss of a single significant customer.Given the nature of our business,we believe our existing sales order backlog is fairly diversified in terms of customers and the category of products on order.Management,along with the Board of Directors,continues to evaluate the need and use of the Companys worki
115、ng capital.Capital expenditures,primarily for machinery and equipment,are expected to be approximately$200,000 for fiscal year 2022.A majority of these expenditures will be made to stay competitive in the marketplace and to meet the needs of current contracts.Expectations are that the working capita
116、l will be required to fund orders,general operations of the business and dividend payments when applicable.Management along with the Mergers and Acquisitions Committee of the Board of Directors will examine opportunities involving acquisitions or other strategic options,including buying certain prod
117、ucts or product lines,provided that such opportunities demonstrate synergies with the Companys existing product base and accretion to earnings.7 form10k-26733_esp.htm2673309/23/2021 04:58 PM9 of 35Results of OperationsNet sales for the years ended June 30,2021 and 2020 were$27,734,598 and$31,526,231
118、,respectively,a 12%decrease.The decrease in net sales in fiscal year 2021 is primarily due to a decrease in power supply and magnetics sales offset,in part,by an increase in build to print shipments.In general,sales fluctuations within product categories will occur during a comparable fiscal period
119、as the direct result of product mix,influenced by the duration of specific programs and the contractual terms of firm orders placed for product and services under those programs including contract value,scope of work and duration.Deliverables within firm contracts are often subject to delivery sched
120、ules.Internal and external constraints,at times,impact our ability to ship.Sales results during the twelve months ended June 30,2021 were impacted by our inability to manufacture and ship product during the third quarter due to an unplanned facility closure resulting from a significant workforce COV
121、ID-19 exposure.This closure lasted approximately 10 days with the facility re-opening at less than full capacity.These delays in production placed strain on an already aggressive production and shipment schedule in place for the fourth quarter.Also impacting sales during the fiscal year ended June 3
122、0,2021,specific to power supply shipments,is the decline in procurement for product supporting the rail industry and the decrease in shipments against a single military contract which had no sales in the fiscal year when compared to the prior year.This decline was offset,in part,by an increase in bu
123、ild to print contracts of varying size,scope and duration.In addition,we continued to be constrained by(i)engineering design changes required to meet customer requirements,(ii)certain supplier product non-conformances,(iii)delays in obtaining timely resolutions on issues encompassing build to print
124、customer-owned drawings,and(iv)an increase in lead times for many parts,including certain electronic components due to industry shortages and volatility within the power electronics industry.We are also experiencing an increase in delays with certain supplier deliveries resulting from effects of the
125、 COVID-19 pandemic.Engineering,program management,and supply chain personnel are working closely with our customers and suppliers to execute on our past due deliveries and we do not expect this situation to affect future business opportunities.We anticipate that many of these issues will be resolved
126、 in the near future.As of April 2021,we received qualification approval on a significant engineering design and production contract which allows us to begin the manufacturing of end units.Gross profits for the twelve months ended June 30,2021 and 2020 were$3,359,607 and$5,558,615,respectively.Gross
127、profit as a percentage of sales was approximately 12.1%and 17.6%,for the same periods,respectively.The primary factors in determining the change in gross profit and net income(loss)are overall sales levels and product mix.The gross profits on mature products and build to print contracts are typicall
128、y higher as compared to products which are still in the engineering development stage or in early stages of production.In the case of the latter,the Company can incur what it refers to as“loss contracts,”primarily on engineering design contracts in which the Company invests with the objective of dev
129、eloping future product sales.In any given accounting period the mix of product shipments between higher margin programs and less mature programs,and expenditures associated with loss contracts,has a significant impact on gross profit and net income.Impacting sales and gross profits in the current fi
130、scal year,when compared to the prior year,was an unplanned facility shutdown during the third quarter which lasted approximately 10 days due to the COVID-19 pandemic.Several additional factors contributed to a decrease in the gross profit and the gross profit percentage in the twelve months ended Ju
131、ne 30,2021 as compared to the same period in 2020.Most significantly,the Company recognized as a reduction to income,increased costs on two specific engineering design and production contracts,one of which incurred an increase in both material and labor anticipated costs and the other primarily cons
132、isting of unforeseen material escalation costs to complete the production builds.Second,the Company wrote down the value of inventory pertaining to a certain design and production contract serving the airline industry which was cancelled by the customer during the second quarter of the fiscal year.F
133、inally,sales on several build to print contracts and one specific large magnetics contract,which yielded lower margins,represented a higher volume of the overall product mix in fiscal 2021,thereby resulting in lower gross profit realized in the year.Selling,general and administrative expenses were$3
134、,785,746 for the fiscal year ended June 30,2021;a decrease of$600,561 compared to the fiscal year ended June 30,2020.The decrease for the fiscal year ended June 30,2021 as compared to the same period in 2020 relates primarily to the decrease in costs incurred for employee compensation,travel,board o
135、f directors fees due to a reduction of one director,outside services supporting sales leads,outside selling costs for commissions paid on certain contracts,and outgoing freight costs due to a decrease in shipments.These decreases were offset in part by an increase in costs associated with recruiting
136、 for position vacancies.Employee compensation decreased due to a reduction in workforce and cost reduction measures implemented that included forgoing cost of living increases and the payment of bonuses during the current fiscal year.8 form10k-26733_esp.htm2673309/23/2021 04:58 PM10 of 35Other incom
137、e for the fiscal year ended June 30,2021 and 2020 was$57,942 and$136,881,respectively.The decrease in the twelve months ended is primarily due to a decrease in interest income.Interest income is a function of the level of investments and investment strategies that generally tend to be conservative.T
138、he decrease in interest income in the current fiscal year resulted from the reduction and timing of investments made,offset in part,by a gradual decrease in overall current yield percentages earned on those investments.The Companys effective tax rate was 50.7%in the fiscal year 2021 and 11.1%in fisc
139、al year 2020.The effective tax rate in fiscal 2021 and 2020 varies from the statutory tax rate mainly due to the benefit derived from the ESOP dividends paid on allocated shares.The increase in the effective tax rate between periods is primarily due to the reduction in income before taxes and the be
140、nefits received in the current fiscal year on the ESOP dividends paid as well as the tax rate differential associated with the net operating loss carryback which resulted from the net loss incurred in the current fiscal year.The Company had a net loss for fiscal year 2021 of$(181,543)or$(0.08)per sh
141、are,basic and diluted compared to net income of$1,163,668 or$0.49 per share,basic and diluted,for fiscal year 2020.The decrease in net income in the twelve months ended June 30,2021 compared to the same period in 2020 is primarily attributable to lower sales,a lower gross profit margin percentage,an
142、d a decrease in other income offset,in part,by a decrease in selling,general,and administrative expenses and the benefit derived from the increase in the effective tax rate,all discussed above.Liquidity and Capital ResourcesThe Companys working capital is an appropriate indicator of the liquidity of
143、 its business,and during the past two fiscal years,the Company,when possible,has funded all of its operations with cash flows resulting from operating activities and when necessary from its existing cash and investments.The Company did not borrow any funds during the last two fiscal years.Management
144、 has available a$3,000,000 line of credit to help fund further growth or working capital needs,if necessary,but does not anticipate the need for any borrowed funds in the foreseeable future.Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at June 30,2021
145、and 2020.The line of credit is reviewed annually in November for renewal by December 1st.The Companys working capital as of June 30,2021 and 2020 was$27.5 million and approximately$28 million,respectively.The Company may at times be required to repurchase shares at the ESOP participants request at t
146、he fair market value.During the twelve months ended June 30,2021 the Company did not repurchase any shares held by the ESOP.During the twelve months ended June 30,2020 the Company repurchased 2,180 shares of its common stock previously held by the ESOP for a purchase price of$47,949.Under existing a
147、uthorizations from the Companys Board of Directors,as of June 30,2021,management is authorized to purchase an additional$783,460 of Company stock.The table below presents the summary of cash flow information for the fiscal years indicated:20212020Net cash provided by operating activities$594,996$5,9
148、68,511Net cash provided by investing activities2,006,910326,010Net cash used in financing activities(1,201,316)(2,355,160)Net cash provided by operating activities fluctuates between periods primarily as a result of differences in sales and net income,provision for income taxes,the timing of the col
149、lection of accounts receivable,purchase of inventory,and payment of accounts payable.The decrease in cash provided by operating activities compared to the prior year primarily relates to the decrease in net income,the increase in inventory purchases,the decrease in cash collected from customers as c
150、ash advances and an increase in payments to vendors offset,in part,by an increase in trade accounts receivables collected.Net cash provided by investing activities increased in the twelve months ended June 30,2021 as compared to the same period in 2020 primarily due to maturing investments that were
151、 not reinvested during this period when compared to the same period last year.Cash used in financing activities decreased during the fiscal year ended June 30,2021.The decrease is primarily due to the suspension and non-payment of the quarterly dividend during the last two quarters of the fiscal yea
152、r and a decrease in cash proceeds collected from the exercise of stock options,offset by the decrease in the purchase of treasury stock as compared to the same period last year.9 form10k-26733_esp.htm2673309/23/2021 04:58 PM11 of 35The Company currently believes that the cash flow generated from ope
153、rations and when necessary,from cash and cash equivalents will be sufficient to meet its long-term funding requirements for the foreseeable future.During the fiscal years ended June 30,2021 and 2020,the Company expended$43,554 and$214,421,respectively,for plant improvements and new equipment.The Com
154、pany has budgeted approximately$200,000 for new equipment and plant improvements in fiscal year 2022.Management anticipates that the funds required will be available from current operations.Management believes that the Companys reserve for bad debts of$3,000 is adequate given the customers with whom
155、 the Company does business.Historically,bad debt expense has been minimal.10 form10k-26733_esp.htm2673309/23/2021 04:58 PM12 of 35Item 8.Financial Statements and Supplementary DataREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors andStockholders of Espey Mfg.&Electroni
156、cs Corp.Opinion on the Financial StatementsOpinion on the Financial StatementsWe have audited the accompanying balance sheets of Espey Mfg.&Electronics Corp.(the Company)as of June 30,2021 and 2020,the related statements of comprehensive(loss)income,changes in stockholders equity and cash flows for
157、the years then ended,and the related notes to the financial statements(collectively,the financial statements).In our opinion,the financial statements present fairly,in all material respects,the financial position of the Company as of June 30,2021 and 2020,and the results of its operations and its ca
158、sh flows for the years then ended,in conformity with accounting principles generally accepted in the United States of America.Basis for OpinionThese financial statements are the responsibility of the Companys management.Our responsibility is to express an opinion on the Companys financial statements
159、 based on our audits.We are a public accounting firm registered with the Public Company Accounting Oversight Board(United States)(PCAOB)and are required to be independent with respect to the Company in accordance with U.S.federal securities laws and the applicable rules and regulations of the Securi
160、ties and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,whether due to error or
161、fraud.The Company is not required to have,nor were we engaged to perform,an audit of its internal control over financial reporting.As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the eff
162、ectiveness of the Companys internal control over financial reporting.Accordingly,we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the financial statements,whether due to error or fraud,and performing procedures that respond to those
163、 risks.Such procedures included examining,on a test basis,evidence regarding the amounts and disclosures in the financial statements.Our audits also included evaluating the accounting principles used and significant estimates made by management,as well as evaluating the overall presentation of the f
164、inancial statements.We believe that our audits provide a reasonable basis for our opinion.Critical Audit MattersThe critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the aud
165、it committee and that:(1)relate to accounts or disclosures that are material to the financial statements and(2)involved our especially challenging,subjective,or complex judgments.The communication of critical audit matters does not alter in any way our opinion on the financial statements,taken as a
166、whole,and we are not,by communicating the critical audit matters below,providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.Valuation of Inventory Costs Related to Contracts in Process and Work in ProcessAs discussed in Notes 2 and 5 to the
167、 financial statements,inventoried work relating to contracts in process and work in process is valued at actual production cost,including factory overhead incurred to date.Contract costs include material,subcontract costs,labor,and an allocation of overhead costs.The costs attributed to units delive
168、red under contracts are based on the estimated average cost of all units expected to be produced.Certain contracts are expected to extend beyond twelve months.The estimation of total cost at completion of a contract is subject to numerous variables involving contract costs and estimates as to the le
169、ngth of time to complete the contract.Given the significance of the estimation processes and judgments described above,it is possible that materially different amounts of expected sales and contract costs could be recorded if different assumptions were used,based on changes in circumstances,in the e
170、stimation process.When a change in expected sales value or estimated cost is determined,changes are reflected in current period earnings.Due to the magnitude of the inventory,and the subjectivity involved in estimating the total cost at completion we identified the evaluation of the estimate to comp
171、lete as a critical audit matter,which required a high degree of auditor judgment.11 form10k-26733_esp.htm2673309/23/2021 04:58 PM13 of 35Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial state
172、ments.The primary procedures performed included the following:?We obtained an understanding of the process and assumptions used by management to develop estimates to complete including labor,overhead and materials.?We tested total cost at completion of a contract by using process employed by managem
173、ent:oTesting the completeness and accuracy of the source information used;oTesting the mathematical accuracy of managements calculations;oReviewing expected gross margin on contracts;oEvaluating the reasonableness and consistency of methodology and assumptions applied by management;andoPerforming a
174、retrospective review of the prior-year estimates used to identify potential bias of management judgements./s/Freed Maxick CPAs,P.C.We have served as the Companys auditor since 2014.Buffalo,New YorkSeptember 24,202112 form10k-26733_esp.htm2673309/23/2021 04:58 PM14 of 35Espey Mfg.&Electronics Corp.Ba
175、lance SheetsJune 30,2021 and 202020212020ASSETSCash and cash equivalents$6,802,712$5,402,122Investment securities3,092,0005,141,520Trade accounts receivable,net of allowance of$3,0005,353,7819,013,405Income tax receivable249,602Inventories:Raw materials2,111,0582,057,778Work-in-process326,198614,521
176、Costs related to contracts in process16,354,63612,115,756Total inventories18,791,89214,788,055Prepaid expenses and other current assets700,297396,886Total current assets34,990,28434,741,988Property,plant and equipment,net2,990,5193,466,778Total assets$37,980,803$38,208,766LIABILITIES AND STOCKHOLDER
177、S EQUITYAccounts payable$2,718,173$2,861,696Accrued expenses:Salaries and wages475,667469,201Vacation672,611689,834Other126,014318,322Payroll and other taxes withheld409,881186,970Contract liabilities3,077,6052,175,235Income taxes payable47,707Total current liabilities7,479,9516,748,965Deferred tax
178、liabilities168,557232,953Total liabilities7,648,5086,981,918Commitments and Contingencies(See Note 14)Common stock,par value$.33-1/3 per shareAuthorized 10,000,000 shares;Issued 3,129,874 and 3,029,874shares as of June 30,2021 and 2020,respectively.Outstanding 2,702,633and 2,402,633 as of June 30,20
179、21 and 2020,respectively(includes 279,429 and 0 Unearned ESOP Shares,respectively)1,043,2911,009,958Capital in excess of par value23,026,09619,073,213Accumulated other comprehensive loss(2,361)(3,107)Retained earnings17,414,73018,797,58941,481,75638,877,653Less:Unearned ESOP shares(5,110,770)Cost of
180、 427,241 and 627,241 shares of common stockin treasury as of June 30,2021 and 2020,respectively(6,038,691)(7,650,805)Total stockholders equity30,332,29531,226,848Total liabilities and stockholders equity$37,980,803$38,208,766The accompanying notes are an integral part of the financial statements.13
181、form10k-26733_esp.htm2673309/23/2021 04:58 PM15 of 35Espey Mfg.&Electronics Corp.Statements of Comprehensive(Loss)IncomeYears Ended June 30,2021 and 202020212020Net sales$27,734,598$31,526,231Cost of sales24,374,99125,967,616 Gross profit3,359,6075,558,615Selling,general and administrative expenses3
182、,785,7464,386,307 Operating(loss)income(426,139)1,172,308Other income Interest income21,376109,749 Other36,56627,132 Total other income57,942136,881(Loss)income before(benefit)provision for income taxes(368,197)1,309,189(Benefit)provision for income taxes(186,654)145,521 Net(loss)income$(181,543)$1,
183、163,668Other comprehensive(loss)income,net of tax:Unrealized gain(loss)on investment securities746(1,808)Total comprehensive(loss)income$(180,797)$1,161,860Net(loss)income per share:Basic$(0.08)$0.49 Diluted$(0.08)$0.49Weighted average number of shares outstanding:Basic2,406,3452,393,207 Diluted2,40
184、6,3452,396,618The accompanying notes are an integral part of the financial statements.14 form10k-26733_esp.htm2673309/23/2021 04:58 PM16 of 35Espey Mfg.&Electronics Corp.Statements of Changes in Stockholders EquityYears Ended June 30,2021 and 2020AccumulatedCapital inOtherUnearnedTotalOutstandingCom
185、monExcess of ComprehensiveRetainedTreasury StockESOP StockholdersSharesAmountPar ValueLossEarningsSharesAmountSharesEquityBalance as of June 30,20192,401,213$1,009,958$18,731,975$(1,299)$20,022,132628,661$(7,632,556)$(204,706)$31,925,504Comprehensive income:Net income1,163,6681,163,668Other comprehe
186、nsive loss,net of tax of$(481)(1,808)(1,808)Total comprehensive income1,161,860Stock options exercised3,60051,300(3,600)29,70081,000Stock-based compensation189,639189,639Dividends paid on common stock$1.00 per share(2,388,211)(2,388,211)Purchase of treasury stock(2,180)2,180(47,949)(47,949)Reduction
187、 of unearned ESOP shares100,299204,706305,005Balance as of June 30,20202,402,633$1,009,958$19,073,213$(3,107)$18,797,589627,241$(7,650,805)$31,226,848The accompanying notes are an integral part of the financial statements.15 form10k-26733_esp.htm2673309/23/2021 04:58 PM17 of 35Espey Mfg.&Electronics
188、 Corp.Statements of Changes in Stockholders EquityYears Ended June 30,2021 and 2020AccumulatedCapital inOtherUnearnedTotalOutstandingCommonExcess of ComprehensiveRetainedTreasury StockESOP StockholdersSharesAmountPar Value(Loss)IncomeEarningsSharesAmountSharesEquityBalance as of June 30,20202,402,63
189、3$1,009,958$19,073,213$(3,107)$18,797,589627,241$(7,650,805)$31,226,848Comprehensive loss:Net loss(181,543)(181,543)Other comprehensive income,net of tax of$198746746Total comprehensive loss(180,797)Stock-based compensation133,663133,663Dividends paid on common stock$0.50 per share(1,201,316)(1,201,
190、316)Sale of stock to ESOP300,00033,3333,841,553(200,000)1,612,114(5,487,000)Reduction of unearned ESOP shares(22,333)376,230353,897Balance as of June 30,20212,702,633$1,043,291$23,026,096$(2,361)$17,414,730427,241$(6,038,691)$(5,110,770)$30,332,295The accompanying notes are an integral part of the f
191、inancial statements.16 form10k-26733_esp.htm2673309/23/2021 04:58 PM18 of 35Espey Mfg.&Electronics Corp.Statements of Cash FlowsYears Ended June 30,2021 and 202020212020Cash Flows from Operating Activities:Net(loss)income$(181,543)$1,163,668 Adjustments to reconcile net(loss)income to net cash provi
192、ded by operating activities:Stock-based compensation133,663189,639 Depreciation519,813568,528 ESOP compensation expense353,897305,006 Loss on disposal of assets4,525 Loss on inventory reduction due to contract cancellation710,207 Deferred income tax benefit(64,396)(43,641)Changes in assets and liabi
193、lities:Decrease in trade receivables3,659,6241,982,378 Increase in income tax receivable(249,602)Increase in inventories(4,714,044)(1,562,918)(Increase)decrease in prepaid expenses and other current assets(303,411)97,295 (Decrease)increase in accounts payable(143,523)701,263 Increase in accrued sala
194、ries and wages6,466139,311 Decrease in vacation accrual(17,223)(97,036)(Decrease)increase in other accrued expenses(192,308)208,567 Increase in payroll and other taxes withheld222,911125,519 Increase in contract liabilities902,3702,169,181 (Decrease)increase in income taxes payable(47,905)17,226 Net
195、 cash provided by operating activities$594,996$5,968,511Cash Flows from Investing Activities:Additions to property,plant and equipment(43,554)(214,421)Purchase of investment securities(5,436,056)(9,338,100)Proceeds from sale/maturity of investment securities7,486,5209,878,531 Net cash provided by in
196、vesting activities2,006,910326,010Cash Flows from Financing Activities:Dividends paid on common stock(1,201,316)(2,388,211)Purchase of treasury stock(47,949)Proceeds from exercise of stock options81,000 Net cash used in financing activities(1,201,316)(2,355,160)Increase in cash and cash equivalents1
197、,400,5903,939,361Cash and cash equivalents,beginning of the year5,402,1221,462,761Cash and cash equivalents,end of the year$6,802,712$5,402,122Supplemental Schedule of Cash Flow Information:Income taxes paid$175,250$172,475The accompanying notes are an integral part of the financial statements.17 fo
198、rm10k-26733_esp.htm2673309/23/2021 04:58 PM19 of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 1.Nature of OperationsEspey Mfg.&Electronics Corp.(the Company)is a manufacturer of electronic equipment used primarily in military and industrial applications.The principal markets for
199、the Companys products are companies that provide electronic support to both military and industrial applications across the United States and at some international locations.Note 2.Summary of Significant Accounting PoliciesRevenueThe majority of our net sales is generated from contracts with industr
200、ial manufacturers and defense companies,the Department of Defense,other agencies of the government of the United States and foreign governments for the design,development and/or manufacture of products.We provide our products and design and development services under fixed-price contracts.Under fixe
201、d-price contracts we agree to perform the specified work for a pre-determined price.To the extent our actual costs vary from the estimates upon which the price was negotiated,we will generate more or less profit or could incur a loss.We account for a contract after it has been approved by all partie
202、s to the arrangement,the rights of the parties are identified,payment terms are identified,the contract has commercial substance,and collectability of consideration is probable.We assess each contract at its inception to determine whether it should be combined with other contracts.When making this d
203、etermination,we consider factors such as whether two or more contracts were negotiated and executed at or near the same time,or were negotiated with an overall profit objective.We evaluate the products or services promised in each contract at inception to determine whether the contract should be acc
204、ounted for as having one or more performance obligations.Significant judgment is required in determining performance obligations.We determine the transaction price for each contract based on the consideration we expect to receive for the products or services being provided under the contract.The tra
205、nsaction price for each performance obligation is based on the estimated standalone selling price of the product or service underlying each performance obligation.Transaction prices on our contracts subject to the Federal Acquisition Regulations(FAR)are typically based on estimated costs plus a reas
206、onable profit margin.We recognize revenue using the output method based on the appraisal of results achieved and milestones reached or units delivered based on contractual shipment terms,typically shipping point.InventoryRaw materials are valued at the lower of cost(average cost)or net realizable va
207、lue.Balances for slow-moving and obsolete inventory are reviewed on a regular basis by analyzing estimated demand,inventory on hand,sales levels,market conditions,and other information and reduce inventory balances based on this analysis.Inventoried work relating to contracts in process and work in
208、process is valued at actual production cost,including factory overhead incurred to date.Contract costs include material,subcontract costs,labor,and an allocation of overhead costs.Work in process represents spare units and parts and other inventory items acquired or produced to service units previou
209、sly sold or to meet anticipated future orders.Provision for losses on contracts is made when the existence of such losses becomes probable and estimable.The provision for losses on contracts is included in other accrued expenses on the Companys balance sheet.The costs attributed to units delivered u
210、nder contracts are based on the estimated average cost of all units expected to be produced.Certain contracts are expected to extend beyond twelve months.The estimation of total cost at completion of a contract is subject to numerous variables involving contract costs and estimates as to the length
211、of time to complete the contract.Given the significance of the estimation processes and judgments described above,it is possible that materially different amounts of expected sales and contract costs could be recorded if different assumptions were used,based on changes in circumstances,in the estima
212、tion process.When a change in expected sales value or estimated cost is determined,the change is reflected in current period earnings.18 form10k-26733_esp.htm2673309/23/2021 04:58 PM20 of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 2.Summary of Significant Accounting Policies,Co
213、ntinuedContract LiabilitiesContract liabilities include advance payments and billings in excess of revenue recognized.DepreciationDepreciation of plant and equipment is computed on a straight-line basis over the estimated useful lives of the assets.Estimated useful lives of depreciable assets are as
214、 follows:Buildings and improvements10 50 yearsMachinery and equipment3 20 yearsFurniture and fixtures7 10 yearsIncome TaxesThe Company follows the provisions of Accounting Standards Codification(“ASC”)Topic 740-10,Accounting for Income Taxes.Under the provisions of ASC 740-10,deferred tax assets and
215、 liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to tax
216、able income in the years in which those temporary differences are expected to be recovered or settled.The effect on deferred taxes and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.Cash and Cash EquivalentsCash and cash equivalents cons
217、ist of cash and money market funds.The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.Investment SecuritiesThe Company accounts for its investment securities in accordance with ASC 320-10-25,“Accounting for Certain Investments
218、in Debt and Equity Securities.”Investment securities at June 30,2021 consists of certificates of deposit and at June 30,2020 consisted of certificates of deposit and municipal bonds.The Company classifies investment securities as available-for-sale.Unrealized holding gains and losses,net of related
219、tax effect,on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders equity until realized.Realized gains and losses for securities classified as available-for-sale are included in earnings and are determined using the specific identificatio
220、n method.Interest income is recognized when earned.Fair values are based on quoted market prices available as of the balance sheet date,and are therefore considered a Level 1 valuation.Fair Value of Financial InstrumentsASC 820 establishes a fair value hierarchy which requires an entity to maximize
221、the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.The standard describes three levels of inputs that may be used to measure fair value:?Level 1:Quoted prices(unadjusted)for identical assets or liabilities in active markets that the entity has the abil
222、ity to access as of the measurement date.?Level 2:Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;quoted prices in markets that are not active;or other inputs that are observable or can be corroborated by observable market data.19
223、 form10k-26733_esp.htm2673309/23/2021 04:58 PM21 of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 2.Summary of Significant Accounting Policies,Continued?Level 3:Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market parti
224、cipants would use in pricing an asset or liability.The carrying amounts of financial instruments,including cash and cash equivalents,short term investments,accounts receivable,accounts payable,accrued expenses and contract liabilities,approximated fair value as of June 30,2021 and 2020 because of th
225、e immediate or short-term maturity of these financial instruments.Accounts Receivable and Allowance for Doubtful AccountsThe Company extends credit to its customers in the normal course of business and collateral is generally not required for trade receivables.Exposure to credit risk is controlled t
226、hrough the use of credit approvals,credit limits,and monitoring procedures.Accounts receivable are reported net of an allowance for doubtful accounts.The Company estimates the allowance based on its analysis of specific balances.Interest is not charged on past due balances.Based on these factors,the
227、re was an allowance for doubtful accounts of$3,000 at June 30,2021 and 2020.Changes to the allowance for doubtful accounts are charged to expense and reduced by charge-offs,net of recoveries.Per Share AmountsASC 260-10“Earnings Per Share(EPS)”requires the Company to calculate net(loss)income per sha
228、re based on basic and diluted net(loss)income per share,as defined.Basic EPS excludes dilution and is computed by dividing net(loss)income by the weighted average number of shares outstanding for the period.Diluted EPS reflects the potential dilution that could occur if securities or other contracts
229、 to issue common stock were exercised or converted into common stock.The dilutive effect of outstanding options issued by the Company are reflected in diluted EPS using the treasury stock method.Under the treasury stock method,options will only have a dilutive effect when the average market price of
230、 common stock during the period exceeds the exercise price of the options.Comprehensive(Loss)IncomeComprehensive(loss)income consists of net(loss)income and other comprehensive(loss)income.Other comprehensive(loss)income for fiscal years ended June 30,2021 and 2020 consists of unrealized holding gai
231、ns and losses on available-for-sale securities.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabi
232、lities and 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.ReclassificationsCertain reclassifications may have been made to the prior
233、 year financial statements to conform to the current year presentation.Recently Issued Accounting StandardsIn August 2018,the FASB issued ASU No.2018-13,“Fair Value Measurement(Topic 820):Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement.”This ASU is part of the
234、FASBs larger disclosure framework project intended to improve the effectiveness of financial statement footnote disclosure.ASU 2018-13 modifies required fair value disclosures related primarily to level 3 investments.This ASU is effective for annual periods beginning after December 15,2019 and inter
235、im periods within those annual periods.The adoption of ASU 2018-13 does not have a material effect on the Companys financial position,results of operations,and cash flows as our investments are currently Level 1.We will,however,continue to evaluate going forward should we obtain any Level 3 investme
236、nts.20 form10k-26733_esp.htm2673309/23/2021 04:58 PM22 of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 2.Summary of Significant Accounting Policies,ContinuedRecent Accounting Pronouncements Not Yet AdoptedIn December 2019,the FASB issued guidance(ASU 2019-12)intended to simplify
237、the accounting for income taxes.The amendments in this guidance are effective for fiscal years,and interim periods within those fiscal years,beginning after December 15,2020(the Companys fiscal year beginning July 1,2021).The Company did not elect early adoption of this guidance and is not expected
238、to have an impact on the Companys disclosures.Impairment of Long-Lived AssetsLong-lived assets,including property,plant,and equipment,are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.Recoverability of assets
239、to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.If the carrying amount of an asset exceeds its estimated future cash flows,an impairment charge is recognized by the amount by which th
240、e carrying amount of the asset exceeds the fair value of the asset.There were no impairments of long-lived assets in fiscal years 2021 and 2020.Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell,and
241、 no longer depreciated.The assets and liabilities of a disposed group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet,if applicable.Concentrations of RiskThe market for our defense electronics products is largely dependent on
242、the availability of new contracts from the United States and foreign governments to prime contractors to which we provide components.Any decline in expenditures by the United States or foreign governments may have an adverse effect on our financial performance.Generally,U.S.Government contracts are
243、subject to procurement laws and regulations.Some of the Companys contracts are governed by the Federal Acquisition Regulation(FAR),which lays out uniform policies and procedures for acquiring goods and services by the U.S.Government,and agency-specific acquisition regulations that implement or suppl
244、ement the FAR.For example,the Department of Defense implements the FAR through the Defense Federal Acquisition Regulation(DFAR).The FAR also contains guidelines and regulations for managing a contract after award,including conditions under which contracts may be terminated,in whole or in part,at the
245、 governments convenience or for default.If a contract is terminated for the convenience of the government,a contractor is entitled to receive payments for its allowable costs and,in general,the proportionate share of fees or earnings for the work done.If a contract is terminated for default,the gove
246、rnment generally pays for only the work it has accepted.These regulations also subject the Company to financial audits and other reviews by the government of its costs,performance,accounting and general business practices relating to its contracts,which may result in adjustment of the Companys contr
247、act-related costs and fees.Note 3.RevenueThe Company follows ASC 606“Revenue from Contracts with Customers”to determine the recognition of revenue.This standard requires entities to assess the products or services promised in contracts with customers at contract inception to determine the appropriat
248、e unit at which to record revenues.Revenue is recognized when control of the promised products or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those products or services.21 form10k-26733_esp.htm2673309
249、/23/2021 04:58 PM23 of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 3.Revenue,ContinuedSignificant judgment is required in determining the satisfaction of performance obligations.Revenues from our performance obligations are satisfied over time using the output method which consi
250、ders the appraisal of results achieved and milestones reached or units delivered based on contractual shipment terms,typically shipping point.Revenue is recognized when,or as,the customer takes control of the product or services.The output method best depicts the transfer of control to the customer
251、as the output method represents work completed.Control is typically transferred to the customer at the shipping point as the Company has a present right to payment,the customer has legal title to the asset,the customer has the significant risks and rewards of ownership of the asset,and in most insta
252、nces the customer has accepted the asset.Total revenue recognized for the twelve months ended June 30,2021 based on units delivered totaled$22,973,507 compared to$25,739,709 for the same periods in fiscal year 2020.Total revenue recognized for the twelve months ended June 30,2021 based on milestones
253、 achieved totaled$4,761,091 compared to$5,786,522 for the same periods in fiscal year 2020.The Company offers a standard one-year product warranty.Product warranties offered by the Company are classified as assurance-type warranties,which means,the warranty only guarantees that the good or service f
254、unctions as promised.Based on this,the provided warranty is not considered to be a distinct performance obligation.The impact of variable consideration has been considered but none identified which would be required to be allocated to the transaction price as of June 30,2021.Our payment terms are ge
255、nerally 30-60 days.Contract liabilities were$3,077,605 and$2,175,235 as of June 30,2021 and 2020,respectively.The increase in contract liabilities is primarily due to the advance collection of cash on specific contracts,offset in part,by revenue recognized.The company used the practical expedient to
256、 expense incremental costs incurred to obtain a contract when the contract term is less than one year.The Companys backlog at June 30,2021 totaling$65.6 million is expected,based on expected due dates,to be recognized in the following fiscal years:58%in 2022;27%in 2023;13%in 2024,and 2%thereafter.No
257、te 4.Investment SecuritiesInvestment securities at June 30,2021 consist of certificates of deposit and at June 30,2020 consist of certificates of deposit and municipal bonds,which are classified as available-for-sale securities and have been determined to be level 1 assets.The cost,gross unrealized
258、gains,gross unrealized losses and fair value of available-for-sale securities by major security type at June 30,2021 and June 30,2020 are as follows:GrossGrossAmortizedUnrealizedUnrealizedFairCostGainsLossesValue2021Certificates of deposit$3,092,000$3,092,000Municipal bonds2021 Total investment secu
259、rities$3,092,000$3,092,0002020Certificates of deposit$4,679,847$4,679,847Municipal bonds462,6181,243(2,188)461,6732020 Total investment securities$5,142,465$1,243$(2,188)$5,141,52022 form10k-26733_esp.htm2673309/23/2021 04:58 PM24 of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 4
260、.Investment Securities,ContinuedThe portfolio is diversified and highly liquid and primarily consists of investment grade fixed income instruments.At June 30,2021,the Company did not have any investments in individual securities that have been in a continuous loss position considered to be other tha
261、n temporary.As of June 30,2021 and 2020,the remaining contractual maturities of available-for-sale securities were as follows:Years to MaturityLess thanOne toOne YearFive YearsTotal2021Available-for-sale$3,092,000$3,092,0002020Available-for-sale$5,141,520$5,141,520Note 5.Contracts in ProcessContract
262、s in process at June 30,2021 and 2020 are as follows:20212020Unrecognized gross contract value$65,647,715$54,929,249Costs related to contracts in process$16,354,636$12,115,756Included in costs relating to contracts in process at June 30,2021 and 2020 are costs relative to contracts that may not be c
263、ompleted within the ensuing year as contracts vary in size,scope and duration.Under the units-of-delivery method,the related sale and cost of sales will not be reflected in the statements of comprehensive income until the units under contract are shipped.Note 6.Property,Plant and EquipmentProperty,p
264、lant and equipment at June 30,2021 and 2020 is as follows:20212020Land$45,000$45,000Building and improvements4,387,1134,387,113Machinery and equipment11,121,96011,118,670Furniture and fixtures164,200164,20015,718,27315,714,983Accumulated depreciation(12,727,754)(12,248,205)Property,plant and equipme
265、nt,net$2,990,519$3,466,778Depreciation expense was$519,813 and$568,528 for the years ended June 30,2021 and 2020,respectively.Note 7.Pension ExpenseUnder terms of a negotiated union contract which expires on June 30,2022,the Company is obligated to make contributions to a union-sponsored Internation
266、al Brotherhood of Electrical Workers Local 1799 defined benefit pension plan(Plan identifying number is 14-6065199)covering eligible employees.Such contributions and expenses are based upon hours worked at a specified rate and amounted to$112,997 in fiscal year 2021 and$121,273 in fiscal year 2020.T
267、hese contributions represent more than five percent of the total contributions made into the Plan.For the years beginning January 1,2021 and 2020,the Plan was in the“green zone”which means it is neither endangered nor critical status.A Funding Improvement Plan,entered into by Plan Trustees in fiscal
268、 year 2013,when the Plan was in“critical status,”calls for an increase in contributions starting January 1,2016 of$0.04 per hour for each year for five years thereafter.The increase did not and will not have a material impact on the Companys financial statements.23 form10k-26733_esp.htm2673309/23/20
269、21 04:58 PM25 of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 7.Pension Expense,ContinuedThe Company sponsors a 401(k)plan for non-union workers with employee and employer matching contributions.The employer match is 10%of the employee contribution and was$49,218 and$58,389,for f
270、iscal years 2021 and 2020,respectively.Note 8.(Benefit)Provision for Income TaxesA summary of the components of the(benefit)provision for income taxes for the years ended June 30,2021 and 2020 is as follows:20212020 Current tax(benefit)expense-federal$(122,221)$190,801 Current tax benefit-state(37)(
271、1,158)Deferred tax benefit(64,396)(44,122)(Benefit)provision for income taxes$(186,654)$145,521Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts measured by tax laws and regulations.These t
272、emporary differences are determined in accordance with ASC 740-10.The combined U.S.federal and state effective income tax rates of 50.7%and 11.1%,for 2021 and 2020 respectively,differed from the statutory U.S.federal income tax rate for the following reasons:20212020 U.S.federal statutory income tax
273、 rate21.0%21.0%Increase(reduction)in rate resulting from:State franchise tax,net of federal income tax benefit0.1(0.1)ESOP cost versus Fair Market Value1.31.6 Dividend on allocated ESOP shares25.9(14.5)Stock-based compensation(6.7)3.0 Foreign Derived Intangible Income Deduction(0.2)Rate Differential
274、 on Net Operating Loss Carryback10.5 Other(1.4)0.3 Effective tax rate50.7%11.1%For the years ended June 30,2021 and 2020 deferred income tax benefit of$64,396 and$44,122,respectively,results from the changes in temporary differences for each year.The tax effects of temporary differences that give ri
275、se to deferred tax assets and deferred tax liabilities as of June 30,2021 and 2020 are presented as follows:20212020 Deferred tax assets:Accrued expenses$186,339$171,880 ESOP2,190 Stock-based compensation59,65956,280 Inventory-effect of uniform capitalization46,19774,352 Other1,437 Total deferred ta
276、x assets$294,385$303,949 Deferred tax liability:Property,plant and equipment-principally due to differences in depreciation methods$422,771$503,009 Prepaid expenses40,17133,893 Total deferred tax liability$462,942$536,902 Net deferred tax liability$(168,557)$(232,953)24 form10k-26733_esp.htm2673309/
277、23/2021 04:58 PM26 of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 8.(Benefit)Provision for Income Taxes,ContinuedIn assessing the realization of deferred tax assets,management considers whether it is more likely than not that some portion or all of the deferred tax assets will b
278、e realized.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.Management considers the scheduled reversal of deferred tax liabilities,projected future taxable income,and t
279、ax planning strategies in making this assessment.Based upon the level of historical taxable income and projection for future taxable income over the period in which the deferred tax assets are deductible,management believes it is more likely than not that the Company will realize the benefits of the
280、se temporary differences without consideration of a valuation allowance.As the result of the implementation of the FASB interpretation No.48(“FIN 48”),Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No.109,the Company recognized no material adjustments to unrecognized
281、tax benefits.As of June 30,2021 and 2020,the Company has no unrecognized tax benefits.The Company recognizes interest and penalties in general and administrative expense.As of June 30,2021 and 2020,the Company has not recorded any provision for accrued interest and penalties.The Company is subject t
282、o taxation in the United States and various state jurisdictions.The federal tax returns are subject to audit for three years from date of filing unless the return was audited within that period.In general the majority of state statutes follow similar guidelines.As such,the Companys tax returns for t
283、ax years ending June 30,2021,2020,and 2019 remain open to examination by the respective taxing authorities.On March 27,2020,the Coronavirus Aid,Relief,and Economic Security Act(“CARES Act”)was enacted in response to the economic uncertainty resulting from the COVID19 pandemic.The CARES Act includes
284、many measures to assist companies,including temporary changes to income and non-income based laws,some of which were enacted as part of the Tax Cuts and Jobs Act of 2017(“TCJA”).Some of the key changes include eliminating the 80%of taxable income limitation by allowing corporate entities to fully ut
285、ilize NOLs to offset taxable income in 2018,2019 and 2020,allowing NOLs originating in 2018,2019 and 2020 to be carried back five years,enhanced interest deductibility,and retroactively clarifying the immediate recovery of qualified improvement property costs rather than over a 39-year recovery peri
286、od.During the year ended June 30,2021,the Company recorded an approximate$120,000 benefit relating to the NOL carryback provisions provided for in the CARES Act.The Company will continue to monitor additional guidance issued and assess the impact that various provisions will have on its business.Not
287、e 9.Significant CustomersA significant portion of the Companys business is the production of military and industrial electronic equipment for use by the U.S.and foreign governments and certain industrial customers.Sales to four domestic customers accounted for 59%of total sales in 2021.Sales to two
288、domestic customers accounted for 38%of total sales in 2020.The related accounts receivable balance,as a percentage of the Companys total trade accounts receivable balance,was 76%represented by four customers at June 30,2021 and 54%represented by two customers at June 30,2020.Export sales in fiscal y
289、ears 2021 and 2020 were approximately$2,019,000 and$2,077,000,respectively.Note 10.Employee Stock Ownership PlanThe Company ESOP covers all nonunion employees who work 1,000 or more hours per year and are employed on June 30.Prior to December 1,2020,the ESOP owned 469,119 shares,all of which were al
290、located to employees.On December 1,2020,pursuant to a Stock Purchase Agreement dated as of such date,the Company,by selling 300,000 shares of its common stock,par value$0.33 1/3 per share,to the Espey Mfg.&Electronics Corp.Employee Stock Ownership Plan Trust,provided more shares to be allocated to e
291、mployees for services rendered over the next 15 years.The ESOP paid$18.29 per share,for an aggregate purchase price of$5,487,000.The determination of the purchase price was based on a fairness opinion obtained by an independent valuation firm.The ESOP borrowed from the Corporation an amount equal to
292、 the purchase price.The loan will be repaid in fifteen(15)equal annual installments of principal.The Board of Directors has fixed the interest rate and the unpaid balance will bear interest at a fixed rate of 3.00%per annum.25 form10k-26733_esp.htm2673309/23/2021 04:58 PM27 of 35The Board of Directo
293、rs of the Company had approved a purchase price per share equal to the lesser of the trading value on the day of closing or the lowest price listed in the valuation established by the independent valuation firm plus$0.25.The valuation identified a range of$18.04-$19.43 per share.In making the sale,t
294、he Company relied on the exemption from registration under Section 4(2)of the Securities Act of 1933,as amended,because the shares sold were offered only to the ESOP.After giving effect to the transaction,the ESOP owned 769,119 shares of the Companys 2,702,633 outstanding shares of common stock as o
295、f December 1,2020.26 form10k-26733_esp.htm2673309/23/2021 04:58 PM28 of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 10.Employee Stock Ownership Plan,ContinuedThe Company makes annual contributions to the ESOP equal to the ESOPs debt service less dividends on unallocated shares r
296、eceived by the ESOP.Any dividends on unallocated shares received by the ESOP are used to pay debt service.Any dividends on allocated ESOP shares are recorded as a reduction of retained earnings.As the debt is repaid,shares are released and allocated to active employees,based on the proportion of deb
297、t service paid in the year.The Company accounts for its ESOP in accordance with FASB ASC 718-40.Accordingly,the shares purchased by the ESOP are reported as Unearned ESOP shares in the balance sheets and the statements of changes in stockholders equity.As shares are released or committed-to-be-relea
298、sed,the Company reports compensation expense equal to the current average market price of the shares,and the shares become outstanding for earnings-per-share(EPS)computations.ESOP compensation expense was$353,897 and$305,006 for the years ended June 30,2021 and 2020,respectively.The ESOP shares as o
299、f June 30,2021 and 2020 were as follows:20212020Allocated shares487,220466,929Unreleased shares279,429Total shares held by the ESOP766,649466,929 Fair value of unreleased shares$4,141,138$The Company may at times be required to repurchase shares at the ESOP participants request at the fair market va
300、lue.During the twelve months ended June 30,2021,the Company did not repurchase shares previously held by the ESOP.During the twelve months ended June 30,2020 the Company repurchased 2,180 shares previously held by the ESOP for$47,949.The ESOP allows for eligible participants to take whole share dist
301、ributions from the plan on specific dates in accordance with the provision of the plan.Share distributions from the ESOP during the twelve months ended June 30,2021 and 2020 totaled 2,470 shares and 2,180 shares,respectively.Note 11.Stock-based CompensationThe Company follows ASC 718 in establishing
302、 standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services,as well as transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be s
303、ettled by the issuance of those equity instruments.ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based on the fair value of the share-based payment.ASC 718 establishes fair value as the measurement objective in accounting
304、 for share-based payment transactions with employees,except for equity instruments held by employee share ownership plans.Total stock-based compensation expense recognized in the statements of comprehensive income for the fiscal years ended June 30,2021 and 2020,was$133,663 and$189,639,respectively,
305、before income taxes.The amount of this stock-based compensation expense related to non-qualified stock options(“NQSO”)for the fiscal years ended June 30,2021 and 2020,was$32,863 and$50,075,respectively.The deferred tax benefit related to the NQSOs as of June 30,2021 and 2020 was approximately$6,901
306、and$10,516,respectively.The remaining stock option expense in each year related to incentive stock options(“ISO”)which are not deductible by the corporation when exercised,assuming a qualifying disposition and as such no deferred tax benefit was established related to these amounts.As of June 30,202
307、1,there was$84,935 of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over the next 1.5 years,of which$62,941 relates to ISOs and$21,994 relates to NQSOs.The total deferred tax benefit related the NQSOs in future years will be$4,619.27 form1
308、0k-26733_esp.htm2673309/23/2021 04:58 PM29 of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 11.Stock-based Compensation,ContinuedThe Company has one employee stock option plan under which options or stock awards may be granted,the 2017 Stock Option and Restricted Stock Plan(the 20
309、17 Plan),approved by the Companys shareholders at the Companys Annual Meeting on December 1,2017.The Board of Directors may grant options to acquire shares of common stock to employees and non-employee directors of the Company at the fair market value of the common stock on the date of grant.The max
310、imum aggregate number of shares of common stock subject to options or awards to non-employee directors is 133,000 and the maximum aggregate number of shares of common stock subject to options or awards granted to non-employee directors during any single fiscal year is the lesser of 13,300 and 33 1/3
311、%of the total number of shares subject to options or awards granted in such fiscal year.The maximum number of shares subject to options or awards granted to any individual employee may not exceed 15,000 in a fiscal year.Generally,options granted have a two-year vesting period based on two years of c
312、ontinuous service and have a ten-year contractual life.Option grants provide for accelerated vesting if there is a change in control.Shares issued upon the exercise of options are from those held in Treasury.Options covering 400,000 shares are authorized for issuance under the 2017 plan,of which 226
313、,354 have been granted as of June 30,2021.While no further grants of options may be made under the Companys 2007 Stock Option and Restricted Stock Plan,as of June 30,2021,117,650 options were outstanding under such plan of which all are vested and exercisable.ASC 718 requires the use of a valuation
314、model to calculate the fair value of stock-based awards.The Company has elected to use the Black-Scholes option valuation model,which incorporates various assumptions including those for volatility,expected life,and interest rates.The table below outlines the weighted average assumptions that the Co
315、mpany used to calculate the fair value of each option award for the year ended June 30,2021 and 2020.20212020Dividend yield5.54%4.88%Expected stock price volatility23.41%27.81%Risk-free interest rate0.36%1.67%Expected option life(in years)5.4 yrs5.3 yrsWeighted average fair value per share of option
316、s granted during the period$1.59$3.03Effective March 9,2021,the Company suspended the payment of its regular quarterly dividend.For the twelve months ended June 30,2021 and 2020,the Company paid regular cash dividends of$0.50 and$1.00 per share,respectively.Expected stock price volatility is based o
317、n the historical volatility of the Companys stock.The risk-free interest rate is based on the implied yield available on U.S.Treasury issues with an equivalent term approximating the expected life of the options.The expected option term(in years)represents the estimated period of time until exercise
318、 and is based on actual historical experience.The following table summarizes stock option activity during the twelve months ended June 30,2021:Employee Stock Options PlanWeightedNumber ofWeightedAverageSharesAverageRemainingAggregateSubjectExerciseContractualIntrinsicto OptionPriceTermValueBalance a
319、t July 1,2020276,712$24.306.10Granted62,025$18.059.32ExercisedForfeited or expired(34,075)$21.23Outstanding at June 30,2021304,662$23.376.06$0Vested or expected to vest at June 30,2021287,971$23.625.89$0Exercisable at June 30,2021201,212$25.554.58$028 form10k-26733_esp.htm2673309/23/2021 04:58 PM30
320、of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 11.Stock-based Compensation,ContinuedThe aggregate intrinsic value in the table above represents the total pretax intrinsic value(the difference between the closing sale price of the Companys common stock as reported on the NYSE Ame
321、rican on June 30,2021 and the exercise price,multiplied by the number of in-the-money options)that would have been received by the option holders if all option holders had exercised their options on June 30,2021.This amount changes based on the fair market value of the Companys common stock.The tota
322、l intrinsic values of the options exercised during the twelve months ended June 30,2021 and 2020 was$0 and$263,respectively.The following table summarizes changes in non-vested stock options during the twelve months ended June 30,2021:WeightedNumber ofAverageSharesGrant DateSubjectFair Valueto Optio
323、n(per Option)Non-Vested at July 1,202097,192$4.03Granted62,0251.59Vested(44,667)5.14Forfeited or expired(11,100)2.83Non-Vested at June 30,2021103,450$2.22Note 12.Concentration of Credit RiskFinancial instruments that potentially subject the Company to concentrations of credit risk consist principall
324、y of cash and cash equivalents,short-term investments and accounts receivable.The Company maintains cash and cash equivalents with various financial institutions.At times such investments may be in excess of FDIC insurance limits.As disclosed in Note 9,a significant portion of the Companys business
325、is the production of military and industrial electronic equipment for use by the U.S.and foreign governments and certain industrial customers.The related accounts receivable balance,as a percentage of the Companys total trade accounts receivable balance,was 76.3%represented by four customers at June
326、 30,2021 and 53.9%represented by two customers at June 30,2020.Although the Companys exposure to credit risk associated with nonpayment of these concentrated balances is affected by the conditions or occurrences within the U.S.and foreign governments,the Company believes that its trade accounts rece
327、ivable credit risk exposure is limited.The Company performs ongoing credit evaluations of its customers financial conditions and requires collateral,such as progress payments,in certain circumstances.The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit
328、 risk of specific customers,historical trends and other information.Note 13.Related PartiesThe administration of the shares of common stock held by the ESOP Trust is subject to the Amended and Restated Plan and a Trust Agreement,each effective as of July 1,2016.The Trustees rights with respect to th
329、e disposition of shares are governed by the terms of the Plan and the Trust Agreement.As to shares that have been allocated to the accounts of participants in the ESOP Trust,the Plan provides that the Trustees are required to vote such shares in accordance with instructions received from the partici
330、pants.As to unallocated shares and allocated shares for which voting instructions have not been received from participants,the Plan provides that the Trustees are required to vote such shares in accordance with the direction of the Board of Directors of the Company under the terms of the Plan and Tr
331、ust Agreement.See Note 10 for additional information regarding the ESOP.29 form10k-26733_esp.htm2673309/23/2021 04:58 PM31 of 35Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 14.Commitments and ContingenciesThe Company at certain times enters into standby letters of credit agreements
332、 with financial institutions primarily relating to the guarantee of future performance on certain contracts.Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at June 30,2021 and 2020.The Company,as a U.S.Government contractor,is subject to audits,reviews,a
333、nd investigations by the U.S.Government related to its negotiation and performance of government contracts and its accounting for such contracts.Failure to comply with applicable U.S.Government standards by a contractor may result in suspension from eligibility for award of any new government contract and a guilty plea or conviction may result in debarment from eligibility for awards.The governmen
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