1、 form10k-32866_espv5.htm10-K1 of 35 10-K3286609/26/2024 04:32 PM UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30,2024 OR TRANSITION REPORT PURSUANT TO S
2、ECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-4383 ESPEY MFG.&ELECTRONICS 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(A
3、ddress of principal executive offices)518-584-4100(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act Title of each classTrading SymbolName of each exchange on which registeredCommon Stock$.33-1/3 par valueESPNYSE American Securities registered
4、 pursuant to Section 12(g)of the ActNone Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes No Indi
5、cate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of1934 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 suchfiling req
6、uirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted and posted pursuant toRule 405 of Regulation S-T during the preceding 12 months(or for such shorter period that the registrant was req
7、uired to submit and post such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,oran emerging growth company:Large accelerated filer Non-accelerated filer Accelerated filer Smaller reporti
8、ng company Emerging growth company form10k-32866_espv5.htm3286609/26/2024 04:32 PM2 of 35 If an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with anynew or revised financial accounting standards provided pursuant
9、 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 internalcontrol over financial reporting under Section 404(b)of the Sarbanes-Oxley Act(15 U.S.C.7262(b)by the registered
10、public accounting firm thatprepared or issued its audit report.If securities are registered pursuant to Section 12(b)of the Act,indicate by check mark whether the financial statements of the registrant included inthe filing reflect the correction of an error to previously issued financial statements
11、.Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensationreceived by any of the registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b)Indicate by check mark whether the regist
12、rant is a shell company.Yes No The aggregate market value of the voting stock held by non-affiliates of the registrant was$36,703,889 based upon the closing sale price of$18.70on the NYSE American on December 31,2023.At September 24,2024 there were 2,744,458 shares outstanding of the registrants Com
13、mon stock,$.33-1/3 par value.DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrants definitive proxy statement relating to the 2024 Annual Meeting of Shareholders,to be filed with the Securities andExchange Commission,are incorporated by reference in Part III,Items 10 through 14 on Form 10-
14、K as indicated herein.Forward-Looking Statements This Annual Report on Form 10-K contains forward-looking statements that are based on managements expectations,estimates,projections andassumptions.Words such as“expects,”“anticipates,”“plans,”“believes,”“scheduled,”“estimates”and variations of these
15、words and similarexpressions are intended to identify forward-looking statements.Forward-looking statements are made pursuant to the safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995,as amended.These statements are not guarantees of future performance and involve certain
16、risksand uncertainties that are difficult to predict.Therefore,actual future results and trends may differ materially from what is forecast in forward-lookingstatements due to a variety of factors,including,without limitation:Changing priorities or decreases in the U.S.governments defense budget(inc
17、luding changes in priorities in response to terrorist threats,improvement of homeland security and general U.S.Government budgetary issues);Termination of government contracts due to unilateral government action;Differences in anticipated and actual program performance,including the ability to perfo
18、rm under long-term fixed-price contracts withinestimated 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 All forward-looking statements speak
19、 only as of the date of this report or,in the case of any document incorporated by reference,the date of thatdocument.All subsequent written and oral forward-looking statements attributable to the Company or any person acting on the Companys behalf arequalified by the cautionary statements in this s
20、ection.The Company does not undertake any obligation to update or publicly release any revisions toforward-looking statements to reflect events,circumstances or changes in expectations after the date of this report.1 form10k-32866_espv5.htm3286609/26/2024 04:32 PM3 of 35 PART IItem 1.Business Genera
21、l Espey Mfg.&Electronics Corp.(“Espey”)is a power electronics design and original equipment manufacturing(OEM)company with a long historyof developing and delivering highly reliable products for use in military and severe environment applications.Design,manufacturing,and testing isperformed in our 1
22、50,000+square foot facility located at 233 Ballston Ave.,Saratoga Springs,New York.Espey is classified as a“smaller reportingcompany”for purposes of the reporting requirements under the Securities Exchange Act of 1934,as amended.Espeys common stock is publicly-traded on the NYSE American under the s
23、ymbol“ESP.”Espey began operations after incorporation in New York in 1928.We strive to remain competitive as a leader in high power energy conversion andtransformer solutions through the design and manufacture of new and improved products by using advanced and“cutting edge”electronicstechnologies.Es
24、pey is an ISO 9001:2015 and AS9100:2016 certified manufacturer of power conversion,advanced magnetics and build to specifications providedby the customer“build to print”products for the rugged industrial and military marketplace.Our primary products are power supplies,powerconverters,filters,power t
25、ransformers,magnetic components,power distribution equipment,UPS systems,and antennas.The applications of theseproducts include AC and DC locomotives,shipboard power,shipboard radar,airborne power,ground-based radar,and ground mobile power.Espey services include design and development to specificati
26、on,build to specifications provided by the customer“build to print”,design services,design studies,environmental testing services,metal fabrication,painting services,and development of automatic testing equipment.Espey isvertically integrated,meaning that the Company produces individual components(i
27、ncluding inductors),populates printed circuit boards,fabricatesmetalwork,paints,wires,qualifies,and fully tests items,mechanically,electrically and environmentally,in house.Portions of the manufacturing andtesting process are subcontracted to vendors from time to time.In fiscal years ended June 30,2
28、024 and 2023,the Companys total sales were$38,736,319 and$35,592,323,respectively.Sales to five domesticcustomers accounted for 20%,18%,16%,16%and 11%,respectively,of total sales in 2024.Sales to five domestic customers accounted for 23%,18%,16%,13%and 11%,respectively,of total sales in 2023.This co
29、ncentration level presents significant risk.A loss of one of these customers orprograms related to these customers could significantly impact the financial performance of the Company.Historically,a small number of customershave accounted for a large percentage of the Companys total sales in any give
30、n fiscal year.In some instances,our sales may include shipments tomore than one business unit of a particular customer.Export shipments in fiscal years 2024 and 2023 were$2,350,087 and$549,510,respectively.The increase is primarily due to the increase in powersupply shipments resulting from a repeat
31、 order received which had no comparable shipments in the prior year.Sources of Raw Materials.The Company has at least two potential sources of supply for a majority of its raw materials.However,certain components used in its products areavailable from a single or a limited number of sources.Despite
32、the risk associated with single or limited source suppliers,the benefits of higherquality goods minimize and often limit any potential risk and can eliminate problems with part failures during production.At times,replacements arerequired to cover obsolete parts.Ongoing demand in the power electronic
33、s industry across multiple manufacturing sectors continues to create shortages and extended lead times.Insome instances,waiting times for certain components approach a year or more.We adequately factor supplier-provided lead times into internalplanning schedules and new customer quotations.From time
34、 to time,we encounter part obsolescence which requires us to identify an alternate partsuitable for use.We continue to work with our customers on strategies to mitigate any adverse impact upon our ability to service their requirements.Factors which may arise after the placement of the customers orde
35、r may cause us to miss projected delivery dates.Inflationary costs are expected tocontinue but are not expected to have a significant impact on operating income in fiscal year 2025.Tariffs on steel and aluminum imports from various countries continue to be in effect.Although we are not currently exp
36、eriencing any significantfinancial or raw material sourcing issues resulting from the product tariffs,the Company cannot provide any assurance that the existing tariffs,thepotential of additional tariffs,and the associated volatility arising from foreign trade policies,will not have a negative impac
37、t on our future earningsby increasing our raw material prices and augmenting the lead time for the availability of raw materials.2 form10k-32866_espv5.htm3286609/26/2024 04:32 PM4 of 35 Sales Backlog The total sales backlog at June 30,2024 was$97.2 million,which included approximately$61 million fro
38、m four significant customers,compared to$83.6 million at June 30,2023,which included approximately$66 million from six significant customers.The Companys total backlog representsthe estimated remaining sales value of work to be performed under firm contracts.Orders from significant customers may inc
39、lude more than a singleprogram and procurement may originate from various divisions of the significant customer.The funded portion of this backlog at June 30,2024 wasapproximately$94.9 million.This includes items that have been authorized and appropriated by Congress and/or funded by the customer.Th
40、eunfunded backlog at June 30,2024 was approximately$2.3 million and represents an amount under one firm repeat multi-year order from a singlecustomer.While there is no guarantee that future budgets and appropriations will provide funding for individual programs,management has includedin unfunded bac
41、klog only those programs that it believes are likely to receive funding based on discussions with customers and program status.Theunfunded backlog at June 30,2023 approximated$32 thousand.Contracts are subject to modification,change or cancellation,and the Companyaccounts for these changes as they a
42、re probable and estimable.The Company evaluates the impact of any scope modifications and will adjustreserves as information is known and estimable.The majority of our orders are generated from prime defense contractors,the United States Department of Defense,other agencies of the governmentof the U
43、nited States and foreign governments,and are for the design and development and/or manufacture of products.Orders are also generatedfrom industrial manufacturers for similar services.It is not uncommon to receive orders which include delivery schedules extending beyond a yearfrom the contract purcha
44、se date,therefore a customers reorder point may vary.It is presently anticipated that a minimum of$44 million of orders comprising the June 30,2024 backlog will be filled during the fiscal year endingJune 30,2025.The estimate of the June 30,2024 backlog to be shipped in fiscal year 2025 is subject t
45、o future events,which may cause the amount ofthe backlog actually shipped to differ from such estimate.Marketing and Competition The Company markets its products primarily through its own direct sales organization and through outside sales representatives.Business is solicitedfrom large industrial m
46、anufacturers and defense companies,the government of the United States,foreign governments and major foreign electronicequipment companies.Espey is also on the eligible list of contractors with the United States Department of Defense.We pursue opportunities forprime contracts directly with the Depar
47、tment of Defense and are generally automatically solicited by Department of Defense procurement agenciesfor their needs falling within the major classes of products produced by the Company.Espey contracts with the Federal Government under cage code20950 as Espey Mfg.&Electronics Corp.There is compet
48、ition in all classes of products manufactured by the Company ranging from divisions of the largest electronic companies,to manysmall companies.The Companys sales do not represent a significant share of the industrys market for any class of its products.The principalmethods of competition for electro
49、nic products of both a military and industrial nature include,among other factors,price,product performance,theexperience 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 equipmen
50、t for military applications and industrialapplications,as well as our customer concentrations,expose us to on-going associated risks.These risks include,without limitation,requirements forpower supplies in the rail industry,dependence on appropriations from the United States Government and the gover
51、nments of foreign nations,program allocations,the potential of governmental termination of orders for convenience,and the general strength of the industry sectors in whichour customers transact business.Future procurement needs supporting the military and the rail industry continue to drive competit
52、ion.Many of our competitors have invested,andthey continue to invest aggressively in upfront product design costs and accept lower profit margins as a strategic means of maintaining existingbusiness and enhancing market share.This continues to put pressure on the pricing of our current products and
53、has lowered our profit margins onsome of our new business.In order to compete effectively for new business,in some cases we have invested in upfront design costs,thereby reducinginitial profitability as a means of procuring new long-term programs.As part of our strategy,we adjust our pricing in orde
54、r to achieve a balancewhich enables us both to retain repeat programs while being more competitive in bidding on new programs.3 form10k-32866_espv5.htm3286609/26/2024 04:32 PM5 of 35 Our sales strategy includes identifying and obtaining multiple new engineering design and development contracts in an
55、y given fiscal year to ensureoptimal utilization of our engineering personnel in addition to securing follow-on production awards for product previously designed in-house,aswell as,build to print opportunities.The Company targets those programs and opportunities which will generate future longer-ter
56、m production tails inensuing years.From time to time,we accept work associated with engineering design studies.While unlikely to result in near-term follow-on orders,this positions us competitively on future awards and expands our engineering teams skillset.Research and Development We do very little
57、 research and development with the intent to develop and market new product offerings for sale to customers.Our business primarilyis driven by customer product needs and custom product development funded by the applicable customers.We incur research costs to support arequest for quotation from a cus
58、tomer product-specific need usually associated with stringent size and weight requirements.In addition,theCompanys engineers and technicians spend varying amounts of time identifying improvements to existing products with the primary objective ofreducing production costs.At times,engineers are taske
59、d with researching replacement parts to remediate identified obsolescence on current or repeatproduction programs.The Companys expenditures for research related activities were approximately$86,714 and$65,427 in fiscal year 2024 and2023,respectively.Employees The Company had 148 employees as of Augu
60、st 31,2024.Approximately 36%of the employees are represented by the International Brotherhood ofElectrical Workers.The current collective bargaining agreement expires on June 30,2025.Relations with the Union are considered good.Government Regulations Compliance with federal,state and local laws regu
61、lating the discharge of materials into the environment,or otherwise relating to the protection of theenvironment,did not in fiscal year 2024,and the Company believes will not in fiscal year 2025,have a material effect upon the capital expenditures,net income,or competitive position of the Company.Th
62、e Companys U.S.Government contract and subcontract orders are funded by government budgets,which operate on an October-to-Septemberfiscal year.Normally,in February of each year,the President of the United States presents to Congress a proposed budget for the upcoming fiscalyear.This budget includes
63、recommended appropriations for every federal agency and is the result of months of policy and program reviewsthroughout the executive branch.From February through September of each year,the appropriations and authorization committees of Congressreview the Presidents budget proposals and establish th
64、e funding levels for the upcoming fiscal year in appropriations 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 o
65、r disrupted because of congressional schedules,negotiations 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 fun
66、ds,schedules and program content.Also,our international sales are denominated in United States dollars.Consequently,a strengthening of the United States dollar against foreigncurrencies could increase the price in local currencies of our products in foreign markets and make our products relatively m
67、ore expensive thancompetitors products.U.S.Government Defense Contracts and Subcontracts Generally,U.S.Government contracts are subject to procurement laws and regulations.Some of the Companys contracts are governed by theFederal Acquisition Regulation(FAR),which lays out uniform policies and proced
68、ures for acquiring goods and services by the U.S.Government,andagency-specific acquisition regulations that implement or supplement the FAR.For example,the Department of Defense implements the FARthrough the Defense Federal Acquisition Regulation(DFAR).The FAR also contains guidelines and regulation
69、s for managing a contract after award,including conditions under which contracts may beterminated,in whole or in part,at the governments convenience or for default.If a contract is terminated for the convenience of the government,acontractor is entitled to receive payments for its allowable costs an
70、d,in general,the proportionate share of fees or earnings for the work done.If acontract is terminated for default,the government generally pays for only the work it has accepted.These regulations also subject the Company tofinancial audits and other reviews by the government of its costs,performance
71、,accounting and general business practices relating to its contracts,which may result in adjustment of the Companys contract-related costs and fees.4 form10k-32866_espv5.htm3286609/26/2024 04:32 PM6 of 35 Item 1C.Cybersecurity Robust cybersecurity is an essential component of our strategic vision.We
72、 face a variety of complex cybersecurity threats as a defense contractor.Among the risks are computer malware,ransomware,phishing attacks,Denial of Service attacks and Advanced Persistent Threats.Our security team,comprised of members from senior management,IT,human resources and program management,
73、performs routine risk assessments in accordancewith NIST 800-30,using input from observed risks and threats,advisories,federal agencies and local law enforcement.The Audit Committee of theBoard of Directors is responsible for oversight of our risk management processes.The Audit Committee is briefed
74、by senior management oncybersecurity posture,initiatives and incidents.We allocate significant resources to mitigate these risks.We are required to adhere to rigorousregulations,such as those outlined in the Defense Federal Acquisition Regulation Supplement(DFARS),which govern the protection of cont
75、rolledunclassified information(CUI)and the mandatory reporting of cybersecurity incidents to the Department of Defense(DoD).All DFARSrequirements are flowed down to our sub-contractors,who are required to self-report their compliance to the U.S.Government.In addition to theprocesses and systems that
76、 we use to identify and mitigate risks,we utilize third party services to conduct valuations of our security controls,including penetration testing and independent audits.Despite our efforts to uphold the highest cybersecurity standards,we may still experience acybersecurity incident that has a mate
77、rial effect on business strategy,results of operation or financial condition.It is also possible that additionalregulations could affect our supply chain and increase costs.Prior cyberattacks directed at us have not had a material impact on our financial resultsnor restricted us from being awarded c
78、ontracts from other defense companies or directly from the United States Department of Defense.However,wecan provide no assurance that the occurrence of any future event would not adversely affect our internal operations,our reputation and competitiveadvantage,and our future financial results.Item 2
79、.Property The Companys entire operation,including administrative,manufacturing and engineering facilities,is located in Saratoga Springs,New York.The Saratoga Springs plant,which the Company owns,consists of various adjoining buildings on a 22 acre site,approximately eight acres of which isunimprove
80、d.The property is not subject to mortgage indebtedness or any other material encumbrance.The plant has a sprinkler system throughoutand contains approximately 151,000 square feet of in-service floor space,of which 90,000 is used for manufacturing,24,000 for engineering,33,000for shipping and climati
81、cally secured storage,and 4,000 for offices.The offices,engineering and some manufacturing areas are air-conditioned.Inaddition to assembly and wiring operations,the plant includes facilities for varnishing,potting,impregnation and spray-painting operations.Themanufacturing operation also includes a
82、 complete machine shop,with welding and sheet metal fabrication facilities adequate for substantially all ofthe Companys current operations.Besides normal test equipment,the Company maintains a sophisticated on-site environmental test facility.Inaddition to meeting all of the Companys in-house needs
83、,the machine shop and environmental facilities are available to other companies on acontract basis.Item 3.Legal Proceedings We are party to various litigation matters and claims arising from time to time in the ordinary course of business.While the results of such matterscannot be predicted with cer
84、tainty,we believe that the final outcome of such matters will not have a material adverse effect on our business,financialcondition,results of operations or cash flows.Currently,there are no matters pending.Item 4.Mine Safety Disclosures Not applicable 5 form10k-32866_espv5.htm3286609/26/2024 04:32
85、PM7 of 35 PART II Item 5.Market for the Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities Price Range of Common Stock The table below shows the range of high and low prices for the Companys common stock on the NYSE American(symbol ESP),the principalm
86、arket for trading in the common stock,for each quarterly period for the last two fiscal years ended June 30:2024 High Low First Quarter$18.00$14.74 Second Quarter 19.29 14.69 Third Quarter 27.32 17.97 Fourth Quarter 26.31 20.20 2023 High Low First Quarter$15.54$13.05 Second Quarter 14.49 13.02 Third
87、 Quarter 20.59 14.17 Fourth Quarter 22.96 15.81 Holders The approximate number of holders of record of the common stock was 57 on September 24,2024 according to records of the Companys transferagent.Included in this number are shares held in nominee or street name and,therefore,the number of benefic
88、ial owners of the common stock isbelieved to be substantially in excess of the foregoing number.Dividends Effective March 13,2023,the Company reinstated payment of a quarterly dividend.The Company had suspended dividend payments effectiveMarch 9,2021.The Company paid regular cash dividends on common
89、 stock of$0.675 per share for the fiscal year ended June 30,2024 and paidregular cash dividends on common stock of$0.20 per share for the fiscal year ended June 30,2023.Our Board of Directors assesses the Companysdividend policy periodically.There is no assurance that the Board of Directors will mai
90、ntain the amount of the regular cash dividend during anyfuture years.During fiscal year 2024,the Company did not sell any of its common stock to the Trustees of The Espey Mfg.&Electronics Corp.Employee StockOwnership Plan Trust(the“ESOP”).The Company did not make any open market purchases of equity
91、securities in the fiscal year 2024 fourth quarter.The following table sets forth information as of June 30,2024 with respect to compensation plans under which equity securities of the Company maybe issued.Equity Compensation Plan Information Number of securities to Weighted-average Number of Securit
92、ies remaining be issued upon exercise exercise price of available for future issuance under of outstanding options,outstanding options,equity compensation plan(excludingPlan Category warrants and rights warrants and rights securities reflected in column(a)(a)(b)(c)Equity compensation plansapproved b
93、y security holders 322,056$18.41 80,969 Equity compensation plans notapproved by security holders Total 322,056 80,969 6 form10k-32866_espv5.htm3286609/26/2024 04:32 PM8 of 35 Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations Business Outlook Management expe
94、cts revenues in fiscal year 2025 to be higher than revenues recognized during fiscal year 2024 and expects net income per share toexceed fiscal 2023 reported results,however net income per share is anticipated to fall below fiscal 2024 results.This expectation is driven primarilyby orders already in
95、 our backlog that will be shipped in fiscal year 2025 with higher anticipated aggregate costs than the product mix shipped duringfiscal 2024.Gross profit on fiscal 2025 shipments will be reduced by the increase in overhead costs incurred specific to the pension withdrawalobligation recorded in fisca
96、l 2024,explained in greater detail in Financial Statement Note 7.Pension Expense.Overhead costs will be reduced,infuture years,from the Companys withdrawal from the plan,as recurring annual contribution payments to the plan will no longer be required.Asmarket factors including competition and produc
97、t costs impact gross profit margins,management will continue to evaluate our sales strategy,employment levels,and facility costs.Ongoing demand in the power electronics industry across multiple manufacturing sectors continues to create shortages and extended lead times.Insome instances,waiting times
98、 for certain components approach a year or more.We adequately factor supplier-provided lead times into internalplanning schedules and new customer quotations.From time to time,we encounter part obsolescence which requires us to identify an alternate partsuitable for use.We continue to work with our
99、customers on strategies to mitigate any adverse impact upon our ability to service their requirements.Factors which may arise after the placement of the customers order may cause us to miss projected delivery dates.Inflationary costs are expected tocontinue but are not expected to have a significant
100、 impact on operating income in fiscal year 2025.The labor workforce remains stable.Management continues to closely monitor workforce labor requirements to support our sales backlog andplanned delivery schedules.Longer time-to-hire challenges remain for certain positions due to specific skillsets req
101、uired for those positions and thefact fewer workers,in general,are seeking employment.Unemployment rates in the local geographic region trend lower than the national averagewhich has created a competitive recruiting environment.Where possible,the Company continues to offer on-the-job training and wh
102、en necessarycontinues to recruit personnel outside the local region.Combined with supply chain constraints,unforeseen labor disruptions could delay shipmentsand result in missing our backlog fulfillment projections and recognizing lower operating income.Successful conversion of engineering program b
103、acklog into sales is largely dependent on the execution and completion of our engineering designefforts.It is not uncommon to experience technical or scheduling delays which arise from time to time as a result of,among other reasons,designcomplexity,the availability of personnel with the requisite e
104、xpertise,the requirements to obtain customer approval at various milestones,andextended delivery lead times on material required for prototypes.Cost overruns which may arise from technical and schedule delays and increasedraw material costs could negatively impact the timing of the conversion of bac
105、klog into sales,or the profitability of such sales.Engineering programsin both the funded and unfunded portions of the current backlog aggregate$10.2 million.The Company currently expects new orders in fiscal 2025 to be greater than those received in fiscal year 2024.During fiscal year 2024,theCompa
106、ny received approximately$52.4 million in new orders.Included in new order bookings are repeat production orders for multi-year purchaseswith deliveries expected to extend for several years.In addition to the backlog,the Company currently has outstanding opportunities representing inexcess of$130 mi
107、llion in the aggregate as of August 31,2024,for both repeat and new programs.Included in outstanding opportunities is a largemulti-year purchase from a single customer for several products currently being manufactured by the Company,expected to be formalized prior toDecember 31,2024.Outstanding oppo
108、rtunities encompass various new and previously manufactured power supplies,transformers,andsubassemblies.We consider the value of those opportunities we believe are likely to be awarded based on factors which include:quotation status,communicated award dates,historical ordering,public information on
109、 defense programs and program funding,discussion with customers,and ourcost competitiveness.However,there can be no assurance that the Company will acquire any of the outstanding opportunities described above,manyof which are subject to allocations of the United States defense spending and factors a
110、ffecting the defense industry,as well as,the fact manysolicitations we receive for the procurement of goods and services takes place by competitive bidding.Our sales strategy includes identifying and obtaining multiple new engineering design and development contracts in any given fiscal year to ensu
111、reoptimal utilization of our engineering personnel in addition to securing follow-on production awards for product previously designed in-house,aswell as,build to print opportunities.The Company targets those programs and opportunities which will generate future longer-term production tails inensuin
112、g years.From time to time,we accept work associated with engineering design studies.While unlikely to result in near-term follow-on orders,this positions us competitively on future awards and expands our engineering teams skillset.Management continues to pursue opportunities with current and new cus
113、tomers 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 loss of a single significantcustomer.Given the nature of our business,we believe our existing sales order backlog
114、 is fairly diversified in terms of customers and the category ofproducts on order.7 form10k-32866_espv5.htm3286609/26/2024 04:32 PM9 of 35 Management,along with the Board of Directors,continues to evaluate the need and use of the Companys working capital.Capital expenditures,primarily for machinery
115、and equipment and facility upgrades,are not expected to exceed$500,000 for fiscal year 2025.A majority of theseexpenditures will be made to stay competitive in the marketplace and to meet the needs of current contracts.Expectations are that the working capital will be required to fund orders,general
116、 operations of the business and dividend payments.Managementalong with the Legal Affairs,Strategic Planning,and M&A Committee of the Board of Directors will examine opportunities involving acquisitions orother strategic options,including buying certain products or product lines,provided that such op
117、portunities demonstrate synergies with theCompanys existing product base and accretion to earnings.The Company was awarded$7.4 million in funding during the second quarter of fiscal year 2023 in support of facility and capital equipmentupgrades for testing and qualification for the United States Nav
118、y.The funding is part of the Navys investment to improve and sustain the SurfaceCombatant Industrial Base.The work is being conducted on the Companys property in Saratoga Springs,NY,with completion slated for the end ofcalendar year 2024.The Company expects to be paid within 30 days after the submis
119、sion of three milestone invoices,but will not be paid forexpenses incurred in excess of the specified milestone payment limits.The Company will record the receipt of milestone payments received as areduction from the cost of the assets.As of June 30,2024 milestone reimbursements received totaled$4,2
120、28,722.Included in property,plant,andequipment at June 30,2024 was$965,392 not yet reimbursed under the funding award.As of June 30,2024,the Company anticipates spending theremaining$2.3 million,allowable under the award,during fiscal 2025.Results of Operations Net sales for the years ended June 30,
121、2024 and 2023 were$38,736,319 and$35,592,323,respectively,an approximate 8.8%increase.In general,sales fluctuations within product categories will occur during a comparable fiscal period as the direct result of product mix,influenced by theduration of specific programs and the contractual terms of f
122、irm orders placed for product and services under those programs including contract value,scope of work and contract delivery schedules.Deliverables within firm contracts are often subject to delivery schedules which also contributes tosales fluctuations between comparable periods.Sales in fiscal yea
123、r 2024 were higher when compared to the prior year primarily from(i)increasedshipments on several large multi-year contracts for transformers and power distribution panels,and(ii)increased shipments on several power supplycontracts primarily supporting AESA radar programs and off-highway vehicle pro
124、duction builds.These increases were offset,in part,by a decrease inoverall build to print sales which,in several instances,had specific contracts with significantly fewer or no sales in the current reporting period ascompared to the same period last year due to order completion or planned customer d
125、elivery schedules.Gross profits for the years ended June 30,2024 and 2023 were$10,653,060 and$8,050,538,respectively.Gross profit as a percentage of sales was27.5%and 22.6%,for the same periods,respectively.The primary factors in determining the change in gross profit and net income are overall sale
126、slevels and product mix.The gross profits on mature products and build to print contracts are typically higher as compared to products which are stillin 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“losscontrac
127、ts,”primarily on engineering design contracts in which the Company invests with the objective of developing future product sales.In anygiven accounting period,the mix of product shipments between higher margin programs and less mature programs,and expenditures associated withloss contracts,has a sig
128、nificant impact on gross profit and net income.The increase in gross profit for the year ended June 30,2024 when compared to the same period last year resulted primarily from(i)sales levels andgeneral product mix,(ii)higher than average profit margins on one-time sales to certain customers,and(iii)h
129、igher sales on a large follow-on orderfor power distribution panels which had fewer sales and higher costs in the prior year related to engineering design efforts.Moreover,the gross profitin fiscal year 2023 had been negatively impacted by significant unanticipated costs incurred on several fixed-pr
130、iced engineering design contracts anda specific build to print contract,all for power supplies,due to unforeseen complexities of the designs.The improvement in the gross profit in fiscalyear 2024 was offset,in part,by increased costs incurred on a recurring production job and a new engineering devel
131、opment job.Finally,gross profitin the current year was reduced by an increase in the overhead costs on shipments,resulting from the recorded pension withdrawal obligationestablished in the last quarter of the current fiscal period,explained in greater detail in Financial Statement Note 7.Pension Exp
132、ense.8 form10k-32866_espv5.htm3286609/26/2024 04:32 PM10 of 35 Selling,general and administrative expenses were$4,113,608 for the fiscal year ended June 30,2024;an increase of$363,084 compared to the fiscalyear ended June 30,2023.The increase in spending for the year ended June 30,2024 compared to t
133、he same period in 2023 mainly relates to theincrease in employee compensation costs which includes a new business development employee.In addition,and to a lesser extent,expensesincreased related to travel expenses,recruiting expenses,and freight costs incurred on outgoing shipments.These increases
134、were offset,in part,by adecrease in utility and outside selling costs related to non-employee sales representatives.Other income for the fiscal years ended June 30,2024 and 2023 was$755,562 and$406,453,respectively.The increase is primarily due to theincrease in interest income resulting from an inc
135、rease in investment securities and an increase in fixed interest rates.Interest income is a function ofthe level of investments and investment strategies that generally tend to be conservative.The Companys effective tax rate was approximately 20.3%in the fiscal year 2024 and approximately 21.9%in fi
136、scal year 2023.The effective taxrate in fiscal 2024 is less than the statutory tax rate mainly due to the benefit received from ESOP dividends paid on allocated shares and a benefitfrom foreign derived intangible income,offset in part by permanent differences related to incentive stock options.The e
137、ffective tax rate in fiscal 2023is greater than the statutory tax rate mainly due to the permanent difference for incentive stock option expense recorded for book purposes which isnot deductible for tax purposes.During fiscal 2023,there was no benefit received from ESOP dividends paid on allocated s
138、hares due to thesuspension of the company dividend through February 2023.The effective tax rate in the year ended June 30,2024 was lower than the comparableprior year primarily from the benefit derived from ESOP dividends paid on allocated shares,greater benefit derived from foreign derived intangib
139、leincome and a benefit derived from the exercise of incentive stock options in the current period when compared to same period in the prior year.The Company generated net income for fiscal year 2024 of$5,815,140 or$2.34 and$2.29 per share,basic and diluted,compared to net income of$3,677,131 or$1.50
140、 and$1.49 per share,basic and diluted,for fiscal year 2023.The increase in net income in the year ended June 30,2024compared to the same period in 2023 is primarily attributable to higher sales,a higher gross profit margin percentage,an increase in other income,offset in part,by an increase in selli
141、ng,general,and administrative expenses and an increase in the provision for income taxes.Liquidity and Capital Resources The Companys working capital is an appropriate indicator of the liquidity of its business,and during the past two fiscal years,the Company,whenpossible,has funded all of its opera
142、tions with cash flows resulting from operating activities and when necessary from its existing cash andinvestments.The Company did not borrow any funds during the last two fiscal years.Management has available a$3,000,000 line of credit to helpfund further growth or working capital needs,if necessar
143、y,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 30,2024 and 2023.The existing line of creditwas extended and expires February 28,2025.The Companys working capital
144、 as of June 30,2024 and 2023 was approximately$38 million and$33.2 million,respectively.The Company may attimes be required to repurchase shares at the ESOP participants request at the fair market value.During the years ended June 30,2024 and 2023,theCompany did not repurchase any shares held by the
145、 ESOP.Under existing authorizations from the Companys Board of Directors,as of June 30,2024,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:2024 2023 Net cash provided by operatin
146、g activities$10,595,200$3,899,870 Net cash used in investing activities (7,840,277)(8,765,907)Net cash used in financing activities (1,151,708)(489,268)Net cash provided by operating activities fluctuates between periods primarily as a result of differences in sales and net income,provision for inco
147、metaxes,the timing of the collection of accounts receivable,purchase of inventory,and payment of accounts payable.The increase in cash provided byoperating activities compared to the prior year primarily relates to an increase in net income,a decrease in prepaid expenses and other current assets,a d
148、ecrease in inventory,an increase in accounts payable and other accrued expenses,offset in part,by a decrease in contract liabilities,and anincrease in trade accounts receivable.9 form10k-32866_espv5.htm3286609/26/2024 04:32 PM11 of 35 Net cash used in investing activities increased in the year ended
149、 June 30,2024 as compared to the same period in 2023 due to an increase ininvestment securities when compared to the same period last year,in addition to additions to property,plant and equipment,partially offset byproceeds received from the grant award.Cash used in financing activities for the year
150、 ended June 30,2024 relates primarily to dividend payments oncommon stock,offset in part,by proceeds from the exercise of stock options.The Company currently believes that the cash flow generated from operations and when necessary,from cash and cash equivalents,will besufficient to meet its long-ter
151、m funding requirements for the foreseeable future.During the fiscal years ended June 30,2024 and 2023,the Company expended$5,164,165 and$512,016,respectively,for plant improvements andnew equipment,of which$4,886,113 and$249,705,respectively,was either reimbursed or eligible to be reimbursed under a
152、 not to exceed$7.4million award received by the Company.The award received by the Company is in support of facility and capital equipment upgrades for testingand qualification for the United States Navy.This funding award is part of the Navys investment to improve and sustain the Surface CombatantIn
153、dustrial Base.Separately,the Company has budgeted approximately$500,000 for new equipment and plant improvements in fiscal year 2025,notreimbursable under the funding award.A majority of these expenditures will be made to stay competitive in the marketplace and to meet the needsof current contracts.
154、Management believes that the Companys allowance for credit losses of$3,000 is adequate given the customers with whom the Company doesbusiness based on historical experience,current economic market conditions,performance of specific account reviews,and other factoredconsiderations to include,but not
155、limited to,contracts covered by government funding and the overall health of the industry.Historically,bad debtexpense has been minimal.Item 8.Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm(PCAOB ID 317)Financial Statements REPORT OF INDEPENDENT R
156、EGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors ofEspey Mfg.&Electronics Corp.Opinion on the Financial StatementsWe have audited the accompanying balance sheets of Espey Mfg.&Electronics Corp.(the Company)as of June 30,2024 and 2023,the relatedstatements of comprehensive
157、income,changes in stockholders equity and cash flows for the years then ended,and the related notes to the financialstatements(collectively,the financial statements).In our opinion,the financial statements present fairly,in all material respects,the financial positionof the Company as of June 30,202
158、4 and 2023,and the results of its operations and its cash flows for the years then ended,in conformity withaccounting 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 e
159、xpress an opinion on the Companysfinancial statements based on our audits.We are a public accounting firm registered with the Public Company Accounting Oversight Board(UnitedStates)(PCAOB)and are required to be independent with respect to the Company in accordance with U.S.federal securities laws an
160、d the applicablerules and regulations of the Securities 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 obtainreasonable assurance about whether the financial statements are free
161、 of material misstatement,whether due to error or fraud.The Company is notrequired 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 toobtain an understanding of internal control over financial reporting but not for
162、 the purpose of expressing an opinion on the effectiveness of theCompanys internal control over financial reporting.Accordingly,we express no such opinion.10 form10k-32866_espv5.htm3286609/26/2024 04:32 PM12 of 35 Our audits included performing procedures to assess the risks of material misstatement
163、 of the financial statements,whether due to error or fraud,andperforming procedures that respond to those risks.Such procedures included examining,on a test basis,evidence regarding the amounts anddisclosures in the financial statements.Our audits also included evaluating the accounting principles u
164、sed and significant estimates made bymanagement,as well as evaluating the overall presentation of the financial statements.We believe that our audits provide a reasonable basis for ouropinion.Critical Audit MattersThe critical audit matters communicated below are matters arising from the current per
165、iod audit of the financial statements that were communicatedor required to be communicated to the audit 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
166、 critical audit matters does not alter in any way ouropinion on the financial statements,taken as a whole,and we are not,by communicating the critical audit matters below,providing separate opinionson the critical audit matters or on the accounts or disclosures to which they relate.Valuation of Inve
167、ntory Costs Related to Contracts in Process and Work in ProcessAs discussed in Notes 2 and 5 to the financial statements,inventory relating to contracts in process and work in process is valued at cost,includingfactory overhead incurred to date.Contract costs include material,subcontract costs,labor
168、,and an allocation of overhead costs.The costs attributedto units delivered under contracts are based on the estimated average cost of all units expected to be produced.Certain contracts are expected toextend beyond twelve months.The estimation of total cost at completion of a contract is subject to
169、 variables involving contract costs and estimates as to the length of time tocomplete the contract.Given the significance of the estimation processes and judgments described above,it is possible that materially differentamounts of expected sales and contract costs could be recorded if different assu
170、mptions were used,based on changes in circumstances,in theestimation process.When a change in expected sales value or estimated cost is determined,changes are reflected in current period earnings.Due tothe magnitude of the inventory,and the subjectivity involved in estimating the total cost at compl
171、etion we identified the evaluation of the estimate tocomplete as a critical audit matter,which required a high degree of auditor judgment.Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion onthe 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 managemen
173、t,including: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;andoPerfo
174、rming a 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 27,2024 11 form10k-32866_espv5.htm3286609/26/2024 04:32 PM13 of 35 Espey Mfg.&Electro
175、nics Corp.Balance SheetsJune 30,2024 and 2023 2024 2023 ASSETS Cash and cash equivalents$4,351,970$2,748,755 Investment securities 18,878,631 11,964,673 Trade accounts receivable,less allowance for credit losses of$3,000 6,635,490 5,755,282 Income tax receivable 35,666 Inventories:Raw materials 1,69
176、3,448 1,889,702 Work-in-process 1,645,973 681,300 Costs related to contracts in process 15,904,588 17,318,579 Total inventories 19,244,009 19,889,581 Deferred tax asset 895,154 Prepaid expenses and other current assets 3,231,402 4,282,477 Total current assets 53,236,656 44,676,434 Property,plant and
177、 equipment,net 3,306,275 2,825,089 Total assets$56,542,931$47,501,523 LIABILITIES AND STOCKHOLDERS EQUITY Accounts payable$3,751,209$1,212,375 Accrued expenses:Salaries and wages 928,163 890,748 Vacation 511,144 685,188 Other 757,552 547,747 Payroll and other taxes withheld 56,862 66,042 Contract li
178、abilities 9,043,422 8,081,838 Income taxes payable 220,607 Total current liabilities 15,268,959 11,483,938 Deferred tax liabilities 137,827 Total liabilities 15,268,959 11,621,765 Commitments and Contingencies(See Note 14)Common stock,par value$.33-1/3 per share Authorized 10,000,000 shares;Issued 3
179、,129,874 shares as of June 30,2024 and 2023.Outstanding 2,733,958 and 2,702,633 shares as of June 30,2024 and 2023,respectively(includes 211,487 and 233,645 Unearned ESOP Shares,respectively)1,043,291 1,043,291 Capital in excess of par value 23,930,428 23,283,245 Accumulated other comprehensive gain
180、(loss)6,544 (2,429)Retained earnings 26,004,790 21,867,720 50,985,053 46,191,827 Less:Unearned ESOP shares (3,868,093)(4,273,378)Cost of 395,916 and 427,241 shares of common stock in treasury as of June 30,2024 and2023,respectively (5,842,988)(6,038,691)Total stockholders equity 41,273,972 35,879,75
181、8 Total liabilities and stockholders equity$56,542,931$47,501,523 The accompanying notes are an integral part of the financial statements.12 form10k-32866_espv5.htm3286609/26/2024 04:32 PM14 of 35 Espey Mfg.&Electronics Corp.Statements of Comprehensive IncomeYears Ended June 30,2024 and 2023 2024 20
182、23 Net sales$38,736,319$35,592,323 Cost of sales 28,083,259 27,541,785 Gross profit 10,653,060 8,050,538 Selling,general and administrative expenses 4,113,608 3,750,524 Operating income 6,539,452 4,300,014 Other income Interest income 728,299 359,617 Other 27,263 46,836 Total other income 755,562 40
183、6,453 Income before provision for income taxes 7,295,014 4,706,467 Provision for income taxes 1,479,874 1,029,336 Net income$5,815,140$3,677,131 Other comprehensive income,net of tax:Unrealized gain(loss)on investment securities 8,973 (497)Total comprehensive income$5,824,113$3,676,634 Net income pe
184、r share:Basic$2.34$1.50 Diluted$2.29$1.49 Weighted average number of shares outstanding:Basic 2,489,165 2,454,856 Diluted 2,536,967 2,471,016 The accompanying notes are an integral part of the financial statements.13 form10k-32866_espv5.htm3286609/26/2024 04:32 PM15 of 35 Espey Mfg.&Electronics Corp
185、.Statements of Changes in Stockholders EquityYears Ended June 30,2024 and 2023 Accumulated Capital in Other Unearned Total Outstanding Common Excess of Comprehensive Retained Treasury Treasury ESOP Stockholders Shares Amount Par Value Loss Earnings Shares Amount Shares Equity Balance as of June 30,2
186、022 2,702,633$1,043,291$23,104,693$(1,932)$18,679,857 427,241$(6,038,691)$(4,687,604)$32,099,614 Comprehensive income:Net income 3,677,131 3,677,131 Other comprehensive loss,net of tax of$104 (497)(497)Total comprehensive income 3,676,634 Stock-based compensation 227,132 227,132 Dividends paid on co
187、mmon stock$0.20 per share (489,268)(489,268)Reduction of unearned ESOP shares (48,580)414,226 365,646 Balance as of June 30,2023 2,702,633$1,043,291$23,283,245$(2,429)$21,867,720 427,241$(6,038,691)$(4,273,378)$35,879,758 The accompanying notes are an integral part of the financial statements.14 for
188、m10k-32866_espv5.htm3286609/26/2024 04:32 PM16 of 35 Espey Mfg.&Electronics Corp.Statements of Changes in Stockholders EquityYears Ended June 30,2024 and 2023 Accumulated Capital in Other Unearned Total Outstanding Common Excess of Comprehensive Retained Treasury Treasury ESOP Stockholders Shares Am
189、ount Par Value (Loss)Gain Earnings Shares Amount Shares Equity Balance as of June 30,2023 2,702,633$1,043,291$23,283,245$(2,429)$21,867,720 427,241$(6,038,691)$(4,273,378)$35,879,758 Comprehensive income:Net income 5,815,140 5,815,140 Other comprehensive income,net of tax of$1,884 8,973 8,973 Total
190、comprehensive income 5,824,113 Stock options exercised 31,325 330,659 (31,325)195,703 526,362 Stock-based compensation 283,673 283,673 Dividends paid on common stock$0.675 per share (1,678,070)(1,678,070)Reduction of unearned ESOP shares 32,851 405,285 438,136 Balance as of June 30,2024 2,733,958$1,
191、043,291$23,930,428$6,544$26,004,790 395,916$(5,842,988)$(3,868,093)$41,273,972 The accompanying notes are an integral part of the financial statements.15 form10k-32866_espv5.htm3286609/26/2024 04:32 PM17 of 35 Espey Mfg.&Electronics Corp.Statements of Cash FlowsYears Ended June 30,2024 and 2023 2024
192、 2023 Cash Flows from Operating Activities:Net income$5,815,140$3,677,131 Adjustments to reconcile net income to net cash provided by operating activities:Stock-based compensation 283,673 227,132 Depreciation 453,517 484,920 ESOP compensation expense 438,136 365,646 Deferred income tax benefit (1,03
193、2,981)(40,002)Loss(gain)on disposal of property,plant and equipment 590 (2,500)Changes in assets and liabilities:Increase in trade accounts receivable (880,208)(22,108)Decrease(increase)in income tax receivable 35,666 (35,666)Decrease(increase)in inventories 645,572 (1,329,132)Decrease(increase)in p
194、repaid expenses and other current assets 1,051,075 (3,289,703)Increase(decrease)in accounts payable 2,538,833 (866,802)Increase in accrued salaries and wages 37,415 263,561(Decrease)increase in vacation accrual (174,044)18,808 Increase(decrease)in other accrued expenses 209,805 (204,807)(Decrease)in
195、crease in payroll and other taxes withheld (9,180)10,750 Increase in contract liabilities 961,584 4,697,364 Increase(decrease)in income taxes payable 220,607 (54,722)Net cash provided by operating activities$10,595,200$3,899,870 Cash Flows from Investing Activities:Additions to property,plant and eq
196、uipment (5,164,165)(512,016)Proceeds from grant award 4,228,722 Proceeds from sale of property,plant and equipment 150 2,500 Purchase of investment securities (26,423,984)(15,902,014)Proceeds from sale/maturity of investment securities 19,519,000 7,645,623 Net cash used in investing activities (7,84
197、0,277)(8,765,907)Cash Flows from Financing Activities:Dividends paid on common stock (1,678,070)(489,268)Proceeds from exercise of stock options 526,362 Net cash used in financing activities (1,151,708)(489,268)Increase(decrease)in cash and cash equivalents 1,603,215 (5,355,305)Cash and cash equival
198、ents,beginning of the year 2,748,755 8,104,060 Cash and cash equivalents,end of the year$4,351,970$2,748,755 Supplemental Schedule of Cash Flow Information:Income taxes paid$2,258,965$1,159,595 The accompanying notes are an integral part of the financial statements.16 form10k-32866_espv5.htm3286609/
199、26/2024 04:32 PM18 of 35 Espey Mfg.&Electronics Corp.Notes to Financial Statements Note 1.Nature of Operations Espey Mfg.&Electronics Corp.(the Company)is a manufacturer of electronic equipment used primarily in military and industrial applications.Theprincipal markets for the Companys products are
200、companies that provide electronic support to both military and industrial applications across theUnited States and at some international locations.Note 2.Summary of Significant Accounting Policies Revenue The majority of our sales are generated from military contracts from defense companies,the Depa
201、rtment of Defense,other agencies of thegovernment of the United States and foreign governments,for the design and development and/or manufacture of products.Sales are also generatedfrom industrial manufacturers for similar services.We provide our products and design and development services under fi
202、xed-price contracts.Underfixed-price contracts we agree to perform the specified work for a pre-determined price.To the extent our actual costs vary from the estimates uponwhich the price was negotiated,we will generate more or less profit or could incur a loss.We account for a contract with a custo
203、mer after it has been approved by all parties to the arrangement,the rights of the parties are identified,paymentterms are identified,the contract has commercial substance,and collection of substantially all of the amount to which the entity will be entitled inexchange for the goods or services that
204、 will be transferred to the customer is probable.We assess each contract at its inception to determine whether itshould be combined with other contracts.When making this determination,we consider factors such as whether two or more contracts werenegotiated and executed at or near the same time,or we
205、re negotiated with an overall profit objective.We evaluate the products or services promised in each contract at inception to determine whether the contract should be accounted for as having oneor more performance obligations.Significant judgment is required in determining performance obligations.We
206、 determine the transaction price foreach contract based on the consideration we expect to receive for the products or services being provided under the contract.The transaction price foreach performance obligation is based on the estimated standalone selling price of the product or service underlyin
207、g each performance obligation.Transaction prices on our contracts subject to the Federal Acquisition Regulations(FAR)are typically based on estimated costs plus a reasonableprofit margin.We recognize revenue using the output method based on the appraisal of results achieved and milestones reached or
208、 units delivered based oncontractual shipment terms,typically shipping point.Inventory Raw materials are valued at the lower of cost(average cost)or net realizable value.Balances for slow-moving and obsolete inventory are reviewedon a regular basis by analyzing estimated demand,inventory on hand,sal
209、es levels,market conditions,and other information and reduce inventorybalances based on this analysis.Inventory relating to contracts in process and work in process is valued at cost,including factory overhead incurred to date.Contract costs includematerial,subcontract costs,labor,and an allocation
210、of overhead costs.Work in process represents spare units and parts and other inventory itemsacquired or produced to service units previously sold or to meet anticipated future orders.Provision for losses on contracts is made when theexistence of such losses becomes probable and estimable.The provisi
211、on for losses on contracts is included in other accrued expenses on theCompanys balance sheet.The costs attributed to units delivered under contracts are based on the estimated average cost of all units expected to beproduced.Certain contracts are expected to extend beyond twelve months.The estimati
212、on of total cost at completion of a contract is subject to numerous variables involving contract costs and estimates as to the length of timeto complete the contract.Given the significance of the estimation processes and judgments described above,it is possible that materially differentamounts of ex
213、pected sales and contract costs could be recorded if different assumptions were used,based on changes in circumstances,in theestimation process.When a change in expected sales value or estimated cost is determined,the change is reflected in current period earnings.17 form10k-32866_espv5.htm3286609/2
214、6/2024 04:32 PM19 of 35 Espey Mfg.&Electronics Corp.Notes to Financial StatementsNote 2.Summary of Significant Accounting Policies,ContinuedContract Liabilities Contract liabilities include advance payments and billings in excess of revenue recognized.Depreciation Depreciation of plant and equipment
215、 is computed on a straight-line basis over the estimated useful lives of the assets.Estimated useful lives of depreciable assets are as follows:Buildings and improvements10 50 yearsMachinery and equipment3 20 yearsFurniture and fixtures7 10 years Income Taxes The Company follows the provisions of Ac
216、counting Standards Codification(“ASC”)Topic 740-10,Accounting for Income Taxes.Under the provisions of ASC 740-10,deferred tax assets and liabilities are recognized for the future tax consequences attributable to differencesbetween the financial statement carrying amounts of existing assets and liab
217、ilities and their respective tax bases.Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoveredor settled.The effect on deferred taxes and liabilities of a change in tax
218、rates is recognized in earnings in the period that includes the enactment date.Cash and Cash Equivalents Cash and cash equivalents consist of cash and money market funds.The Company considers all highly liquid investments with original maturities ofthree months or less to be cash equivalents.Investm
219、ent Securities The Company accounts for its investments in debt securities in accordance with ASC 320-10-25,“Accounting for Certain Investments in Debt andEquity Securities.”Investments in debt securities at June 30,2024 and 2023 consisted of municipal bonds and treasury bills.The Company classifies
220、investments in debt securities as available-for-sale.Unrealized holding gains and losses,net of related tax effect,on available-for-sale debt securitiesare excluded from earnings and are reported as a separate component of stockholders equity until realized.Realized gains and losses for debtsecuriti
221、es classified as available-for-sale are included in earnings and are determined using the specific identification method.Interest income isrecognized when earned.Fair values are based on quoted market prices available as of the balance sheet date,and are therefore considered a Level 1valuation.Certi
222、ficates of deposit held for investment with an original maturity greater than three months are carried at amortized cost and reported as short-terminvestments on the balance sheets.The type of certificates of deposit that the Company invests in are not considered debt securities under FinancialAccou
223、nting Standards Board(FASB)Accounting Standards Codification(“ASC”)320,Investments-Debt Securities.Fair Value of Financial Instruments Accounting Standards Codification(“ASC”)820 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputsand minimize the use
224、of unobservable inputs when measuring fair value.The standard describes three levels of inputs that may be used to measurefair value:18 form10k-32866_espv5.htm3286609/26/2024 04:32 PM20 of 35 Espey Mfg.&Electronics Corp.Notes to Financial StatementsNote 2.Summary of Significant Accounting Policies,C
225、ontinued Level 1:Quoted prices(unadjusted)for identical assets or liabilities in active markets that the entity has the ability to access as of themeasurement date.Level 2:Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;quoted pri
226、ces inmarkets that are not active;or other inputs that are observable or can be corroborated by observable market data.Level 3:Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participantswould use in pricing an asset or liability.The
227、 carrying amounts of financial instruments,including cash and cash equivalents,short term investment securities,accounts receivable,accountspayable and accrued expenses,approximated fair value as of June 30,2024 and 2023 because of the immediate or short-term maturity of thesefinancial instruments.A
228、ccounts Receivable and Allowance for Credit Losses The Company extends credit to its customers in the normal course of business and collateral is generally not required for trade receivables.Exposureto credit risk is controlled through the use of credit approvals,credit limits,and monitoring procedu
229、res.Accounts receivable are reported net of anallowance for credit losses.The Company estimates the allowance based on its analysis of historical experience,current economic market conditions,performance of specific account reviews,and other factored considerations to include,but not limited to,cont
230、racts covered by government fundingand the overall health of the industry.Interest is not charged on past due balances.Based on these factors,there was an allowance for credit losses of$3,000 at June 30,2024 and 2023.Changes to the allowance for credit losses are charged to expense and reduced by ch
231、arge-offs,net of recoveries.The opening accounts receivable balance,net of allowance for credit losses of$3,000,at July 1,2022 and July 1,2023 were$5,733,174 and$5,755,282,respectively.Per Share Amounts ASC 260-10“Earnings Per Share(EPS)”requires the Company to calculate net income per share based o
232、n basic and diluted net income per share,asdefined.Basic EPS excludes dilution and is computed by dividing net income by the weighted average number of shares outstanding for theperiod.Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock
233、 were exercised or convertedinto common stock.The dilutive effect of outstanding options issued by the Company are reflected in diluted EPS using the treasury stockmethod.Under the treasury stock method,options will only have a dilutive effect when the average market price of common stock during the
234、 periodexceeds the exercise price of the options.Comprehensive Income Comprehensive income consists of net income and other comprehensive income(loss).Other comprehensive income for fiscal years ended June 30,2024 and 2023 consists of unrealized holding gains(losses)on available-for-sale debt securi
235、ties.Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets
236、 andliabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.Actual results coulddiffer from those estimates.Recently Adopted Accounting Standards In June 2016,the FASB issued ASU 2016-13,“Financial Instruments-Credit Losses(To
237、pic 326):Measurement of Credit Losses on FinancialInstruments”,which requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected,withfurther clarifications made more recently.For trade receivables,loans and other financial instruments,the Co
238、mpany will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable.19 form10k-32866_espv5.htm3286609/26/2024 04:32 PM21 of 35 Espey Mfg.&Electronics Corp.Notes to Financial StatementsNote 2.Sum
239、mary of Significant Accounting Policies,ContinuedCredit losses relating to available-for-sale debt securities are required to be recorded through an allowance for credit losses rather than as a reductionin the amortized cost basis of the securities.ASU 2016-13 is effective for public entities for fi
240、scal years beginning after December 15,2022,including interim periods within those fiscal years.Upon adoption,the amendments in ASU 2016-13 should be applied on a prospective basis to allperiods presented relating to available-for-sale debt securities.For all other financial instruments the Company
241、upon adoption will apply theamendments on a modified-retrospective approach.The Company adopted the new guidance under ASU 2016-13 in the first quarter of fiscal year2024,and determined that the impact of the adoption on its financial statements is immaterial.Recent Accounting Pronouncements Not Yet
242、 Adopted In December 2023,the FASB issued ASU No.2023-09,“Income Taxes(“Topic 740”):Improvements to Income Tax Disclosures”,which includesamendments that further enhance income tax disclosures through the standardization and disaggregation of rate reconciliation categories and incometaxes paid.ASU 2
243、023-09 is effective for fiscal years beginning after December 15,2024 and is to be applied prospectively,with early adoption andretrospective application permitted.We are currently evaluating the impact of this standard to our financial statements.Impairment of Long-Lived Assets Long-lived assets,in
244、cluding property,plant,and equipment,are reviewed for impairment whenever events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable.Recoverability of assets to be held and used is measured by a comparison of the carryingamount of an asset to estimated und
245、iscounted future cash flows expected to be generated by the asset.If the carrying amount of an asset exceeds itsestimated future cash flows,an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value ofthe asset.There were no impairments of long-
246、lived assets in fiscal years 2024 and 2023.Assets to be disposed of are separately presented in thebalance sheet and reported at the lower of the carrying amount or fair value less costs to sell,and no longer depreciated.The assets and liabilities of adisposed group classified as held for sale are p
247、resented separately in the appropriate asset and liability sections of the balance sheet,if applicable.Concentrations of Risk The market for our defense electronics products is largely dependent on the availability of new contracts from the United States and foreigngovernments to prime contractors t
248、o which we provide components.Any decline in expenditures by the United States or foreign governments mayhave an adverse effect on our financial performance.Generally,U.S.Government contracts are subject to procurement laws and regulations.Some of the Companys contracts are governed by theFederal Ac
249、quisition Regulation(FAR),which lays out uniform policies and procedures for acquiring goods and services by the U.S.Government,andagency-specific acquisition regulations that implement or supplement the FAR.For example,the Department of Defense implements the FARthrough the Defense Federal Acquisit
250、ion Regulation(DFAR).The FAR also contains guidelines and regulations for managing a contract after award,including conditions under which contracts may beterminated,in whole or in part,at the governments convenience or for default.If a contract is terminated for the convenience of the government,ac
251、ontractor is entitled to receive payments for its allowable costs and,in general,the proportionate share of fees or earnings for the work done.If acontract is terminated for default,the government generally pays for only the work it has accepted.These regulations also subject the Company tofinancial
252、 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 contract-related costs and fees.20 form10k-32866_espv5.htm3286609/26/2024 04:32 PM22 of 35 Espey Mfg.&Electronics Co
253、rp.Notes to Financial Statements Note 3.Revenue The Company follows ASC 606“Revenue from Contracts with Customers”to determine the recognition of revenue.This standard requires entities toassess the products or services promised in contracts with customers at contract inception to determine the appr
254、opriate unit at which to recordrevenues.Revenue is recognized when control of the promised products or services is transferred to customers at an amount that reflects theconsideration to which the entity expects to be entitled to in exchange for those products or services.Significant judgment is req
255、uired in determining the satisfaction of performance obligations.Revenues from our performance obligations are satisfiedover time using the output method which considers the appraisal of results achieved and milestones reached or units delivered based on contractualshipment terms,typically shipping
256、point.Revenue is recognized when,or as,the customer takes control of the product or services.The outputmethod best depicts the transfer of control to the customer as the output method represents work completed.Control is typically transferred to thecustomer at the shipping point as the Company has a
257、 present right to payment,the customer has legal title to the asset,the customer has thesignificant risks and rewards of ownership of the asset,and in most instances the customer has accepted the asset.Total revenue recognized for the year ended June 30,2024 based on units delivered totaled$33,403,8
258、33 compared to$27,770,365 for the sameperiod in fiscal year 2023.Total revenue recognized for the year ended June 30,2024 based on milestones achieved totaled$5,332,486 compared to$7,821,958 for the same period in fiscal year 2023.The Company offers a standard one-year product warranty.Product warra
259、nties offered by the Company are classified as assurance-type warranties,which means,the warranty only guarantees that the good or service functions as promised.Based on this,the provided warranty is not considered tobe a distinct performance obligation.The impact of variable consideration has been
260、considered but none identified which would result in theadjustment of the transaction price as of June 30,2024.Our payment terms are generally 30-60 days.Contract liabilities were$9,043,422 and$8,081,838 as of June 30,2024 and 2023,respectively.The increase in contract liabilities is primarily due t
261、othe advance collection of cash on specific contracts,offset in part,by revenue recognized.Revenue recognized,that was in contract liabilities in thebeginning of the fiscal year,approximated$1,191,954 for the year ended June 30,2024.The Company used the practical expedient to expenseincremental cost
262、s incurred to obtain a contract when the contract term is less than one year.The Companys backlog at June 30,2024 totaling approximately$97.2 million is expected,based on expected due dates,to be recognized in thefollowing fiscal years:45%in 2025,33%in 2026,10%in 2027,and 12%thereafter.Note 4.Invest
263、ment Securities Investment securities at June 30,2024 consist of certificates of deposit,municipal bonds and U.S.treasury bills and at June 30,2023,consisted ofcertificates of deposit,municipal bonds and U.S.treasury bills.The Company classifies investment securities as available-for-sale which have
264、 beendetermined to be level 1 assets.The cost,gross unrealized gains,gross unrealized losses and fair value debt securities by major security type at June30,2024 and June 30,2023 are as follows:Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value June 30,2024 Certificates of depo
265、sit$17,651,000$17,651,000 Municipal bonds 709,059 5,824 (3,313)711,570 U.S.Treasury bills 510,288 5,773 516,061 Total investment securities$18,870,347$11,597$(3,313)$18,878,631 21 form10k-32866_espv5.htm3286609/26/2024 04:32 PM23 of 35 Espey Mfg.&Electronics Corp.Notes to Financial StatementsNote 4.
266、Investment Securities,Continued Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value June 30,2023 Certificates of deposit$11,280,000$11,280,000 Municipal bonds 260,475 165 (7,843)252,797 U.S.Treasury Bills 430,952 1,225 (301)431,876 Total investment securities$11,971,427$1,390$(8
267、,144)$11,964,673 The portfolio is diversified and highly liquid and primarily consists of investment grade fixed income instruments.At June 30,2024,the Companydid not have any investments in individual securities that have been in a continuous loss position considered to be other than temporary.As o
268、f June 30,2024 and June 30,2023,the remaining contractual maturities of available-for-sale debt securities were as follows:Years to Maturity Less than One to One Year Five Years Total June 30,2024 Available-for-sale$17,889,582$989,049$18,878,631 June 30,2023 Available-for-sale$11,711,876$252,797$11,
269、964,673 Note 5.Contracts in Process Contracts in process at June 30,2024 and 2023 are as follows:2024 2023 Unrecognized gross contract value$97,216,542$83,577,153 Costs related to contracts in process$15,904,588$17,318,579 Included in costs relating to contracts in process at June 30,2024 and 2023 a
270、re costs relative to contracts that may not be completed within theensuing 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 reflectedin the statements of comprehensive income until the units under contract are shipped
271、.Note 6.Property,Plant and Equipment Property,plant and equipment at June 30,2024 and 2023 is as follows:2024 2023 Land$45,000$45,000 Building and improvements 5,472,156 4,811,179 Machinery and equipment 11,509,018 11,402,679 Furniture and fixtures 165,651 164,200 17,191,825 16,423,058 Accumulated d
272、epreciation (13,885,550)(13,597,969)Property,plant and equipment,net$3,306,275$2,825,089 22 form10k-32866_espv5.htm3286609/26/2024 04:32 PM24 of 35 Espey Mfg.&Electronics Corp.Notes to Financial StatementsNote 6.Property,Plant and Equipment,ContinuedDepreciation expense was$453,517 and$484,920 for t
273、he years ended June 30,2024 and 2023,respectively.The Company was awarded$7.4 million in funding during the second quarter of fiscal year 2023 in support of facility and capital equipmentupgrades for testing and qualification for the United States Navy.The funding is part of the Navys investment to
274、improve and sustain the SurfaceCombatant Industrial Base.The work is being conducted on the Companys property in Saratoga Springs,NY,with completion slated for the end ofcalendar year 2024.The Company expects to be paid within 30 days after the submission of three milestone invoices,but will not be
275、paid forexpenses incurred in excess of the specified milestone payment limits.The Company will record the receipt of milestone payments received as areduction from the cost of the assets.The Company will have an initial cash outlay to satisfy income tax obligations arising from the value of themiles
276、tone payments received.The cash outlay arising from federal income tax obligations is expected to be recaptured in future periods.Untilrecaptured,estimated tax obligations associated with the receipt of milestone payments are recorded on the balance sheet and included in deferred taxassets.As of Jun
277、e 30,2024,net deferred tax asset includes a deferred tax asset of$888,032 associated with milestone reimbursements receivedtotaling$4,228,722.Included in property,plant,and equipment at June 30,2024 was$965,392 not yet reimbursed,for facility and capital upgradesunder the funding award,compared to$3
278、08,001 in spending not yet reimbursed included in property,plant,and equipment at June 30,2023.Includedin accounts payable at June 30,2024 was approximately$272,560 for facility and capital upgrades eligible to be reimbursed under the funding awardcompared to$9,095 included in accounts payable at Ju
279、ne 30,2023.Note 7.Pension Expense Under terms of a negotiated union contract which expires on June 30,2025,the Company is obligated to make contributions to a union-sponsoredInternational Brotherhood of Electrical Workers Local 1799 defined benefit pension plan(Plan identifying number is 14-6065199)
280、covering eligibleemployees.Such contributions and expenses are based upon hours worked at a specified rate and amounted to$102,745 in fiscal year 2024 and$102,612 in fiscal year 2023.These contributions represent more than five percent of the total contributions made into the Plan.For the yearsbegin
281、ning January 1,2024 and 2023,the Plan was in the“green zone”which means it is neither endangered nor critical status.In the last quarter ofthe current fiscal year,the Company notified the third-party administrator of the IBEW Local 1799 Pension Fund of its intention to withdrawpermanently from the p
282、lan effective June 16,2024.As required by the Employee Retirement Income Security Act“ERISA”,the Company is subjectto a termination withdrawal liability.At June 30,2024,the Company recorded a termination withdrawal obligation totaling$772,157,based oncalculated amounts provided by a third party actu
283、ary retained by the Pension Fund.The outstanding amount is shown within the accounts payablebalance on the Companys balance sheet at June 30,2024.An initial withdrawal liability contribution payment to the Plan totaling$210,305 wasmade during July 2024.The remaining liability of$561,852 is expected
284、to be paid in the second half of fiscal 2025.As the Company was the onlyremaining contributing employer to the multiemployer pension plan,its withdrawal constitutes a mass withdrawal termination.Final withdrawalcalculations are contingent upon the availability of January 1,2025 assets and the finali
285、zation of December 31,2024 liabilities as the withdrawalliability will need to be re-determined based on a December 31,2024 measurement date.The Company does not expect future adjustments to theestablished liability to have a material impact on the Companys financial statements.The cost of the withd
286、rawal liability obligation is recorded inindirect overhead product costs,capitalized in inventory and expensed through cost of sales based on shipments.The Company is obligated to make contributions to the National Electrical Benefit Fund(NEBF)(Plan identifying number is 53-0181657).The Planis a def
287、ined pension benefit plan covering eligible union employees.Such contributions and expenses amounted to$79,429 in fiscal year 2024 and$72,350 in fiscal year 2023.The contribution did not and will not in the future have a material impact on the Companys financial statements.The Company sponsors a 401
288、(k)plan for non-union workers with employee and employer matching contributions.The employer match is 10%of theemployee contribution and was$60,301 and$53,768,for fiscal years 2024 and 2023,respectively.23 form10k-32866_espv5.htm3286609/26/2024 04:32 PM25 of 35 Espey Mfg.&Electronics Corp.Notes to F
289、inancial StatementsNote 8.Provision for Income Taxes A summary of the components of the provision for income taxes for the years ended June 30,2024 and 2023 is as follows:2024 2023 Current tax expense-federal$2,515,865$1,059,743 Current tax(benefit)expense-state (3,010)9,595 Deferred tax benefit (1,
290、032,981)(40,002)Provision for income taxes$1,479,874$1,029,336 Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes andsuch amounts measured by tax laws and regulations.These temporary differences are determin
291、ed in accordance with ASC 740-10.The combined U.S.federal and state effective income tax rates of 20.3%and 21.9%,for 2024 and 2023 respectively,differed from the statutory U.S.federal income tax rate for the following reasons:2024 2023 U.S.federal statutory income tax rate 21.0%21.0%Increase(reducti
292、on)in rate resulting from:State franchise tax,net of federal income tax benefit 0.2 ESOP cost versus Fair Market Value 0.1 (0.2)Dividend on allocated ESOP shares (0.3)Stock-based compensation 0.2 1.0 Other (0.7)(0.1)Effective tax rate 20.3%21.9%For the years ended June 30,2024 and 2023 deferred inco
293、me tax benefit of$1,032,981 and$40,002,respectively,results from the changes intemporary differences for each year.The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of June30,2024 and 2023 are presented as follows:2024 2023 Deferred tax as
294、sets:Accrued expenses$138,158$273,059 ESOP 32,698 24,407 Property,plant and equipment-principally due to differences in depreciation methods 601,358 Pension Withdrawal 162,153 Stock-based compensation 39,724 36,552 Total deferred tax assets$974,091$334,018 Deferred tax liability:Property,plant and e
295、quipment-principally due to differences in depreciation methods$337,501 Inventory-effect of uniform capitalization 33,817 99,215 Prepaid expenses 45,120 35,129 Total deferred tax liability$78,937$471,845 Net deferred tax asset(liability)$895,154$(137,827)24 form10k-32866_espv5.htm3286609/26/2024 04:
296、32 PM26 of 35 Espey Mfg.&Electronics Corp.Notes to Financial StatementsNote 8.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 taxassets will be realized.The ultima
297、te realization of deferred tax assets is dependent upon the generation of future taxable income during the periods inwhich those temporary differences become deductible.Management considers the scheduled reversal of deferred tax liabilities,projected futuretaxable income,and tax planning strategies
298、in making this assessment.Based upon the level of historical taxable income and projection for futuretaxable income over the period in which the deferred tax assets are deductible,management believes it is more likely than not that the Company willrealize the benefits of these temporary differences
299、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 ofFASB Statement No.109,the Company recognized no material adjustments to unrecognized tax benefits.As of June 30
300、,2024 and 2023,theCompany has no unrecognized tax benefits.The Company recognizes interest and penalties in general and administrative expense.As of June 30,2024 and 2023,the Company has not recordedany provision for accrued interest and penalties.The Company is subject to taxation in the United Sta
301、tes and various state jurisdictions.The federal tax returns are subject to audit for three yearsfrom date of filing unless the return was audited within that period.In general the majority of state statutes follow similar guidelines.As such,theCompanys tax returns for tax years ending June 30,2024,2
302、023,and 2022 remain open to examination by the respective taxing authorities.Note 9.Significant Customers A significant portion of the Companys business is the production of military and industrial electronic equipment for use by the U.S.and foreigngovernments and certain industrial customers.Sales
303、to five domestic customers accounted for 81%of total sales in 2024.Sales to five domesticcustomers accounted for 81%of total sales in 2023.Orders from significant customers may include more than one program and procurement mayoriginate from various divisions of the significant customer.The related a
304、ccounts receivable balance,as a percentage of the Companys total tradeaccounts receivable balance,was 79%represented by five customers at June 30,2024 and 81%represented by five customers at June 30,2023.Export shipments in fiscal years 2024 and 2023 were$2,350,087 and$549,510,respectively.Note 10.E
305、mployee Stock Ownership Plan The Company sponsors a leveraged employee stock ownership plan(the ESOP)that covers all nonunion employees who work 1,000 or more hoursper year and are employed on June 30.The Company makes annual contributions to the ESOP equal to the ESOPs debt service less dividends o
306、nunallocated shares received by the ESOP.All dividends on unallocated shares received by the ESOP are used to pay debt service.Dividends onallocated 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 p
307、roportion of debt service paid in the year.The Company accounts for its ESOP in accordance with FASB ASC 718-40.Accordingly,theshares purchased by the ESOP are reported as Unearned ESOP Shares in the statement of financial position.As shares are released or committed-to-be-released,the Company repor
308、ts compensation expense equal to the current average market price of the shares,and the shares become outstandingfor earnings-per-share(EPS)computations.The ESOP borrowed from the Corporation an amount equal to the purchase price.The loan will be repaidin fifteen(15)equal annual installments of prin
309、cipal commencing June 2021.The Board of Directors has fixed the interest rate and the unpaidbalance will bear interest at a fixed rate of 3.00%per annum.ESOP compensation expense was$438,136 and$365,646 for the years ended June 30,2024 and 2023,respectively.25 form10k-32866_espv5.htm3286609/26/2024
310、04:32 PM27 of 35 Espey Mfg.&Electronics Corp.Notes to Financial StatementsNote 10.Employee Stock Ownership Plan,ContinuedThe ESOP shares as of June 30,2024 and 2023 were as follows:2024 2023 Allocated shares 451,132 484,958 Unearned shares 211,487 233,645 Total shares held by the ESOP 662,619 718,60
311、3 Fair value of unearned shares$4,494,099$3,913,554 The Company may at times be required to repurchase shares at the ESOP participants request at the fair market value.During the years ended June30,2024 and 2023,the Company did not repurchase shares previously held by the ESOP.The ESOP allows for el
312、igible participants to take whole share distributions from the plan on specific dates in accordance with the provision of theplan.Share distributions from the ESOP during the years ended June 30,2024 and 2023 totaled 55,984 shares and 33,780 shares,respectively.Note 11.Stock-based Compensation The C
313、ompany follows ASC 718 in establishing standards for the accounting for transactions in which an entity exchanges its equity instruments forgoods 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 theentitys
314、 equity instruments or that may be settled 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 fairvalue as the
315、measurement objective in accounting for share-based payment transactions with employees,except for equity instruments held byemployee share ownership plans.Included as a reduction to the cost recognized for share-based payments is an estimate for option forfeitures.It isthe Companys policy to estima
316、te expected option forfeitures based on historical experience.Actual forfeitures are adjusted prior to the vesting date ifthe impact is material.Total stock-based compensation expense recognized in the statements of comprehensive income for the fiscal years ended June 30,2024 and 2023,was$283,673 an
317、d$227,132,respectively,before income taxes.The amount of this stock-based compensation expense related to non-qualified stockoptions(“NQSOs”)for the fiscal years ended June 30,2024 and 2023,was$34,903 and$21,432,respectively.The deferred tax benefit related to theNQSOs as of June 30,2024 and 2023 wa
318、s approximately$7,330 and$4,501,respectively.The remaining stock option expense,in each year,relatedto incentive stock options(“ISOs”)which are not deductible by the corporation when exercised,assuming a qualifying disposition and as such nodeferred tax benefit was established related to these amoun
319、ts.As of June 30,2024,there was approximately$204,765 of unrecognized compensation cost related to stock option awards that is expected to berecognized as expense over the next 1.75 years,of which$181,955 relates to ISOs and$22,809 relates to NQSOs.The total deferred tax benefitrelated to the NQSOs
320、in future years will be$4,790.The Company has one employee stock option plan under which options or stock awards may be granted,the 2017 Stock Option and Restricted StockPlan(the 2017 Plan),approved by the Companys shareholders at the Companys Annual Meeting on December 1,2017.The Board of Directors
321、may grant options to acquire shares of common stock to employees and non-employee directors of the Company at the fair market value of thecommon stock on the date of grant.The maximum aggregate number of shares of common stock subject to options or awards to non-employeedirectors is 133,000 and the
322、maximum aggregate number of shares of common stock subject to options or awards granted to non-employee directorsduring any single fiscal year is the lesser of 13,300 and 33 1/3%of the total number of shares subject to options or awards granted in such fiscal year.The maximum number of shares subjec
323、t 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 continuous service and have a ten-year contractual life.Option grants providefor accelerated vesting if there is a change in
324、 control.Shares issued upon the exercise of options are from those held in Treasury.26 form10k-32866_espv5.htm3286609/26/2024 04:32 PM28 of 35 Espey Mfg.&Electronics Corp.Notes to Financial StatementsNote 11.Stock-based Compensation,ContinuedOptions covering 400,000 shares are authorized for issuanc
325、e under the 2017 Plan.As of June 30,2024,options covering 31,325 shares have beenexercised,options covering 287,706 shares are outstanding and options covering 143,973 shares have been cancelled.As of June 30,2024,optionscovering 80,969 shares remain available for grant,after factoring the cancelled
326、 shares,which are eligible to be re-granted.While no further grants ofoptions may be made under the Companys 2007 Stock Option and Restricted Stock Plan,as of June 30,2024,34,350 options were outstandingunder such plan of which all are vested and exercisable.ASC 718 requires the use of a valuation m
327、odel to calculate the fair value of stock-based awards.The Company has elected to use the Black-Scholesoption 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 Comp
328、any used to calculate the fair value of each option award for the yearsended June 30,2024 and 2023.2024 2023 Dividend yield 3.61%0.03%Expected stock price volatility 31.21%27.20%Risk-free interest rate 4.39%2.71%Expected option life(in years)5.3yrs 5.4yrsWeighted average fair value per share of opti
329、ons granted during the period$4.11$4.18 Effective March 13,2023,the Company reinstated payment of a quarterly dividend.The Company paid regular cash dividends on common stock of$0.675 per share for the fiscal year ended June 30,2024 and paid regular cash dividends on common stock of$0.20 per share f
330、or the fiscal yearended June 30,2023.Expected stock price volatility is based on the historical volatility of the Companys stock.The risk-free interest rate is based onthe implied yield available on U.S.Treasury issues with an equivalent term approximating the expected life of the options.The expect
331、ed option term(in years)represents the estimated period of time until exercise and is based on actual historical experience.The following table summarizes stock option activity during the year ended June 30,2024:Employee Stock Option Plans Weighted Number of Weighted Average Shares Average Remaining
332、 Aggregate Subject Exercise Contractual Intrinsic to Option Price Term ValueBalance at July 1,2023 296,331$19.15 6.49 Granted 80,900$16.78 9.22 Exercised (31,325)$16.80 Forfeited or expired (23,850)$24.30 Outstanding at June 30,2024 322,056$18.41 6.59$1,259,317 Vested or expected to vest at June 30,
333、2024 313,205$18.45 6.52$1,212,613 Exercisable at June 30,2024 174,756$20.98 4.83$382,667 The aggregate intrinsic value in the table above represents the total pretax intrinsic value(the difference between the closing sale price of theCompanys common stock as reported on the NYSE American on June 30,2024 and the exercise price,multiplied by the number of in-the-moneyoptions)that would have been rec
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