Espey(ESP) - 2025 Q4 - Annual Report

PART I Business Espey Mfg. & Electronics Corp. is a military power electronics OEM, with 13.5% sales growth in FY2025, managing customer concentration and supply chain risks - Espey Mfg. & Electronics Corp. is a power electronics design and original equipment manufacturing (OEM) company, providing highly reliable products for military and severe environment applications. The company is ISO 9001:2015 and AS9100:2016 certified[12][13] Total Sales (FY2024-2025) | Fiscal Year | Total Sales | | :------------ | :------------ | | 2025 | $43,950,872 | | 2024 | $38,736,319 | | Change | +13.5% | - Sales to six customers accounted for 74% of total sales in 2025 (16%, 13%, 12%, 12%, 11%, 10% respectively), and sales to five customers accounted for 81% of total sales in 2024 (20%, 18%, 16%, 16%, 11% respectively), indicating significant customer concentration risk[15] Sales Backlog (June 30, 2024-2025) | Backlog Category | June 30, 2025 | June 30, 2024 | | :--------------- | :------------ | :------------ | | Total Sales Backlog | $139.7 million | $97.2 million | | Funded Portion | $106.6 million | N/A | | Unfunded Backlog | $33 million | $2.3 million | | Change (Total) | +43.7% | | - Approximately $49.1 million of the June 30, 2025 backlog is anticipated to be filled during the fiscal year ending June 30, 2026[22] - The Company's business is not seasonal, but is exposed to risks from its concentration in the rail industry and military/industrial applications, including dependence on government appropriations and potential contract terminations[25] Research and Development Expenditures (FY2024-2025) | Fiscal Year | R&D Expenditures | | :------------ | :----------------- | | 2025 | $71,074 | | 2024 | $86,714 | - As of August 31, 2025, the Company had 152 employees, with approximately 34% represented by the International Brotherhood of Electrical Workers under a collective bargaining agreement expiring June 30, 2028[29] Cybersecurity The company prioritizes robust cybersecurity, managing complex threats as a defense contractor through NIST-compliant assessments and DFARS compliance - The Company faces complex cybersecurity threats as a defense contractor, including malware, ransomware, phishing, Denial of Service attacks, and Advanced Persistent Threats[36] - A security team, comprising senior management, IT, human resources, and program management, performs routine risk assessments in accordance with NIST 800-30, with oversight from the Audit Committee of the Board of Directors[36] - The Company is required to adhere to rigorous regulations like DFARS for protecting controlled unclassified information (CUI) and mandatory reporting of cybersecurity incidents to the Department of Defense (DoD)[36] Property All company operations are housed in an owned, vertically integrated 174,000 sq ft facility in Saratoga Springs, New York - The Company's entire operation, including administrative, manufacturing, and engineering facilities, is located in Saratoga Springs, New York[37] - The Saratoga Springs plant, owned by the Company, consists of two buildings on a 22-acre site, with approximately 174,000 square feet of in-service floor space (113,000 sq ft for manufacturing)[38] - The manufacturing operation includes a complete machine shop with welding and sheet metal fabrication facilities, and a sophisticated on-site environmental test facility, which are also available to other companies on a contract basis[38] Legal Proceedings The company faces ordinary course litigation, but management believes no pending matters will materially impact its financial condition - The Company is party to various litigation matters and claims arising from time to time in the ordinary course of business[39] - Management believes that the final outcome of such matters will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows[39] - Currently, there are no legal matters pending[39] Mine Safety Disclosures This item is not applicable to the company PART II Market for the Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities This section details common stock market activity, including price ranges, dividend payments, and equity compensation plan information Common Stock Price Range (High/Low) by Quarter | Quarter | 2025 High | 2025 Low | 2024 High | 2024 Low | | :------------- | :-------- | :------- | :-------- | :------- | | First Quarter | $32.00 | $20.50 | $18.00 | $14.74 | | Second Quarter | $33.00 | $26.38 | $19.29 | $14.69 | | Third Quarter | $30.29 | $25.16 | $27.32 | $17.97 | | Fourth Quarter | $48.71 | $24.85 | $26.31 | $20.20 | - The approximate number of holders of record of the common stock was 53 on September 12, 2025[43] Cash Dividends Paid on Common Stock | Fiscal Year | Regular Dividend per Share | Special Dividend per Share | | :------------ | :------------------------- | :------------------------- | | 2025 | $1.00 | $0.75 | | 2024 | $0.675 | — | Equity Compensation Plan Information (June 30, 2025) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of Securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)) (c) | | :---------------------------------- | :------------------------------------------------------------------------------------------ | :------------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 228,146 | $19.26 | 12,469 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 228,146 | | 12,469 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses FY2025 financial performance, including 13.5% sales growth and improved net income, alongside FY2026 outlook and critical accounting policies Business Outlook Management projects higher FY2026 revenues but lower net income per share due to backlog costs, while navigating supply chain issues and pursuing strategic growth - Management expects revenues in fiscal year 2026 to be higher than fiscal year 2025, but net income per share is anticipated to fall below fiscal 2025 results due to higher anticipated aggregate costs for products in the backlog[49] - Ongoing demand in the power electronics industry continues to create shortages and extended lead times, with some components requiring a year or more. The Company factors these into planning and quotations[50] - The Company expects new orders in fiscal year 2026 to be lower than the $86.4 million received in fiscal year 2025, which included two significant multi-year contract awards totaling $49.4 million[53] - As of August 31, 2025, the Company has outstanding opportunities representing approximately $163 million for both repeat and new programs[53] - Capital expenditures for fiscal year 2026 are not expected to exceed $850,000, primarily for machinery and equipment and facility upgrades, in addition to grant-funded projects[57] Results of Operations FY2025 net sales grew 13.5% to $43.95 million, driving a 40% increase in net income to $8.14 million, with improved gross profit margins Key Financial Performance Indicators (FY2024-2025) | Metric | FY2025 | FY2024 | Change (%) | | :-------------------------------------- | :------------ | :------------ | :--------- | | Net Sales | $43,950,872 | $38,736,319 | +13.5% | | Cost of Sales | $31,266,241 | $28,083,259 | +11.3% | | Gross Profit | $12,684,631 | $10,653,060 | +19.1% | | Gross Profit as % of Sales | 28.9% | 27.5% | +1.4 pp | | Selling, General and Administrative Expenses | $4,557,945 | $4,113,608 | +10.8% | | Operating Income | $8,126,686 | $6,539,452 | +24.3% | | Other Income | $1,601,978 | $755,562 | +112.0% | | Income before Provision for Income Taxes | $9,728,664 | $7,295,014 | +33.4% | | Provision for Income Taxes | $1,585,710 | $1,479,874 | +7.1% | | Net Income | $8,142,954 | $5,815,140 | +40.0% | | Basic EPS | $3.14 | $2.34 | +34.2% | | Diluted EPS | $3.02 | $2.29 | +31.9% | - The increase in net sales in FY2025 was primarily attributable to several large multi-year contracts for shipboard transformers and power distribution panels, power systems for combat vehicles, and power systems for aircraft radar and missile platforms, as well as increases in build-to-print sales[59] - The increase in gross profit for FY2025 was primarily due to higher sales levels, favorable product mix, higher than average profit margins on completed milestone sales, and non-recurring cost savings from labor efficiencies and material purchases. FY2024 gross profit was negatively impacted by unanticipated costs on fixed-price engineering design contracts[61] - Other income increased significantly due to higher interest income from increased investment securities and fixed interest rates, and a one-time Capital Investment Grant of $300,000 related to the completion of a new building in fiscal 2025[63] Effective Tax Rate (FY2024-2025) | Fiscal Year | Effective Tax Rate | | :------------ | :----------------- | | 2025 | 16.3% | | 2024 | 20.3% | - The lower effective tax rate in fiscal 2025 was mainly due to benefits from stock option exercises, dividends paid on allocated ESOP shares, and foreign derived intangible income[64] Liquidity and Capital Resources Working capital increased to $46.9 million, and operating cash flow significantly rose to $20.99 million in FY2025, supported by Navy grants Working Capital (June 30, 2024-2025) | Fiscal Year | Working Capital | | :------------ | :-------------- | | 2025 | $46.9 million | | 2024 | $38 million | Summary of Cash Flow Information (FY2024-2025) | Cash Flow Activity | FY2025 | FY2024 | | :-------------------------------- | :------------ | :------------ | | Net cash provided by operating activities | $20,991,372 | $10,595,200 | | Net cash used in investing activities | $(6,938,966) | $(7,840,277) | | Net cash provided by (used in) financing activities | $458,268 | $(1,151,708) | - The increase in cash provided by operating activities in FY2025 compared to the prior year primarily relates to an increase in contract liabilities and a decrease in inventory, partially offset by increases in accounts receivable and prepaid expenses[68] - The Company has an uncommitted and unused $3,000,000 line of credit, expiring February 28, 2026, and does not anticipate needing borrowed funds in the foreseeable future[66][168] Capital Expenditures and Grant Reimbursements (FY2024-2025) | Metric | FY2025 | FY2024 | | :-------------------------------------- | :------------ | :------------ | | Total expended for plant improvements and new equipment | $4,365,404 | $5,164,165 | | Reimbursed from $7.4M Navy award | $3,260,000 | $4,228,722 | | Eligible for reimbursement under $3.4M Navy award | $1,731,042 | N/A | Critical Accounting Policies and Significant Estimates Key accounting policies involve significant estimates for revenue recognition on fixed-price contracts, inventory valuation, and deferred taxes - Critical accounting policies include revenue recognition, inventory valuation, and deferred taxes, which involve significant management judgments, estimates, and assumptions[72] - Revenue recognition for fixed-price military contracts involves determining performance obligations and transaction prices using an expected cost plus a margin approach, as standalone observable prices are not available[73][74] - Inventory, including raw materials and contracts in process, is valued at the lower of cost (average cost) or net realizable value, with provisions for losses made when probable and estimable, based on estimated total cost at completion[75][76][77] - Deferred tax assets and liabilities are recognized for future tax consequences of temporary differences between financial statement and tax bases, measured using enacted tax rates[79] Financial Statements and Supplementary Data This section includes audited financial statements, the independent auditor's unqualified opinion, and detailed notes on accounting policies and financial performance Report of Independent Registered Public Accounting Firm Freed Maxick, P.C. issued an unqualified opinion on the company's FY2025 and FY2024 financial statements, affirming U.S. GAAP conformity - Freed Maxick, P.C. issued an unqualified opinion on the financial statements of Espey Mfg. & Electronics Corp. for the fiscal years ended June 30, 2025 and 2024[82] - The audit was conducted in accordance with PCAOB standards, assessing risks of material misstatement and evaluating accounting principles and significant management estimates[84][85] Critical Audit Matters Inventory valuation for contracts in process is a critical audit matter due to its magnitude and the subjectivity of cost estimates - The valuation of inventory and accruals related to contracts in process and work in process was identified as a critical audit matter[87] - This matter is critical due to the magnitude of the inventory and the subjectivity involved in estimating the total cost at completion of a contract, which requires a high degree of auditor judgment[88] - Audit procedures included understanding management's estimation process, retrospective review of prior period estimates, brainstorming for fraud/error susceptibility, testing management's estimates, and reviewing job loss accruals[89] Consolidated Balance Sheets Total assets increased to $79.12 million in 2025, driven by higher cash, investments, and contract liabilities, boosting stockholders' equity Consolidated Balance Sheet Highlights (June 30, 2024-2025) | Asset/Liability/Equity Category | June 30, 2025 | June 30, 2024 | | :------------------------------ | :------------ | :------------ | | Cash and cash equivalents | $18,862,645 | $4,351,970 | | Investment securities | $24,717,245 | $18,878,631 | | Total current assets | $75,156,408 | $53,236,656 | | Total assets | $79,116,564 | $56,542,931 | | Contract liabilities | $22,886,404 | $9,043,422 | | Total current liabilities | $28,267,564 | $15,268,959 | | Total liabilities | $28,267,564 | $15,268,959 | | Total stockholders' equity | $50,849,000 | $41,273,972 | - Cash and cash equivalents increased significantly from $4.35 million in 2024 to $18.86 million in 2025[90] - Contract liabilities saw a substantial increase from $9.04 million in 2024 to $22.89 million in 2025[90] Consolidated Statements of Comprehensive Income FY2025 saw net sales rise 13.5% to $43.95 million, with net income increasing 40% to $8.14 million and basic EPS at $3.14 Consolidated Statements of Comprehensive Income (FY2024-2025) | Metric | FY2025 | FY2024 | | :-------------------------------------- | :------------ | :------------ | | Net sales | $43,950,872 | $38,736,319 | | Gross profit | $12,684,631 | $10,653,060 | | Operating income | $8,126,686 | $6,539,452 | | Total other income | $1,601,978 | $755,562 | | Income before provision for income taxes | $9,728,664 | $7,295,014 | | Provision for income taxes | $1,585,710 | $1,479,874 | | Net income | $8,142,954 | $5,815,140 | | Unrealized gain on investment securities | $5,052 | $8,973 | | Total comprehensive income | $8,148,006 | $5,824,113 | | Net income per share: Basic | $3.14 | $2.34 | | Net income per share: Diluted | $3.02 | $2.29 | - Net income increased by 40.0% from $5,815,140 in FY2024 to $8,142,954 in FY2025[91] - Basic EPS increased from $2.34 in FY2024 to $3.14 in FY2025, and Diluted EPS increased from $2.29 to $3.02[91] Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity increased to $50.85 million in 2025, driven by net income and stock option exercises, despite dividend payments Key Changes in Stockholders' Equity (FY2024-2025) | Item | FY2025 Change | FY2024 Change | | :---------------------------------- | :------------ | :------------ | | Net income | $8,142,954 | $5,815,140 | | Stock options exercised | $3,055,622 | $526,362 | | Stock-based compensation | $346,281 | $283,673 | | Dividends paid on common stock | $(2,597,354) | $(1,678,070) | | Reduction of unearned ESOP shares | $622,473 | $438,136 | | Total Stockholders' Equity (End of Period) | $50,849,000 | $41,273,972 | - Total stockholders' equity increased by $9,575,028 from June 30, 2024, to June 30, 2025[95] Consolidated Statements of Cash Flows Operating cash flow nearly doubled to $20.99 million in FY2025, leading to a $14.51 million increase in cash and cash equivalents Consolidated Statements of Cash Flows (FY2024-2025) | Cash Flow Activity | FY2025 | FY2024 | | :-------------------------------- | :------------ | :------------ | | Net cash provided by operating activities | $20,991,372 | $10,595,200 | | Net cash used in investing activities | $(6,938,965) | $(7,840,277) | | Net cash provided by (used in) financing activities | $458,268 | $(1,151,708) | | Increase in cash and cash equivalents | $14,510,675 | $1,603,215 | | Cash and cash equivalents, end of the year | $18,862,645 | $4,351,970 | - Net cash provided by operating activities increased by approximately 98% in FY2025, primarily due to an increase in contract liabilities and a decrease in inventory[96] - Cash flows from financing activities shifted from a net use of $1.15 million in FY2024 to a net provision of $0.46 million in FY2025, largely due to increased proceeds from stock option exercises[96] Notes to Financial Statements These notes provide detailed disclosures on accounting policies, revenue, investments, PPE, taxes, ESOP, stock compensation, and other financial specifics Note 1. Nature of Operations Espey Mfg. & Electronics Corp. manufactures electronic equipment primarily for military and industrial applications globally - Espey Mfg. & Electronics Corp. is a manufacturer of electronic equipment used primarily in military and industrial applications[97] - The principal markets for the Company's products are companies that provide electronic support to both military and industrial applications across the United States and at some international locations[97] Note 2. Summary of Significant Accounting Policies This note details key accounting policies for revenue recognition, inventory, depreciation, income taxes, investments, and segment reporting - Revenue from fixed-price military and industrial contracts is recognized based on performance obligations, with transaction prices determined using an expected cost plus a margin approach[98][100] - Inventory (raw materials, contracts in process, work in process) is valued at the lower of cost (average cost) or net realizable value, with provisions for losses on contracts made when probable and estimable[101][102] - The Company adopted ASU 2023-07, 'Segment Reporting', effective June 30, 2025, which did not materially impact its segment-related disclosures[119] - The Company's defense electronics products market is largely dependent on new contracts from the United States and foreign governments, exposing it to concentration of risk related to government expenditures and procurement regulations (FAR, DFAR)[123][124][125] Note 3. Revenue Revenue is recognized over time from military and industrial contracts, with a $139.7 million backlog and high customer concentration - Revenue is recognized over time using the output method, based on units delivered or milestones achieved, as control of products or services is transferred to customers[127] Revenue Recognition by Method (FY2024-2025) | Revenue Source | FY2025 | FY2024 | | :------------------ | :------------ | :------------ | | Units delivered | $35,343,557 | $33,403,833 | | Milestones achieved | $8,607,314 | $5,332,486 | Contract Liabilities (June 30, 2024-2025) | Fiscal Year | Contract Liabilities | | :------------ | :------------------- | | 2025 | $22,886,404 | | 2024 | $9,043,422 | | Change | +153.1% | - The total sales backlog at June 30, 2025, was approximately $139.7 million, with 35% expected to be recognized in fiscal year 2026, 19% in 2027, 15% in 2028, and 31% thereafter[131] - Sales to six domestic customers accounted for 74% of total sales in 2025, and sales to five domestic customers accounted for 81% of total sales in 2024, highlighting significant customer concentration[132] Export Shipments (FY2024-2025) | Fiscal Year | Export Shipments | | :------------ | :--------------- | | 2025 | $3,124,820 | | 2024 | $2,350,087 | | Change | +32.97% | Note 4. Investment Securities Investment securities, primarily certificates of deposit and municipal bonds, increased to $24.72 million in 2025, with most maturing within one year Investment Securities Fair Value (June 30, 2024-2025) | Security Type | June 30, 2025 Fair Value | June 30, 2024 Fair Value | | :-------------------- | :----------------------- | :----------------------- | | Certificates of deposit | $23,539,000 | $17,651,000 | | Municipal bonds | $1,178,245 | $711,570 | | U.S. Treasury bills | — | $516,061 | | Total | $24,717,245 | $18,878,631 | - The investment portfolio is diversified, highly liquid, and primarily consists of investment grade fixed income instruments[134] Contractual Maturities of Available-for-Sale Debt Securities (June 30, 2024-2025) | Fiscal Year | Less than One Year | One to Five Years | Total | | :------------ | :----------------- | :---------------- | :------------ | | June 30, 2025 | $22,933,933 | $1,783,312 | $24,717,245 | | June 30, 2024 | $17,889,582 | $989,049 | $18,878,631 | Note 5. Contracts in Process Unrecognized gross contract value for contracts in process increased to $139.67 million in 2025, with associated costs of $15.04 million Contracts in Process (June 30, 2024-2025) | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------ | | Unrecognized gross contract value | $139,673,288 | $97,216,542 | | Costs related to contracts in process | $15,040,253 | $15,904,588 | - The unrecognized gross contract value increased by approximately 43.7% from 2024 to 2025[136] - Costs related to contracts in process include material, subcontract costs, labor, and an allocation of overhead costs, and are not reflected in comprehensive income until units are shipped[136] Note 6. Property, Plant and Equipment Net PPE increased to $3.96 million in 2025, supported by $7.4 million and an additional $3.4 million in Navy funding for upgrades Property, Plant and Equipment, Net (June 30, 2024-2025) | Category | June 30, 2025 | June 30, 2024 | | :------------------------ | :------------ | :------------ | | Land | $45,000 | $45,000 | | Building and improvements | $6,137,629 | $5,472,156 | | Machinery and equipment | $11,887,737 | $11,509,018 | | Furniture and fixtures | $165,651 | $165,651 | | Total | $18,236,017 | $17,191,825 | | Accumulated depreciation | $(14,275,861) | $(13,885,550) | | Net PPE | $3,960,156| $3,306,275| - Depreciation expense was $451,523 for the year ended June 30, 2025, and $453,517 for 2024[137] - The Company received $7.4 million in Navy funding for facility and capital equipment upgrades, completed in April 2025, with all related assets placed in service by June 30, 2025[138] - An additional $3.4 million Navy award was received in fiscal year 2025 for continued upgrades, with approximately $1,731,042 in unreimbursed spending included in property, plant, and equipment at June 30, 2025[139] Note 7. Pension Expense The company paid a $772,157 pension withdrawal obligation in FY2025 and made contributions to NEBF and a 401(k) plan - The Company recorded a termination withdrawal obligation of $772,157 at June 30, 2024, for withdrawing from the IBEW Local 1799 Pension Fund, which was paid in full during fiscal year 2025[140] Pension and 401(k) Contributions (FY2024-2025) | Plan | FY2025 | FY2024 | | :---------------------------------- | :---------- | :---------- | | National Electrical Benefit Fund (NEBF) | $79,739 | $79,429 | | 401(k) employer matching contributions | $66,617 | $60,301 | Note 8. Provision for Income Taxes The FY2025 income tax provision was $1.59 million, with a lower effective tax rate of 16.3% due to various tax benefits Provision for Income Taxes (FY2024-2025) | Component | FY2025 | FY2024 | | :-------------------- | :------------ | :------------ | | Current tax expense - federal | $1,882,969 | $2,515,865 | | Current tax (benefit) expense - state | $9,606 | $(3,010) | | Deferred tax benefit | $(306,865) | $(1,032,981) | | Total Provision | $1,585,710| $1,479,874| Effective Income Tax Rates and Reconciliation (FY2024-2025) | Item | FY2025 | FY2024 | | :-------------------------------------- | :------ | :------ | | U.S. federal statutory income tax rate | 21.0% | 21.0% | | State franchise tax, net of federal income tax benefit | 0.1 | — | | ESOP cost versus Fair Market Value | 0.5 | 0.1 | | Dividend on allocated ESOP shares | (0.6) | (0.3) | | Stock-based compensation | (3.8) | 0.2 | | Foreign derived intangible income | (0.9) | (0.8) | | Other | (0.0) | 0.1 | | Effective tax rate | 16.3% | 20.3% | Deferred Tax Assets and Liabilities (June 30, 2024-2025) | Category | June 30, 2025 | June 30, 2024 | | :---------------------------- | :------------ | :------------ | | Total deferred tax assets | $1,272,246 | $974,091 | | Total deferred tax liability | $70,227 | $78,937 | | Net deferred tax asset (liability) | $1,202,019| $895,154 | Note 9. Employee Stock Ownership Plan The company sponsors a leveraged ESOP, with compensation expense of $622,472 in 2025 and 595,299 total shares held - The Company sponsors a leveraged Employee Stock Ownership Plan (ESOP) covering all nonunion employees who meet eligibility criteria[149] ESOP Compensation Expense (FY2024-2025) | Fiscal Year | ESOP Compensation Expense | | :------------ | :------------------------ | | 2025 | $622,472 | | 2024 | $438,136 | ESOP Shares (June 30, 2024-2025) | Share Category | June 30, 2025 | June 30, 2024 | | :---------------- | :------------ | :------------ | | Allocated shares | 405,482 | 451,132 | | Unearned shares | 189,817 | 211,487 | | Total shares held by the ESOP | 595,299 | 662,619 | | Fair value of unearned shares | $8,676,535 | $4,494,099 | Note 10. Stock-based Compensation Stock-based compensation expense increased to $346,281 in FY2025, with 228,146 options outstanding and an aggregate intrinsic value of $6.03 million Total Stock-based Compensation Expense (FY2024-2025) | Fiscal Year | Total Stock-based Compensation Expense | | :------------ | :------------------------------------- | | 2025 | $346,281 | | 2024 | $283,673 | - As of June 30, 2025, there was $233,094 of unrecognized compensation cost related to stock option awards, expected to be recognized as expense over the next 1.75 years[154] Stock Option Activity (FY2024-2025) | Activity | Shares Subject to Option (2025) | Weighted Average Exercise Price (2025) | Shares Subject to Option (2024) | Weighted Average Exercise Price (2024) | | :------------------------ | :------------------------------ | :------------------------------------- | :------------------------------ | :------------------------------------- | | Balance at July 1 | 322,056 | $18.41 | 296,331 | $19.15 | | Granted | 79,000 | $21.79 | 80,900 | $16.78 | | Exercised | (162,410) | $18.81 | (31,325) | $16.80 | | Forfeited or expired | (10,500) | $18.90 | (23,850) | $24.30 | | Outstanding at June 30| 228,146 | $19.26 | 322,056 | $18.41 | - The aggregate intrinsic value of outstanding options at June 30, 2025, was $6,033,634[158][159] Note 11. Concentration of Credit Risk The company faces significant credit risk concentration, with six customers accounting for 70% of trade accounts receivable - Financial instruments, including cash and cash equivalents, short-term investments, and accounts receivable, subject the Company to concentrations of credit risk[161] - At June 30, 2025, 70% of the Company's total trade accounts receivable balance was represented by six customers (26%, 14%, 11%, 7%, 7%, and 6% respectively)[161] - The Company manages credit risk through credit approvals, credit limits, monitoring procedures, and establishing an allowance for credit losses based on various factors[162] Note 12. Related Parties This note details the administration and voting rights of common stock shares held by the ESOP Trust - The administration of common stock shares held by the ESOP Trust is governed by the Espey Mfg. & Electronics Corp. Employee Retirement Plan and Trust and a Trust Agreement[163] - Allocated shares are voted according to participant instructions, while unallocated shares and those without instructions are voted in the same proportion as instructions received on allocated shares, as directed by the Board of Directors[163] Note 13. Commitments and Contingencies The company faces government contractor audits and ordinary course litigation, but no material adverse effects are currently anticipated - Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at June 30, 2025 and 2024[164] - As a U.S. Government contractor, the Company is subject to audits, reviews, and investigations, with potential risks including contract termination, damages, and debarment for non-compliance[164] - The Company is party to various litigation matters and claims arising in the ordinary course of business, but currently, there are no matters pending that are expected to have a material adverse effect[165] Note 14. Stockholders' Equity This note details stockholders' equity, including 240,615 reserved common shares, EPS reconciliation, and dividend payments Common Shares Reserved for Future Issuance (June 30, 2025) | Category | Number of Shares | | :---------------------------- | :--------------- | | Stock options outstanding | 228,146 | | Stock options available for issuance | 12,469 | | Total common shares reserved | 240,615 | Earnings Per Share (EPS) Reconciliation (FY2024-2025) | Metric | FY2025 | FY2024 | | :-------------------------------------- | :------------ | :------------ | | Net income (Numerator) | $8,142,954 | $5,815,140 | | Denominator for basic EPS (Weighted average common shares) | 2,591,036 | 2,489,165 | | Denominator for diluted EPS (Weighted average common shares) | 2,696,192 | 2,536,967 | - The Company paid regular cash dividends on common stock of $1.00 per share for fiscal year 2025 and $0.675 per share for fiscal year 2024[167] Note 15. Line of Credit The company has an unused $3 million line of credit expiring February 28, 2026, and does not anticipate needing borrowed funds - The Company has an uncommitted and unused Line of Credit with a financial institution, allowing borrowing up to $3,000,000[168] - The line of credit bears interest at the SOFR Daily Floating Rate plus 2 percentage points, is collateralized by accounts receivable, and expires on February 28, 2026[168] - The Company did not borrow any funds during the last two fiscal years and does not anticipate the need for borrowed funds in the foreseeable future[168] Note 16. Quarterly Financial Information (Unaudited) This note presents unaudited quarterly financial data for FY2025 and FY2024, including net sales, gross profit, and net income Quarterly Financial Information (Unaudited) - FY2025 | 2025 Quarter | Net Sales | Gross Profit | Net Income | Basic EPS | Diluted EPS | | :----------- | :----------- | :----------- | :----------- | :-------- | :---------- | | First | $10,443,218 | $2,800,882 | $1,598,317 | $0.63 | $0.61 | | Second | $13,608,740 | $3,163,712 | $1,908,499 | $0.74 | $0.71 | | Third | $10,302,719 | $2,948,384 | $1,704,487 | $0.66 | $0.63 | | Fourth | $9,596,194 | $3,771,652 | $2,931,651 | $1.10 | $1.05 | Quarterly Financial Information (Unaudited) - FY2024 | 2024 Quarter | Net Sales | Gross Profit | Net Income | Basic EPS | Diluted EPS | | :----------- | :----------- | :----------- | :----------- | :-------- | :---------- | | First | $8,568,214 | $2,245,377 | $1,094,544 | $0.44 | $0.44 | | Second | $10,302,541 | $3,142,575 | $1,795,370 | $0.73 | $0.72 | | Third | $8,254,653 | $2,064,191 | $1,031,930 | $0.41 | $0.40 | | Fourth | $11,610,911 | $3,200,917 | $1,893,296 | $0.76 | $0.73 | Note 17. Segment Reporting The company adopted ASU 2023-07 and operates as a single segment, with domestic revenue consistently exceeding 90% of total revenue - As of June 30, 2025, the Company adopted FASB's ASU 2023-07, 'Segment Reporting', which provides enhancements to qualitative and quantitative reportable segment disclosure requirements[170] - Espey operates as a single operating segment, with the Chief Executive Officer serving as the Chief Operating Decision Maker (CODM)[170] - The CODM evaluates performance and makes operating decisions based on consolidated financial data, focusing on significant expenses like Cost of Sales and Selling, General and Administrative costs[170] - Domestic revenue accounted for more than 90% of total revenue during the years ended June 30, 2025 and 2024[170] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in and disagreements with accountants on accounting and financial disclosure - There were no changes in and disagreements with accountants on accounting and financial disclosure[171] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of June 30, 2025 - The Company's management, with the participation of the CEO and Principal Financial Officer, concluded that disclosure controls and procedures were effective as of June 30, 2025[171] - There have been no material changes in internal controls over financial reporting during the period covered by this report[172] - Management concluded that the internal control over financial reporting was effective as of June 30, 2025, based on the COSO Internal Control-Integrated Framework (2013)[174] Other information No other information was reported for this item - No other information was reported for this item[175] PART III This section incorporates by reference information from the 2025 Annual Meeting of Shareholders proxy statement for Items 10 through 14 - Information for Items 10 through 14 is incorporated by reference from the Company's definitive proxy statement relating to the 2025 Annual Meeting of Shareholders[177] PART IV Exhibits, Financial Statement Schedules, Signatures This section lists filed exhibits and includes required signatures from key officers and directors, affirming report accuracy - This section lists various exhibits, including the Certificate of Incorporation, By-Laws, Description of Capital Stock, Stock Option Plans, Employment Agreements, Code of Ethics, and Certifications[179][180] - The report is duly signed by the President and Chief Executive Officer, Chairman of the Board, other Directors, and the Principal Financial Officer, affirming compliance with Securities Exchange Act requirements[182][183][184]