Financial Analysis

Note 13. Commitments and Contingencies The Company at certain times enters into standby letters of credit agreements with financial institutions primarily relating to the guarantee of future performance on certain contracts. Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at June 30, 2025 and 2024. The Company, as a U.S. Government contractor, is subject to audits, reviews, and investigations by the U.S. Government related to its negotiation and performance of government contracts and its accounting for such contracts. Failure to comply with applicable U.S. Government standards by a contractor may result in suspension from eligibility for award of any new government contract and a guilty plea or conviction may result in debarment from eligibility for awards. The government may, in certain cases, also terminate existing contracts, recover damages, and impose other sanctions and penalties. As a result of contract audits the Company will determine a range of possible outcomes and in accordance with FASB ASC 450 Contingencies the Company will accrue amounts within a range that appears to be its best estimate of a possible outcome. Adjustments are made to accruals, if any, periodically based on current information. 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 matters cannot be predicted with certainty, we believe that the final outcome of s …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

"Note 9. Employee 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 hours per year and are employed on June 30. The Company makes annual contributions to the ESOP equal to the ESOP's debt service less dividends on unallocated shares received by the ESOP. All dividends on unallocated shares received by the ESOP are used to pay debt service. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings. As the debt is repaid, shares are released and allocated to active employees, based on the proportion of debt service paid in the year. The Company accounts for its ESOP in accordance with FASB ASC 718-40 Compensation-Stock Compensation. Accordingly, the shares 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 reports compensation expense equal to the current average market price of the shares, and the shares become outstanding for earnings-per-share (EPS) computations. The ESOP borrowed from the Corporation an amount equal to the purchase price. The loan will be repaid in fifteen (15) equal annual installments of principal commencing June 2021. The Board of Directors has fixed the interest rate and the unpaid balance will bear interest at a fixed rate of 3.00% per annum. ESOP compensation expense was $622,472 and $438,136 for the years ende …

CompensationAndEmployeeBenefitPlansTextBlock · excerpt; the full note is in the filing

Note 15. Line of Credit At June 30, 2025, the Company has an uncommitted and unused Line of Credit with a financial institution. The agreement provides that the Company may borrow up to $3,000,000. The line provides for interest payments equal to the SOFR Daily Floating Rate plus 2 percentage points. Any borrowing under the line of credit will be collateralized by accounts receivable. All outstanding balances are payable no later than the expiration date of the agreement, unless other terms are agreed to by the lender. The existing line of credit expires February 28, 2026. The Company did not borrow any funds during the last two fiscal years.

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"Note 10. Stock-based Compensation The Company follows FASB ASC 718-40 Compensation-Stock Compensation in establishing standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, as well as transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be 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 fair value as the measurement objective in accounting for share-based payment transactions with employees, except for equity instruments held by employee share ownership plans. Included as a reduction to the cost recognized for share-based payments is an estimate for option forfeitures. It is the Companys policy to estimate expected option forfeitures based on historical experience. Actual forfeitures are adjusted prior to the vesting date if the impact is material. Total stock-based compensation expense recognized in the statements of comprehensive income for the fiscal years ended June 30, 2025 and 2024, was $346,281 and $283,673, respectively, before income taxes. The amount of this stock-based compensation expense related to non-qualified stock options (NQSOs) for the fiscal years ended June 30, 2025 and 2024, was $3 …

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"Note 8. Provision for Income Taxes A summary of the components of the provision for income taxes for the years ended June 30, 2025 and 2024 is as follows: 2025 2024 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 ) Provision for income taxes $ 1,585,710 $ 1,479,874 Deferred income taxes reflect the impact of ""temporary differences"" between the amount of assets and liabilities for financial reporting purposes and such amounts measured by tax laws and regulations. These ""temporary differences"" are determined in accordance with FASB ASC 740-10. The combined U.S. federal and state effective income tax rates of 16.3% and 20.3%, for 2025 and 2024 respectively, differed from the statutory U.S. federal income tax rate for the following reasons: 2025 2024 U.S. federal statutory income tax rate 21.0% 21.0% Increase (reduction) in rate resulting from: 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% For the years ended June 30, 2025 and 2024 deferred income tax benefit of $306,865 and $1,032,981, respectively, results from the changes in temporary differences for each year. The tax effects of temporary differences that give rise to deferred tax assets a …

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Recent Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures through the standardization and disaggregation of rate reconciliation categories and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and is to be applied prospectively, with early adoption and retrospective application permitted. We are currently evaluating the impact of this standard to our financial statements. In November, 2024, the FASB issued ASU No. 2024-03, Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40) which is intended to improve disclosures around public business entities expenses and address requests from investors for more detailed information about the types of expenses that are within commonly presented expense captions such as cost of sales and selling, general, and administrative costs. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact of this standard to our financial statements. …

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Note 7. Pension Expense In the last quarter of the 2024 fiscal year, the Company notified the third-party administrator of the IBEW Local 1799 Pension Fund of its intention to withdraw permanently from the plan effective June 16, 2024. As required by the Employee Retirement Income Security Act ERISA, the Company is subject to a termination withdrawal liability. At June 30, 2024, the Company recorded a termination withdrawal obligation totaling $772,157, based on calculated amounts provided by a third-party actuary retained by the Pension Fund. This outstanding amount was shown within the accounts payable balance on the Companys balance sheet at June 30, 2024. An initial withdrawal liability contribution payment to the Plan totaling $210,305 was made during July 2024. Final withdrawal calculations were provided to the Company on April 11, 2025 resulting in a final payment of $534,583 which was paid on May 8, 2025. The cost of the withdrawal liability obligation is recorded in indirect 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 Plan is a defined pension benefit plan covering eligible union employees. Such contributions and expenses amounted to $79,739 in fiscal year 2025 and $79,429 in fiscal year 2024. The contribution did not and will not in the future have a material impact on t …

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Note 12. Related Parties The administration of the shares of common stock held by the ESOP Trust is subject to the Espey Mfg. & Electronics Corp. Employee Retirement Plan and Trust (ESOP) and a Trust Agreement, each effective as of July 1, 2016. The Trustees rights with respect to the disposition of shares are governed by the terms of the Plan and the Trust Agreement. As to shares that have been allocated to the accounts of participants in the ESOP Trust, the Plan provides that the Trustees are required to vote such shares in accordance with instructions received from the participants. As to unallocated shares and allocated shares for which voting instructions have not been received from participants, the Plan provides that the Trustees are required to vote such shares in accordance with the direction of the Board of Directors of the Company under the terms of the Plan and Trust Agreement, which is currently in the same proportion as the instructions received on the allocated shares. See Note 9 for additional information regarding the ESOP. …

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Note 3. Revenue The Company follows FASB ASC 606 Revenue from Contracts with Customers to determine the recognition of revenue. This standard requires entities to assess the products or services promised in contracts with customers at contract inception to determine the appropriate unit at which to record revenues. Revenue is recognized when control of the promised products or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those products or services. Significant judgment is required in determining performance obligations. Revenues from our performance obligations are satisfied over time using the output method, using direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract. The output method considers the appraisal of results achieved, milestones reached or units delivered based on contractual shipment terms, typically shipping point. Revenue is recognized when, or as, the customer takes control of the product or services. The output method best depicts the transfer of control to the customer as the output method represents progress toward satisfaction of each performance obligation. For units delivered, control is typically transferred to the customer at the shipping point as the Company has a present right to payment, the customer has legal title to the asset, the custome …

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Note 17. Segment Reporting As of June 30, 2025, the Company adopted FASBs ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which provides enhancements to qualitative and quantitative reportable segment disclosure requirements for all public companies. Operating segments are clearly defined components of an entity in which separate financial information is readily available and reviewed by the chief operating decision maker (CODM) when allocating resources and assessing company performance. Espeys CODM is the Chief Executive Officer . There is one management team that oversees a single operating segment and reports directly to the CEO. Our CODM evaluates performance and makes operating decisions about allocating resources based on financial data presented on a consolidated basis, focusing on significant expenses, net income, and certain key performance indicators (KPI) presented on our internal monthly and weekly management reports. Significant expenses regularly provided to and reviewed by the CODM are Cost of Sales and Selling, General and Administrative costs which are each separately presented on the Companys Consolidated Statement of Income. During the years ended June 30, 2025 and 2024, domestic revenue accounted for more than 90% of total revenue. The Company manages sales on a consolidated basis under one reportable segment. …

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"Note 2. Summary of Significant Accounting Policies Revenue The majority of our sales are generated from military contracts from defense companies, the Department of Defense, other agencies of the government of the United States and foreign governments, for the design and development and/or manufacture of products. Sales are also generated from industrial manufacturers for similar services. We provide our products and design and development services under fixed-price contracts. Under fixed-price contracts we agree to perform the specified work for a pre-determined price. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss. We account for a contract with a customer after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collection of substantially all of the amount to which the entity will be entitled in exchange for the goods or services that will be transferred to the customer is probable. We assess each contract at its inception to determine whether it should be combined with other contracts. When making this determination, we consider factors such as whether two or more contracts were negotiated and executed at or near the same time, or were negotiated with an overall profit objective. We evaluate the products or services promised in each contract at incept …

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Note 14. Stockholders' Equity Reservation of Shares The Company has reserved common shares for future issuance as follows as of June 30, 2025: Stock options outstanding 228,146 Stock options available for issuance 12,469 Number of common shares reserved 240,615 The following table sets forth the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for continuing operations for the years ended June 30: 2025 2024 Numerator: Net income $ 8,142,954 $ 5,815,140 Denominator: Basic EPS: Common shares outstanding, beginning of period 2,733,958 2,702,633 Unearned ESOP shares (211,487 ) (233,645 ) Weighted average common shares issued during the period 60,416 11,837 Weighted average ESOP shares earned during the period 8,149 8,340 Denominator for basic earnings per common shares Weighted average common shares 2,591,036 2,489,165 Diluted EPS: Common shares outstanding, beginning of period 2,733,958 2,702,633 Unearned ESOP shares (211,487 ) (233,645 ) Weighted average common shares issued during the period 60,416 11,837 Weighted average ESOP shares earned during the period 8,149 8,340 Weighted average dilutive effect of stock options 105,156 47,802 Denominator for diluted earnings per common shares Weighted average common shares 2,696,192 2,536,967 Not included in this computation of earnings per share for the years ended June 30, 2025 and 2024 were options to purchase 0 and 62,691 shares, respectively, of the Companys common stock. T …

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