# Espey MFG & Electronics Corp: Form 10-Q for the period ended Dec 31, 2024

- Company: [Espey MFG & Electronics Corp](/companies/esp.md) (CIK 33533)
- Form: 10-Q
- Filed: 2025-02-12
- Accepted by EDGAR: Feb 12, 2025, 16:02 ET
- Period: 2024-12-31
- Accession: 0001174947-25-000162
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/33533/000117494725000162/esp-20241231.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/33533/000117494725000162/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-10-01 to 2024-12-31 | $13.6m | us-gaap:Revenues |
| Revenue | 6 months, 2024-07-01 to 2024-12-31 | $24.1m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-10-01 to 2024-12-31 | $10.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2024-07-01 to 2024-12-31 | $18.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-10-01 to 2024-12-31 | $3.2m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-07-01 to 2024-12-31 | $6.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-10-01 to 2024-12-31 | $1.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-07-01 to 2024-12-31 | $2.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-10-01 to 2024-12-31 | $2.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-07-01 to 2024-12-31 | $3.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-10-01 to 2024-12-31 | $384.4k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-07-01 to 2024-12-31 | $783.7k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-10-01 to 2024-12-31 | $1.9m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-07-01 to 2024-12-31 | $3.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-10-01 to 2024-12-31 | $0.71 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-07-01 to 2024-12-31 | $1.32 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-10-01 to 2024-12-31 | $0.74 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-07-01 to 2024-12-31 | $1.37 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-10-01 to 2024-12-31 | 2,707,542 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-07-01 to 2024-12-31 | 2,653,890 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-07-01 to 2024-12-31 | $6.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-07-01 to 2024-12-31 | $1.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2024-07-01 to 2024-12-31 | $1.3m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2024-12-31 | $8.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-12-31 | $55.6m | us-gaap:AssetsCurrent |
| Total assets | at 2024-12-31 | $60.2m | us-gaap:Assets |
| Current liabilities | at 2024-12-31 | $15.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-12-31 | $15.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-12-31 | $44.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,291 characters.

Overview

Espey Mfg. & Electronics Corp. (“Espey”) is a power electronics design and original equipment manufacturing (OEM) company with a long history of developing and delivering reliable products for use in military and severe environment applications. Design, manufacturing, and testing is performed in our in-service 150,000+ square foot facility located at 233 Ballston Ave, Saratoga Springs, New York. Espey is classified as a “smaller reporting company” for purposes of the reporting requirements under the Securities Exchange Act of 1934, as amended. Espey’s common stock is publicly-traded on the NYSE American under the symbol “ESP.”

Espey began operations after incorporation in New York in 1928. We strive to remain competitive as a leader in high power energy conversion and transformer solutions through the design and manufacture of new and improved products by using advanced and “cutting edge” electronics technologies.

Espey is an ISO 9001:2015 and AS9100:2016 certified manufacturer of power conversion, advanced magnetics and build to print specifications provided by the customer “build to print” products for the rugged industrial and military marketplace. Our primary products are power supplies, power converters, filters, power transformers, magnetic components, power distribution equipment, UPS systems, and antennas. The applications of these products 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 specification, 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 is vertically integrated, meaning that the Company produces individual components (including inductors), populates printed circuit boards, fabricates metalwork, paints, wires, qualifies, and fully tests items, mechanically, electrically and environmentally, in house. Portions of the manufacturing and testing process are subcontracted to vendors from time to time.

The Company markets its products primarily through its own direct sales organization and through outside sales representatives. Business is solicited from large industrial manufacturers and defense companies, the government of the United States, foreign governments and major foreign electronic equipment companies. Espey is also on the eligible list of contractors with the United States Department of Defense. We pursue opportunities for prime contracts directly with the Department of Defense and are generally automatically solicited by Department of Defense procurement agencies for their needs falling within the major classes of products produced by the Company. Espey contracts with the Federal Government under cage code 20950 as Espey Mfg. & Electronics Corp.

There is competition in all classes of products manufactured by the Company, ranging from divisions of the largest electronic companies, to many small companies. The Company's sales do not represent a significant share of the industry's market for any class of its products. The principal methods of competition for electronic products of both a military and industrial nature include, among other factors, price, product performance, the experience of the particular company and history of its dealings in such products.

Our business is not seasonal. However, the concentration of our business in the rail industry, and in equipment for military applications and industrial applications, and our customer concentrations expose us to on-going associated risks. These risks include, without limitation, fluctuating requirements for power supplies in the rail industry, dependence on appropriations from the United States Government and the governments of foreign nations, program allocations, the potential of governmental termination of orders for convenience, and the general strength of the industry sectors in which our customers transact business.

Future procurement needs supporting the military and the rail industry continue to drive competition. Many of our competitors have invested, and continue to invest, aggressively in upfront product design costs and accept lower profit margins as a strategic means of maintaining existing business and enhancing market share. This continues to put pressure on the pricing of our current products and has lowered our profit margins on some of our new business. In order to compete effectively for new business, in some cases we have invested in upfront design costs, thereby reducing initial profitability as a means of procuring new long-term programs. As part of our strategy, we adjust our pricing in order to achieve a balance which enables us both to retain repeat programs while being more competitive in bidding on new programs.

Our sales strategy includes identifying and obtaining multiple new engineering design and development contracts in any given fiscal year to ensure optimal utilization of our engineering personnel in addition to securing follow-on production awards for product previously designed in-house, as well as, new or follow-on build to print opportunities. The Company targets those programs and opportunities which will generate future longer-term production tails in ensuing 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 for future awards and expands our engineering team’s skillset.

The total backlog at December 31, 2024 was approximately $120.1 million, which included $78.3 million from three significant customers, compared to approximately $84.8 million at December 31, 2023, which included $57.4 million from five significant customers. The Company’s total backlog represents the estimated remaining sales value of work to be performed under firm contracts. It is not uncommon to receive orders which include delivery schedules extending beyond a year from the contract purchase date. Due to this, a customer’s future reorder point may vary. The backlog at December 31, 2024 is fully funded, except for approximately $20.4 million, representing two firm follow-on multi-year orders from a single customer. While there is no guarantee that future budgets and appropriations will provide funding for individual programs, management has included in the unfunded backlog only those programs that it believes are likely to receive funding based on program status and discussions with customers. Contracts are subject to modification, change or cancellation, and the Company accounts for these changes as they are probable and estimable. The Company evaluates the impact of any scope modifications and will adjust reserves to the extent information is known or estimable.

Management expects revenues in fiscal year 2025 to be higher than revenues recognized during fiscal year 2024 but expects that net income per share will be lower than fiscal year 2024 net income per share, although greater than fiscal year 2023 net income per share. This expectation is driven primarily by orders already in our backlog that will be shipped in fiscal year 2025 with higher anticipated aggregate costs than the product mix shipped during fiscal year 2024.

From time to time, we encounter part obsolescence which requires us to identify an alternate part suitable 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 customer’s order may cause us to miss projected delivery dates. Inflationary costs are expected to continue, 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 and the newly inaugurated President has announced the imposition of additional tariffs. Although we are not currently experiencing any significant financial or raw material sourcing issues resulting from the product tariffs, the Company cannot provide any assurance that the existing and newly-imposed tariffs, the potential of additional tariffs, and the associated volatility arising from foreign trade policies, will not have a negative impact on our future earnings by increasing our raw material prices and augmenting the lead time for the availability of raw materials.

The labor workforce remains stable. Management continues to closely monitor workforce labor requirements to support our sales backlog and planned delivery schedules. Longer time-to-hire challenges remain for certain positions due to specific skillsets required for those positions. Unemployment rates in the local geographic region trend lower than the national average which has created a competitive recruiting environment. Where possible, the Company continues to offer on-the-job training and when necessary, continues to recruit personnel outside the local region. Combined with supply chain constraints, unforeseen labor disruptions could delay shipments and result in missing our backlog fulfillment projections and recognizing lower than anticipated operating income.

Successful conversion of engineering program backlog into sales is largely dependent on the execution and completion of our engineering design efforts. It is not uncommon to experience technical or scheduling delays which arise from time to time as a result of, among other reasons, design complexity, the availability of personnel with the requisite expertise, and the requirements to obtain customer approval at various milestones. Cost overruns which may arise from technical and scheduling delays and increased raw material costs could negatively impact the timing of the conversion of backlog into sales, or the profitability of such sales. Engineering programs in both the funded and unfunded portions of the current backlog aggregate $9.6 million.

It is presently anticipated that a minimum of $19.9 million of orders comprising the December 31, 2024 backlog will be filled during the fiscal year ending June 30, 2025 subject, however, to the impact of the factors identified above. The minimum of $19.9 million does not include any shipments which may be made against orders subsequently received during the fiscal year ending June 30, 2025.

The Company currently expects new orders in fiscal year 2025 to be greater than those received in fiscal year 2024. New orders received in the first six months of fiscal year 2025 were approximately $46.9 million as compared to approximately $20.1 million new orders received in the first six months of fiscal year 2024. Included in new orders received during the current fiscal year is an award for $29.5 million, when fully funded, to provide electric power distribution panels for the U.S. Navy’s Columbia class submarines through calendar year 2030. In addition to the backlog and the new orders already booked in fiscal year 2025, the Company currently has outstanding opportunities representing approximately $113 million in the aggregate as of February 4, 2025 for both repeat and new programs. Outstanding opportunities encompass various new and previously manufactured power supplies, transformers, and subassemblies. 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 defense programs and program funding, discussion with customers, and our cost competitiveness. However, there can be no assurance that the Company will acquire any of the outstanding opportunities described above, many of which are subject to allocations of the United States defense spending and factors affecting the defense industry. Also, many solicitations we receive for the procurement of goods and services are associated with competitive bidding processes.

A significant portion of the Company’s business is the production of military and industrial electronic equipment for use by the U.S. and foreign governments and certain industrial customers. Net sales to four significant customers represented 62% of the Company’s total sales for the three-month period ended December 31, 2024. Net sales to five significant customers represented approximately 86% of the Company’s total sales for the three-month period ended December 31, 2023. Net sales to five significant customers represented approximately 69% of the Company’s total sales for the six-month period ended December 31, 2024. Net sales to five significant customers represented 82% of the Company’s total sales for the six-month period ended December 31, 2023. A loss of one of these customers or programs related to these customers, or customer requested deferrals of product delivery could significantly impact the Company.

Historically, a small number of customers have accounted for a large percentage of the Company’s total sales in any given fiscal year. Management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales, mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer. Given the nature of our business, we believe our existing sales order backlog is fairly diversified in terms of customers and the category of products on order.

Critical Accounting Policies and Estimates

Management believes our most critical accounting policies include revenue recognition and cost estimation on our contracts.

Revenue

The majority of our sales are generated from military contracts from defense companies, the United States 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 inception to determine whether the contract should be accounted for as having one or more performance obligations. Significant judgment is required in determining performance obligations. We determine the transaction price for each contract based on the consideration we expect to receive for the products or services being provided under the contract. The transaction price for each performance obligation is based on the estimated standalone selling price of the product or service underlying each performance obligation. Transaction prices on our contracts subject to the Federal Acquisition Regulations (FAR) are typically based on estimated costs plus a reasonable profit margin.

We recognize revenue using the output method based on the appraisal of results achieved and milestones reached or units delivered based on contractual shipment terms, typically shipping point.

Inventory

Raw materials are valued at the lower of cost (average cost) or net realizable value. Balances for slow-moving and obsolete inventory are reviewed on a regular basis by analyzing estimated demand, inventory on hand, sales levels, market conditions, and other information. Inventory balances are reduced based on this analysis.

Inventoried work relating to contracts in process and work-in-process is valued at actual production cost, including factory overhead incurred to date. Contract costs include material, subcontract costs, labor, and an allocation of overhead costs. Work-in-process represents spare units and parts and other inventory items acquired or produced to service units previously sold or to meet anticipated future orders. Provision for losses on contracts is made when the existence of such losses becomes probable and estimable. The provision for losses on contracts is included in other accrued expenses on the Company’s balance sheet. The costs attributed to units delivered under contracts are based on the estimated average cost of all units expected to be produced. Certain contracts are expected to extend beyond twelve months.

The estimation of total cost at completion of a contract is subject to numerous variables involving contract costs and estimates as to the length of time to complete the contract. Given the significance of the estimation processes and judgments described above, it is possible that materially different amounts of expected sales and contract costs could be recorded if different assumptions were used, based on changes in circumstances, in the estimation process. When a change in expected sales value or estimated cost is determined, the change is reflected in current period earnings.

Contract Liabilities

Contract liabilities include advance payments and billings in excess of revenue recognized.

Accounts 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. Exposure to credit risk is controlled through the use of credit approvals, credit limits, and monitoring procedures. Accounts receivable are reported net of an allowance 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, contracts covered by government funding and 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 December 31, 2024 and June 30, 2024. Changes to the allowance for credit losses are charged to expense and reduced by charge-offs, net of recoveries. The opening accounts receivable balance, net of allowance for credit losses of $3,000, at July 1, 2023 and July 1, 2024 were $5,755,282 and $6,635,490, respectively.

Results of Operations

Net sales for the three months ended December 31, 2024 and 2023 were $13,608,740 and $10,302,541, respectively, a 32.1% increase. Net sales for the six months ended December 31, 2024 and 2023 were $24,051,958 and $18,870,755, respectively, a 27.5% increase. In general, sales fluctuations may occur during comparable fiscal periods as the direct result of sales backlog levels, product mix, and specific contractual terms of those firm orders placed including contract value, scope of work, and contract delivery schedules.

For the three months ended December 31, 2024, the increase in sales when compared to the same period last year is primarily due to more deliveries against an overall higher sales backlog and the product mix comprising those shipments. The increase in sales in the current year was primarily related to product supporting magnetics, power supply, and build to print contracts. During the current quarter, sales increased on deliveries for (i) a large follow-on order for power distribution panels, (ii) a large follow-on order for inverters used on armored multi-purpose vehicles, and (iii) numerous deliveries on build to print follow-on orders in which there were no sales in the comparable period last year. These increases were offset, in part, by a decrease in deliveries for (i) a contract for power supplies supporting the AESA radar program and (ii) fewer sales on an engineering development job which had fewer sales when compared to the same period last year.

For the six months ended December 31, 2024, the increase in sales when compared to the same period last year is primarily due to more deliveries against an overall higher sales backlog and the product mix comprising those shipments. The increase in sales in the current year was primarily related to product supporting power supply, magnetics, and build to print contracts. For the six months ended December 31, 2024, sales increased on deliveries for (i) a large follow-on order for power distribution panels, (ii) a large follow-on order for inverters used on armored multi-purpose vehicles, (iii) deliveries on several follow-on orders for power supplies and overall build to print contracts, (iv) shipments on a large multi-year magnetics contract for transformers, and (v) sales on a new engineering development contract in which there were no comparable sales in the prior period. These increases were offset, in part, by a decrease in sales related to a family of power distribution transformers for a single customer.

Gross profits for the three months ended December 31, 2024 and 2023 were $3,163,712 and $3,142,575, respectively. Gross profit as a percentage of sales was approximately 23.2% and 30.5%, for the same periods, respectively. Gross profits for the six months ended December 31, 2024 and 2023 were $5,964,594 and $5,387,952, respectively. Gross profit as a percentage of sales was approximately 24.8% and 28.6% for the same periods, respectively.

Gross profits remained flat for the three months ended December 31, 2024 when compared to the same period last year and increased for the six months ended December 31, 2024 when compared to the same period last year. The decrease in the gross margin percentages for the three and six months ended December 31, 2024 when compared to the same period last year primarily resulted from (i) product mix, specifically impacted by shipments on a large magnetics program with lower gross margins, which management remains optimistic will improve as we work to achieve production efficiencies in the current build process on this internally designed product which has only had a limited number of completed production builds to date, (ii) higher than average profit margins on one-time sales to certain customers in the prior year, (iii) increased costs incurred with restarting a production line for a large power supply contract which is expected to generate future additional re-order opportunities, and (iv) costs incurred on a specific engineering development program.

The primary factors in determining the change in gross profit and net income are overall sales levels and product mix. The gross profits on mature products and build to print contracts are typically higher as compared to products which are still in the engineering development stage or in early stages of production. In the case of the latter, the Company can incur what it refers to as “loss contracts,” primarily on engineering design contracts in which the Company invests with the objective of developing future product sales. In any given accounting period the mix of product shipments between higher margin programs and less mature programs, and expenditures associated with loss contracts, has a significant impact on gross profit and net income.

Selling, general and administrative expenses were $1,139,275 for the three months ended December 31, 2024, an increase of $89,585, compared to the three months ended December 31, 2023. Selling, general and administrative expenses were $2,220,944 for the six months ended December 31, 2024, an increase of $147,573 compared to the six months ended December 31, 2023. The increase in spending for the three months ended December 31, 2024 as compared to the same period in 2023 relates mainly to the increase in employee compensation costs, outside selling costs related to non-employee sales representatives, an increase in travel expenditures, an increase in outbound freight costs related to higher sales, offset in part, by a decrease in conference expenses incurred during the period. The increase in spending for the six months ended December 31, 2024 as compared to the same period in 2023 relates mainly to the increase in employee compensation costs, outside selling costs related to non-employee sales representatives, an increase in outbound freight costs related to higher sales, and an increase in travel expenditures, offset in part, by a decrease in conference expenses and general office supplies.

Other income for the three months ended December 31, 2024 and 2023 was $268,425 and $166,764, respectively. Other income for the six months ended December 31, 2024 and 2023 was $546,833 and $328,337, respectively. The increase for the three and six months ended December 31, 2024 is primarily due to the increase in interest income resulting from an increase in investment securities, offset in part, by declining interest rates. Interest income is a function of the level of investments and investment strategies that generally tend to be conservative.

The Company’s effective tax rate for the three and six months ended December 31, 2024 was approximately 16.8% and 18.3% respectively, compared to 20.5% and 20.7% for the three and six months ended December 31, 2023. The effective tax rate in fiscal 2025 and fiscal 2024 is less than the statutory tax rate mainly due to the benefit received from ESOP dividends paid on allocated shares as well as the benefit from foreign derived intangible income, offset in part, by the permanent difference for incentive stock option expense recorded for book purposes which is not deductible for tax purposes. The effective tax rate in the three and six month period ended December 31, 2024 was lower than the prior year primarily from a greater benefit derived from the ESOP dividends paid on allocated shares and the benefit derived from the exercise of incentive stock options in the current period when compared to same period in the prior year.

Net income for the three months ended December 31, 2024 was $1,908,499 or $0.74 and $0.71 per share, basic and diluted, compared to net income of $1,795,370 or $0.73 and $0.72 per share, basic and diluted, for the three months ended December 31, 2023. Net income for the six months ended December 31, 2024 was $3,506,816 or $1.37 and $1.32 per share, basic and diluted, compared to $2,889,914 or $1.17 and $1.16 per share, basic and diluted, for the six months ended December 31, 2023. The increase in net income in the three months ended December 31, 2024 when compared to the same period last year resulted primarily from the increase in interest income and lower provision for income taxes. The increase in net income in the six months ended December 31, 2024 when compared to the same period last year resulted primarily from the increase in gross profit and the increase in interest income, offset in part, by an increase in selling, general, and administrative expenses and an increase in the provision for income taxes, all discussed above.

Liquidity and Capital Resources

The Company's working capital is an appropriate indicator of the liquidity of its business, and during the past two fiscal years, the Company, when possible, has funded all of its operations with cash flows resulting from operating activities and when necessary from its existing cash and investments. The Company did not borrow any funds during the last two fiscal years. Management has available a $3,000,000 line of credit to help fund further growth or working capital needs, if necessary, but does not anticipate the need for any borrowed funds in the foreseeable future. Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at December 31, 2024 and 2023. The existing line of credit expires February 28, 2025. Management anticipates that the line of credit will be renewed.

The Company's working capital as of December 31, 2024 and 2023 was approximately $40.2 million and approximately $33.1 million, respectively. The Company may at times be required to repurchase shares at the ESOP participants’ request at fair market value. During the three and six months ended December 31, 2024 and 2023, the Company did not repurchase any shares held by the ESOP. Under an existing authorization from the Company's Board of Directors, as of December 31, 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:

|  | Six Months Ended December 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $6,766,541 | $5,939,155 |
| Net cash used in investing activities | (2,935,397) | (4,402,562) |
| Net cash used in financing activities | (155,636) | (682,415) |

Net cash provided by operating activities fluctuates between periods primarily as a result of differences in sales and net income, provision for income taxes, the timing of the collection of accounts receivable, purchase of inventory, and payment of accounts payable. The increase in cash provided by operating activities compared to the prior year primarily relates to an increase in contract liabilities for cash advances received from customers, the decrease in prepaid expenses and other current assets, offset in part by a decrease in accounts payable. Net cash used in investing activities decreased in the six months ended December 31, 2024 as compared to the same period in 2023 due to fewer additions to property, plant and equipment and higher investment securities when compared to the same period last year. Cash used in financing activities for the six months ended December 31, 2024 relates primarily to dividend payments on common stock, offset in part, by proceeds from the exercise of stock options. Comparably, the dividends paid during the prior year were lower and cash received from stock option exercises in the prior year was significantly lower. The Company currently believes that the cash flow generated from operations and when necessary, from cash and cash equivalents will be sufficient to meet its long-term funding requirements for the foreseeable future.

During the six months ended December 31, 2024 and 2023, the Company expended $1,547,922 and $3,469,630, respectively, for plant improvements and new equipment, of which $1,346,396 and $3,292,313, respectively, was either reimbursed or eligible to be reimbursed under a not to exceed $7.4 million award received by the Company. The award received by the Company is in support of facility and capital equipment upgrades for testing and qualification for the United States Navy. This funding award is part of the Navy’s investment to improve and sustain the Surface Combatant Industrial Base. The Company has budgeted approximately $500,000 for new equipment and plant improvements in fiscal year 2025, not reimbursable under the funding awards received. A majority of these expenditures will be made to stay competitive in the marketplace and to meet the needs of current contracts.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE

SECURITIES LITIGATION REFORM ACT OF 1995

This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The terms "believe," "anticipate," "intend," "goal," "expect," and similar expressions may identify forward-looking statements. These forward-looking statements represent the Company's current expectations or beliefs concerning future events. The matters covered by these statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including the Company's dependence on timely development, introduction and customer acceptance of new products, the impact of competition and price erosion, supply and manufacturing constraints, potential new orders from customers, the impact of cyber or other security threats or other disruptions to our business, the impact of inflationary pressures on the United States economy and our operations and other risks and uncertainties. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

## Market risk

As filed, 343 characters.

The Company is a smaller reporting company as defined under Securities and Exchange Commission Rule 12b-2. Pursuant to the exemption available to smaller reporting company issuers under Item 305 of Regulation S-K, quantitative and qualitative disclosures about market risk, the Company is not required to provide the information for this item.

## Controls and procedures

As filed, 830 characters.

(a) The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) There have been no changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Filed Feb 12, 2025.
Source: SEC EDGAR, the filing index for accession 0001174947-25-000162. Last ingested by Listed: Oct 26, 2026, 09:04 ET. No prices; not investment advice.