Espey posts $2.73M operating cash outflow in Q1 FY2027
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Rhea-AI Filing Summary
Espey Mfg. & Electronics Corp. (ESP) reported first-quarter fiscal 2027 results for the three months ended September 30, 2026. Net sales were $10.609 million, compared with $9.093 million a year earlier. Gross profit was $3.203 million versus $3.217 million, and gross margin was 30.2% versus approximately 35.4%. Net income was $2.190 million, compared with $2.170 million; diluted earnings per share were $0.75 versus $0.76. Operating activities used $2.733 million in cash, compared with $5.720 million provided a year earlier; cash and equivalents were $14.572 million at September 30.
Backlog was $126.7 million at September 30, down from $134.9 million at June 30 and $141.1 million a year earlier; approximately $10.5 million was unfunded. New orders were $2.6 million, versus $10.5 million in the prior-year quarter. Espey said the federal Continuing Resolution, expiring December 11, 2026, maintains baseline funding caps and restricts new contract starts. Management expects fiscal 2027 revenue to exceed fiscal 2026, while expecting lower total new orders than in fiscal 2026; about $37.4 million of September 30 backlog is anticipated to be filled in fiscal 2027, subject to delivery and other factors.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointQuarterly sales rose to $10.609 million from $9.093 million.
Negative
- Moderate pointOperating cash flow was negative $2.733 million, versus positive $5.720 million.
Filing Explained
Option exercises increased outstanding shares, reducing existing holders’ ownership percentage; the final $1,353,072 Navy-award reimbursement arrived November 10, 2026.
The quarter’s exercise of options covering 31,500 shares from treasury left 3,039,172 shares outstanding at
At
The company reported completing the final requirements for its
Key Figures
Key Terms
output method technical
contract liabilities financial
available-for-sale debt securities financial
performance obligations financial
Continuing Resolution regulatory
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What were ESP's sales in the first quarter of fiscal 2027?
Why did ESP have negative operating cash flow in the first quarter of fiscal 2027?
What is ESP's fiscal 2027 revenue and backlog outlook?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
For the quarterly period ended
OR
Commission File Number
(Exact name of registrant as specified in its charter)
| Trading Symbol | ||
| (State of incorporation) | ESP | (I.R.S. Employer's Identification No.) |
(Address of principal executive offices)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
| Title of each class | Trading Symbol | Name of each exchange on which registered |
Indicate 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 of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:
| ☐ Large accelerated filer | ☐ |
| ☐ Accelerated filer | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
At November 9, 2026, there were
ESPEY MFG. & ELECTRONICS CORP.
Quarterly Report on Form 10-Q
I N D E X
| PART I | FINANCIAL INFORMATION | PAGE | |
| Item 1 | Financial Statements: | ||
| Balance Sheets - September 30, 2026 (Unaudited) and June 30, 2026 | 1 | ||
| Statements of Comprehensive Income (Unaudited) - Three Months Ended September 30, 2026 and 2025 | 2 | ||
| Statements of Changes in Stockholders’ Equity (Unaudited) – Three Months Ended September 30, 2026 and 2025 | 3 | ||
| Statements of Cash Flows (Unaudited) - Three Months Ended September 30, 2026 and 2025 | 5 | ||
| Notes to Financial Statements (Unaudited) | 6 | ||
| Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 14 | |
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 20 | |
| Item 4 | Controls and Procedures | 20 | |
| PART II | OTHER INFORMATION | 21 | |
| Item 1 | Legal Proceedings | 21 | |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 21 | |
| Item 3 | Defaults Upon Senior Securities | 21 | |
| Item 4 | Mine Safety Disclosures | 21 | |
| Item 5 | Other Information | 21 | |
| Item 6 | Exhibits | 21 | |
| SIGNATURES | 22 | ||
PART I: FINANCIAL INFORMATION
ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets
September 30, 2026 (Unaudited) and June 30, 2026
| September 30, 2026 | June 30, 2026 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investment securities | ||||||||
| Trade accounts receivable, less allowance for credit losses of $ | ||||||||
| Income tax receivable | ||||||||
| Inventories: | ||||||||
| Raw materials | ||||||||
| Work-in-process | ||||||||
| Costs related to contracts in process | ||||||||
| Total inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Net deferred tax assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses: | ||||||||
| Salaries and wages | ||||||||
| Vacation | ||||||||
| ESOP payable | ||||||||
| Other | ||||||||
| Payroll and other taxes withheld | ||||||||
| Contract liabilities | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (See Note 5) | ||||||||
| Common stock, par value $ | ||||||||
| Authorized | ||||||||
| Capital in excess of par value | ||||||||
| Accumulated other comprehensive gain (loss) | ||||||||
| Retained earnings | ||||||||
| Less: Unearned ESOP shares | ( | ) | ( | ) | ||||
| Cost of | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of the financial statements.
1
ESPEY MFG. & ELECTRONICS CORP.
Statements of Comprehensive Income (Unaudited)
Three Months Ended September 30, 2026 and 2025
| September 30, 2026 | September 30, 2025 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Selling, general and administrative expenses | ||||||||
| Operating income | ||||||||
| Other income | ||||||||
| Interest income | ||||||||
| Other | ||||||||
| Total other income | ||||||||
| Income before provision for income taxes | ||||||||
| Provision for income taxes | ||||||||
| Net income | $ | $ | ||||||
| Other comprehensive income, net of tax | ||||||||
| Unrealized gain (loss) on investment securities | ( | ) | ||||||
| Total comprehensive income | $ | $ | ||||||
| Net income per share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Weighted average number of shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| Dividends per share: | $ | $ | ||||||
The accompanying notes are an integral part of the financial statements.
2
Espey Mfg. & Electronics Corp.
Statements of Changes in Stockholders' Equity (Unaudited)
Three Months Ended September 30, 2026
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Capital in | Other | Unearned | Total | |||||||||||||||||||||||||||||||||
| Outstanding | Common | Excess of | Comprehensive | Retained | Treasury | Treasury | ESOP | Stockholders’ | ||||||||||||||||||||||||||||
| Shares | Amount | Par Value | (Loss) Gain | Earnings | Shares | Amount | Shares | Equity | ||||||||||||||||||||||||||||
| Balance as of June 30, 2026 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax of $ | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Total comprehensive income | ||||||||||||||||||||||||||||||||||||
| Stock options exercised | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||
| Dividends paid on common stock $ | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance as of September 30, 2026 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
The accompanying notes are an integral part of the financial statements.
3
Espey Mfg. & Electronics Corp.
Statements of Changes in Stockholders' Equity (Unaudited)
Three Months Ended September 30, 2025
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Capital in | Other | Unearned | Total | |||||||||||||||||||||||||||||||||
| Outstanding | Common | Excess of | Comprehensive | Retained | Treasury | Treasury | ESOP | Stockholders’ | ||||||||||||||||||||||||||||
| Shares | Amount | Par Value | Gain | Earnings | Shares | Amount | Shares | Equity | ||||||||||||||||||||||||||||
| Balance as of June 30, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax of $ | ||||||||||||||||||||||||||||||||||||
| Total comprehensive income | ||||||||||||||||||||||||||||||||||||
| Stock options exercised | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||
| Dividends paid on common stock $ | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance as of September 30, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
The accompanying notes are an integral part of the financial statements.
4
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows (Unaudited)
Three Months Ended September 30, 2026 and 2025
| September 30, 2026 | September 30, 2025 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation | ||||||||
| ESOP compensation expense | ||||||||
| Deferred income tax benefit | ( | ) | ( | ) | ||||
| Loss on disposal of property, plant and equipment | ||||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) Decrease in trade accounts receivable | ( | ) | ||||||
| Decrease in income taxes receivable | ||||||||
| Increase in inventories | ( | ) | ( | ) | ||||
| Increase in prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| (Decrease) Increase in accounts payable | ( | ) | ||||||
| Decrease in accrued salaries and wages | ( | ) | ( | ) | ||||
| Decrease in vacation accrual | ( | ) | ( | ) | ||||
| Decrease in ESOP payable | ( | ) | ( | ) | ||||
| Decrease in other accrued expenses | ( | ) | ( | ) | ||||
| (Decrease) Increase in payroll and other taxes withheld | ( | ) | ||||||
| (Decrease) Increase in contract liabilities | ( | ) | ||||||
| Increase in income taxes payable | ||||||||
| Net cash (used) provided by operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Additions to property, plant and equipment | ( | ) | ||||||
| Proceeds from grant award | ||||||||
| Proceeds from sale of property, plant and equipment | ||||||||
| Purchase of investment securities | ( | ) | ( | ) | ||||
| Proceeds from sale/maturity of investment securities | ||||||||
| Net cash provided by (used) investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Dividends on common stock | ( | ) | ( | ) | ||||
| Proceeds from exercise of stock options | ||||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| (Decrease) Increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental Schedule of Cash Flow Information: | ||||||||
| Income taxes paid, net of refunds | $ | $ | ||||||
| Supplemental Disclosure of Non-cash Investing Activities: | ||||||||
| Non-cash decrease in capital expenditures included in Additions to property, plant and equipment | $ | $ | ||||||
The accompanying notes are an integral part of the financial statements.
5
ESPEY MFG. & ELECTRONICS CORP.
Notes to Financial Statements (Unaudited)
Note 1. Basis of Presentation
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for such periods. The results for any interim period are not necessarily indicative of the results to be expected for the full fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States Generally Accepted Accounting Principles have been condensed or omitted. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventories, income taxes, and stock-based compensation. Specific to inventories, including work-in-process and contracts in process, management evaluates, quarterly, those estimates used in determining the cost to complete for each contract on Espey Mfg. & Electronics Corp.’s (the “Company”) sales backlog. The change in estimates may affect the reported amount of inventories and gross profit in the current or a future period and could result in the Company recording a loss contingency when a loss is determined to be probable and reasonably estimated. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. These financial statements should be read in conjunction with the Company's most recent audited financial statements included in its report on Form 10-K for the year ended June 30, 2026.
Note 2. Investment Securities
FASB Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures” establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
| § | Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
| § | Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
| § | Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
The carrying amounts of financial instruments, including cash and cash equivalents, short term investments, accounts receivable, accounts payable and accrued expenses, approximated fair value as of September 30, 2026 and June 30, 2026 because of the immediate or short-term maturity of these financial instruments.
Investment securities at September 30, 2026 and June 30, 2026 consisted of certificates of deposit and municipal bonds. The Company classifies investment securities as available-for-sale which have been determined to be level 1 assets.
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| September 30, 2026 | ||||||||||||||||
| Certificates of deposit | $ | $ | $ | $ | ||||||||||||
| Municipal bonds | ( | ) | ||||||||||||||
| Total investment securities | $ | $ | $ | ( | ) | $ | ||||||||||
| June 30, 2026 | ||||||||||||||||
| Certificates of deposit | $ | $ | $ | $ | ||||||||||||
| Municipal bonds | ( | ) | ||||||||||||||
| Total investment securities | $ | $ | $ | ( | ) | $ | ||||||||||
6
The portfolio is diversified and highly liquid. The Company regularly reviews the available-for-sale debt securities in an unrealized loss position to assess the necessity of an allowance for credit losses. As of September 30, 2026 and June 30, 2026 the securities in an unrealized loss position without an allowance for credit losses are primarily municipal bonds. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell them before recovery of their amortized cost basis, therefore no allowance for credit losses has been recorded for these instruments.
As of September 30, 2026 and June 30, 2026, 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 | ||||||||||
| September 30, 2026 | ||||||||||||
| Available-for-sale | $ | $ | $ | |||||||||
| June 30, 2026 | ||||||||||||
| Available-for-sale | $ | $ | $ | |||||||||
Note 3. Net Income per Share
Basic net income per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company. There were anti-dilutive shares to exclude from the computation of diluted net income per share for the three months ended September 30, 2026 or 2025. As unearned shares owned by the Company’s sponsored leveraged employee stock ownership plan (the “ESOP”) are released or committed-to-be-released, the shares become outstanding for earnings-per-share computations.
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 three-month periods ended September 30:
| 2026 | 2025 | |||||||
| Numerator: | ||||||||
| Net income | $ | $ | ||||||
| Denominator: | ||||||||
| Basic EPS: | ||||||||
| Common shares outstanding, beginning of period | ||||||||
| Unearned ESOP shares | ( | ) | ( | ) | ||||
| Weighted average common shares issued during the period | ||||||||
| Weighted average ESOP shares earned during the period | ||||||||
| Denominator for basic earnings per common shares – | ||||||||
| Weighted average common shares | ||||||||
| Diluted EPS: | ||||||||
| Common shares outstanding, beginning of period | ||||||||
| Unearned ESOP shares | ( | ) | ( | ) | ||||
| Weighted average common shares issued during the period | ||||||||
| Weighted average ESOP shares earned during the period | ||||||||
| Weighted average dilutive effect of stock options | ||||||||
| Denominator for diluted earnings per common shares – | ||||||||
| Weighted average common shares | ||||||||
7
Note 4. Stock Based Compensation
The Company follows FASB ASC 718-40 “Compensation – Stock Compensation” in establishing standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services, transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments, or transactions 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 Company’s 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 three-month periods ended September 30, 2026 and 2025 was $
As of September 30, 2026, unrecognized compensation cost related to stock option awards totaled $
The Company has one employee stock option plan under which options or stock awards may be granted, the 2017 Stock Option and Restricted Stock Plan (the "2017 Plan"), approved by the Company’s stockholders at the Company’s Annual Meeting on December 1, 2017. The Board of Directors may grant options to acquire shares of common stock to employees and non-employee directors of the Company at the fair market value of the common stock on the date of grant. The maximum aggregate number of shares of Common Stock subject to options or awards to non-employee directors is
ASC 718 requires the use of a valuation model to calculate the fair value of stock-based awards. The Company has elected to use the Black-Scholes option valuation model, which incorporates various assumptions including those for dividend yield, volatility, expected life and interest rates. The Company did not grant any stock options during the three months ended September 30, 2026 or 2025.
The Company paid regular cash dividends on common stock of $
8
The following table summarizes stock option activity during the three months ended September 30, 2026 and 2025:
| Employee Stock Option Plans | ||||||||||||||||
| Weighted | ||||||||||||||||
| Number of | Weighted | Average | ||||||||||||||
| Shares | Average | Remaining | Aggregate | |||||||||||||
| Subject | Exercise | Contractual | Intrinsic | |||||||||||||
| to Option | Price | Term | Value | |||||||||||||
| Balance at July 1, 2025 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Forfeited or expired | ||||||||||||||||
| Outstanding at September 30, 2025 | $ | $ | ||||||||||||||
| Vested or expected to vest at September 30, 2025 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2025 | $ | $ | ||||||||||||||
| Balance at July 1, 2026 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Forfeited or expired | ||||||||||||||||
| Outstanding at September 30, 2026 | $ | $ | ||||||||||||||
| Vested or expected to vest at September 30, 2026 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2026 | $ | $ | ||||||||||||||
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the closing sale price of the Company’s common stock as reported on the NYSE American on September 30, 2026 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders if all option holders had exercised their options on September 30, 2026. This amount changes based on the fair market value of the Company’s common stock. The intrinsic value of options exercised during the three months ended September 30, 2026 and 2025 was $
The following table summarizes changes in non-vested stock options during the three months ended September 30, 2026 and 2025:
| Weighted Number | Average | |||||||
| of Shares | Grant Date | |||||||
| Subject | Fair Value | |||||||
| to Option | (per Option) | |||||||
| Non-vested at July 1, 2025 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | $ | |||||
| Forfeited or expired | ||||||||
| Non-vested at September 30, 2025 | $ | |||||||
| Non-vested at July 1, 2026 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | $ | |||||
| Forfeited or expired | ||||||||
| Non-vested at September 30, 2026 | $ | |||||||
Note 5. Commitments and Contingencies
The Company may periodically enter into standby letters of credit agreements with financial institutions, primarily in connection with guaranteeing future performance on certain contracts. There were no contingent liabilities associated with outstanding standby letters of credit at September 30, 2026 or June 30, 2026. 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, 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 ASC 450 “Contingencies,” the Company will accrue amounts within a range that appears to be its best estimate of a possible outcome. Accruals, if any, are periodically adjusted based on current information.
9
Occasionally, we may be party to various litigation matters and claims that could arise during the ordinary course of business. Currently, there are no matters pending.
The Company received an award for $
Note 6. 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 customer has the significant risks and rewards of ownership of the asset, and in most instances the customer has accepted the asset. For milestones achieved, the customer has confirmed the performance defined in the contract has been met and the Company is entitled to payment.
Management disaggregates revenue into two primary streams: manufacturing jobs and engineering jobs. Manufacturing jobs primarily consist of the production and delivery of customer-specific products and may include contractual milestones associated with production activities or final unit of delivery. Engineering jobs primarily consist of design, development, testing, and other engineering services performed to customer specifications. The nature, timing, and contractual structure of these services differ and form the basis for management's disaggregation of revenue.
Total revenue recognized for the three months ended September 30, 2026 for manufacturing jobs totaled $
The Company offers a standard one-year product warranty. Product warranties offered by the Company are classified as assurance-type warranties, which means the warranty only guarantees that the good or service functions as promised. Based on this, the provided warranty is not considered to be a distinct performance obligation. The impact of variable consideration has been considered but none identified which would be required to be allocated to the transaction price as of September 30, 2026. Our payment terms are generally
Contract liabilities were $
10
The Company’s backlog at September 30, 2026 totaling $
Note 7. Recently Issued Accounting Standards
Recently Adopted Accounting Standards
None.
Recent Accounting Pronouncements Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)” with the goal of improving disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses in captions that are commonly presented on the face of the financial statements such as cost of sales, SG&A, and research and development. In January 2025, the FASB issued ASU 2025-01, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date,” to modify and clarify the original transition timeline. Under this updated guidance, the amendments are required to be adopted for annual reporting periods beginning after December 15, 2026, and for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted and should be applied either prospectively to financial statements issued for reporting periods after the effect date of the updates or retrospectively to any or all prior periods presented in the financial statements. The Company will evaluate the impact of this guidance on its financial statements.
In December 2025, the FASB issued ASU 2025-10, “Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities” which seeks to enhance investor transparency regarding government grants by strengthening Generally Accepted Accounting Principles and establishing authoritative guidance for the recognition, measurement, and presentation of government grants. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2028, and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. If a business entity adopts the amendments in this update in an interim reporting period, it must adopt them as of the beginning of the annual reporting period that includes that interim reporting period. The Company intends to adopt ASU 2025-10 for any future grants received; however, no changes will be made to the disclosures for any existing grants.
In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements” with the goal of clarifying the applicability of interim reporting guidance, improving codification navigability, and establishing a clear disclosure baseline for financial statements issued on an interim basis. The amendments consolidate disclosure requirements and introduce a principle requiring entities to disclose significant, material events or changes that have occurred since their most recent annual reporting period. For public companies, these amendments are effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years. Early adoption is permitted, and the Company is currently evaluating the impact of this guidance on its financial statements.
11
Note 8. Employee Stock Ownership Plan
The Company sponsors a leveraged employee stock ownership plan (the "ESOP") that covers all nonunion employees who work
The ESOP shares as of September 30, 2026 and 2025 were as follows:
| September 30, 2026 | September 30, 2025 | |||||||
| Allocated shares | ||||||||
| Committed-to-be-released shares | ||||||||
| Unreleased shares | ||||||||
| Total shares held by the ESOP | ||||||||
| Fair value of unearned shares | $ | $ | ||||||
The Company may at times be required to repurchase shares at the ESOP participants’ request at the shares’ fair market value. During the three months ended September 30, 2026 and 2025, the Company did not repurchase shares held by the ESOP.
The ESOP allows for eligible participants to take whole share distributions from the Plan on specific dates in accordance with the provision of the Plan. Total share distributions from the ESOP during the three months ended September 30, 2026 totaled
12
Note 9. Segment Reporting
Note 10. Provision for Income Taxes
The Company’s quarterly income tax provision is determined using an estimated annual effective tax rate, adjusted for discrete items recognized during the period. To calculate this rate, the Company forecasts its full-year pre-tax income (loss) and the jurisdictions where that income will be taxed. The final effective tax rate for the year may vary from these estimates if actual pre-tax income or its geographic allocation differs from our projections.
For the three months ended September 30, 2026, the Company’s effective tax rate was
The decrease in the effective tax rate for the three months ended September 30, 2026, compared to the three months ended September 30, 2025, was driven by higher stock prices at the time of option exercise within the current quarter when compared to the same period last year which generated an increased discrete tax benefit year over year.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 174,000+ 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” electronic technologies.
Espey is an ISO 9001:2015 and AS9100:2016 certified manufacturer of power conversion, advanced magnetics and “build to print” products where specifications are provided by the customer 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, development, and 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 on occasion.
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 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 equipment for military and industrial applications, as well as our customer concentrations expose us to on-going associated risks. These risks include, without limitation, 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 off-road equipment 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.
14
Our sales strategy continues to focus on the long-standing relationships we have with many of the leading defense prime contractors. These relations yield growth opportunities from new product development and additional sales opportunities of existing products to these customers. The Company targets 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 on future awards and expands our engineering team’s skillset.
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.
The total backlog at September 30, 2026 was $126.7 million, which included $84.5 million from three significant customers, compared to approximately $141.1 million at September 30, 2025, which included $92.3 million from three significant customers. A single customer may participate in multiple active programs. Therefore, the loss of one program does not necessarily result in the loss of the customer relationship. For this reason, management believes that the customer backlog concentration poses minimal risk to the Company. 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 origination date. Accordingly, a customer’s future reorder point may vary. The backlog at September 30, 2026 is fully funded, with the exception of approximately $10.5 million, the majority of which represents amounts under multiple 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 continues to expect fiscal year 2027 revenues to exceed those of fiscal year 2026, consistent with the growth achieved in the first quarter. Although revenue grew in the quarter ended September 30, 2026, gross margins declined slightly compared to the same period last year. This was in line with management’s expectations, and similar results are anticipated for the balance of the fiscal year due to a continued shift in sales mix. Revenue anticipated to be delivered this year includes new products that carry heavier engineering investment than the products sold in the prior year. As previously disclosed, while these upfront costs may temporarily compress near-term gross profit, they are expected to lay the foundation for long-term production revenue. The Company expects that manufacturing efficiency initiatives will partially offset these initial costs and help support gross margins. Given the impact of competition and product costs on gross profit, management continues to assess its sales strategy and operating expenses.
Occasionally, 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 2027. Tariffs on steel and aluminum imports from various countries remain in effect and, while not directly imposed on the Company, have in some cases contributed to higher costs from suppliers. Although we are not currently experiencing any significant financial or raw material sourcing issues resulting from product tariffs, we cannot provide any assurance that the existing tariffs, the potential of additional tariffs, and the associated volatility arising from foreign trade policies, will not have a negative impact on future earnings.
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, result in missing our scheduled backlog delivery projections, and adversely affect 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 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 arising from technical challenges, scheduling delays, and increased raw material costs could negatively impact the timing of the conversion of backlog into sales, or the profitability of those sales. Engineering programs in both the funded and unfunded portions of the current backlog aggregate $13.7 million. It is presently anticipated that approximately $37.4 million of orders comprising the September 30, 2026 backlog will be filled during the fiscal year ending June 30, 2027, subject to the impact of the factors identified above which, can affect the actual order amount fulfilled by the end of fiscal year 2027. In addition, we may make shipments against orders received subsequently to September 30, 2026, prior to the end of the current fiscal year.
15
Backlog decreased to $126.7 million at September 30, 2026 from $134.9 million at June 30, 2026, reflecting the conversion of orders to revenue, offset in part by new orders of $2.6 million compared to $10.5 million in the prior-year period mainly due to the timing of customer awards. Our business is subject to funding delays under the current federal Continuing Resolution expiring December 11, 2026, which maintains baseline funding caps and restricts new contract starts, directly contributing to the decrease in new orders recorded in the first quarter of fiscal 2027. Although management still anticipates lower total new orders in fiscal year 2027 when compared to fiscal year 2026, the current year-to-date shortfall in new orders is expected to narrow by the end of the second quarter. The Company continues to engage with existing and prospective customers through active quotations, pending bids, and ongoing discussions regarding future programs. As is typical in our business, the timing and size of customer awards can cause fluctuations in new orders from period to period.
Management believes that the Company’s ongoing efforts to secure strategic opportunities positions the Company well for positive long-term results. The Company currently has outstanding opportunities representing approximately $188.3 million in the aggregate as of November 5, 2026, for both repeat and new programs.
Outstanding opportunities encompass various new and previously manufactured power supplies, transformers, and subassemblies. The stated amount includes only those opportunities that 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 elements affecting the defense industry. Many solicitations we receive for the procurement of goods and services takes place by competitive bidding.
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. As previously stated above, a single customer may participate in multiple active programs. Therefore, the loss of one program does not necessarily result in the loss of the customer relationship. For this reason, management believes that sales concentration poses minimal risk to the Company. 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
The preparation of our financial statements in accordance with Generally Accepted Accounting Principles requires management to make certain judgments, estimates, and assumptions that affect the reported amounts as presented on the face of the financial statements. These critical accounting policies and estimates are those that are most important to the portrayal of our financial condition and results of operations. We base our estimates on historical experience and other assumptions that we believe to be reasonable. Management continually reviews and evaluates these critical accounting policies and estimates in light of evolving business conditions, regulatory developments, and changes in the economic environment. As future events cannot be determined and their impact on the financial statements are uncertain, actual results may differ from our estimates and could be material to the financial statements. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from established estimates. The critical accounting policies and estimates that we believe have the most significant effect on our financial statements are revenue recognition, inventory valuation, and deferred taxes.
Revenue Recognition
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. 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, our generated profit will fluctuate or a loss could be incurred.
16
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. As the Company does not have standalone observable prices, a contract’s transaction price of each performance obligation is based on the standalone selling price, which is determined using an expected cost plus a margin approach.
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 we 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 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 Valuation
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.
Deferred Taxes
The Company follows the provisions of the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (ASC) Topic 740-10, “Accounting for Income Taxes."
Under the provisions of FASB ASC 740-10, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.
Contract Liabilities
Contract liabilities include advance payments and billings in excess of revenue recognized. Contracts with customers generally grant the customer a right to cancel a contract for convenience. These contracts meet the enforceability criteria of ASC 606 because the customer is legally obligated to reimburse the Company for all costs incurred through the termination date. Consequently, any advanced consideration received in excess of amounts that are expected to be owed in the event of termination is recorded as a current contract liability on the Balance Sheet.
17
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. The accounts receivable balance is 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 September 30, 2026 and June 30, 2026. Changes to the allowance for credit losses are charged to expense and reduced by charge-offs, net of recoveries.
Results of Operations
Net sales for the three months ended September 30, 2026 and 2025 were $10,608,945 and $9,092,876, respectively. 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. The increase in sales during the three months ended September 30, 2026 when compared to the same period last year was mainly attributable to increases in sales related to several key magnetics and power supply programs, offset in part by a decrease in sales related to one primary magnetics program and one primary power supply program.
For the three months ended September 30, 2026, the increase in sales when compared to the same period last year is primarily due to the increase in manufacturing deliveries, product mix, and timing of milestone achievement on key programs. The increase in sales in the current year was mainly related to one magnetics program where there was an increase in milestones met resulting in an increase in revenue events. Additionally, several other magnetics programs experienced increases driven by higher shipment volumes and continued engineering milestone achievements. Further, there was an increase in manufacturing shipments and engineering milestones met for several power supply programs that were not realized in the same period last year. This increase was partially offset by lower sales during the three months ended September 30, 2026, driven by a decline in manufacturing shipments related to a legacy power supply contract as it approaches completion, alongside fewer milestone-related revenue events in a primary magnetics program that were not repeated in the current fiscal quarter.
Gross profits for the three months ended September 30, 2026 and 2025 were $3,202,670 and $3,217,002. Gross profit as a percentage of sales was 30.2% and approximately 35.4%, for the same periods, respectively. The decrease in gross profit for the three months ended September 30, 2026, was primarily driven by shifts in our product mix, as a greater portion of revenue was generated from lower-margin programs during the period. In addition, the Company realized non-recurring cost savings stemming from effective management of field support and subcontracting costs in the prior year that was not realized in the current year as the related contract was fully executed.
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, 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 $1,104,216 for the three months ended September 30, 2026, a decrease of $47,050, compared to the three months ended September 30, 2025. The slight decrease in spending for the three months ended September 30, 2026 as compared to the same period last year was driven by an overall decrease in employee salaries, stock option expense, conference and training costs, as well as travel and entertainment. These decreases were offset in part by an increase in ESOP contributions, employee health benefits, and outgoing freight expenses.
Other income for the three months ended September 30, 2026 and 2025 was $409,179 and $491,782, respectively. The primary reason for the decrease during the three months ended September 30, 2026 is due to the decrease in interest income resulting from a decrease in cash held in money market accounts and investment securities. Interest income is a function of the level of investments and investment strategies that generally tend to be conservative.
18
Net income for the three months ended September 30, 2026 was $2,189,509 or $0.77 and $0.75 per share, basic and diluted, respectively, compared to net income of $2,169,836 or $0.80 and $0.76 per share, basic and diluted, respectively, for the three months ended September 30, 2025. The increase in net income in the three months ended September 30, 2026 when compared to the same period last year resulted primarily from the decrease in selling, general, and administrative expenses and a decrease in the provision for income taxes discussed in detail above.
Liquidity and Capital Resources
The Company's working capital is an appropriate indicator of the liquidity of its business. During the past two fiscal years, the Company 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 a $3,000,000 line of credit available to help fund further growth or working capital needs but does not anticipate the need for any borrowed funds in the foreseeable future. Contingent liabilities related to outstanding standby letters of credit were zero as of September 30, 2026 and 2025. The existing line of credit was renewed in February 2026.
The Company's working capital as of September 30, 2026 and 2025 was approximately $54.8 million and approximately $46.9 million, respectively. The Company’s working capital as of June 30, 2026, the most recent fiscal year-end, was approximately $54.7 million. The Company may at times be required to repurchase shares at the ESOP participants’ request at fair market value. During the three months ended September 30, 2026 and 2025, the Company did not repurchase any shares held by the ESOP. Under existing authorizations from the Company's Board of Directors, as of September 30, 2026, 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:
| Three Months Ended September 30, | ||||||||
| 2026 | 2025 | |||||||
| Net cash (used) provided by operating activities | $ | (2,733,432 | ) | $ | 5,720,090 | |||
| Net cash (used) provided by investing activities | $ | 79,199 | $ | (243,436 | ) | |||
| Net cash used in financing activities | $ | (2,210,319 | ) | $ | (2,119,072 | ) | ||
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 decrease in cash provided by operating activities compared to the prior year primarily relates to an increase in inventories, prepaid expenses and other current assets, and accounts receivables, offset by a decrease in accounts payable, ESOP payable, accrued expenses, and contract liabilities. This is offset in part by a decrease in income tax receivable. Net cash provided by investing activities increased during the three months ended September 30, 2026 as compared to the same period in 2025 due to a decrease in additions to property, plant, and equipment and a decrease in the purchase of investment securities offset by a decrease in proceeds received from grants. Net cash used in financing activities increased due to a slight increase in dividends paid compared to the prior year period, which was only partially offset by an increase in cash proceeds received from stock option exercises. 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.
19
During the three months ended September 30, 2026, the Company expended $98,361 for plant improvements and new equipment of which $25,544 is reimbursable, in part, under the $3.4 million award received by the Company. During the three months ended September 30, 2025, the Company expended $1,290,569 for plant improvements and new equipment, of which $1,014,804 was reimbursed under the $3.4 million award received by the Company in the second quarter of fiscal year 2025. The Company initially allocated approximately $500,000 for new equipment and plant improvements in fiscal year 2027, which are not reimbursable under the funding awards received. A majority of these expenditures will be made to upgrade our facilities, stay competitive in the market place, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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.
Item 4. Controls and Procedures
(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.
20
PART II: Other Information and Signatures
| Item 1. | Legal Proceedings |
Currently, there are no matters pending against the Company which could reasonably be expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| (a) | Securities Sold |
| (c) | Securities Repurchased |
As of September 30, 2026 the Company can repurchase up to $783,460 of its common stock pursuant to an existing authorization by the Board of Directors. During the quarter ended September 30, 2026 no shares were repurchased.
| Item 3. | Defaults Upon Senior Securities |
None
| Item 4. | Mine Safety Disclosures |
Not applicable
| Item 5. | Other Information |
| Item 6. | Exhibits |
| 31.1 | Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
21
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ESPEY MFG. & ELECTRONICS CORP. | |
| /s/ David O’Neil | |
| David O’Neil | |
| President and Chief Executive Officer | |
| /s/ Kaitlyn O’Neil | |
| Kaitlyn O’Neil | |
| Chief Financial Officer |
Date: November 13, 2026
22