ESPEY MFG. & ELECTRONICS CORP.
Balance Sheets
December 31, 2020 (Unaudited) and June
30, 2020
|
|
December 31, 2020
|
|
|
June 30, 2020
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,040,393
|
|
|
$
|
5,402,122
|
|
Investment securities
|
|
|
3,203,113
|
|
|
|
5,141,520
|
|
Trade accounts receivable, net of allowance of $3,000
|
|
|
4,207,602
|
|
|
|
9,013,405
|
|
Income tax receivable
|
|
|
86,274
|
|
|
|
—
|
|
ESOP receivable due to dividends on unallocated shares
|
|
|
18,726
|
|
|
|
—
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
2,076,391
|
|
|
|
2,057,778
|
|
Work-in-process
|
|
|
362,494
|
|
|
|
614,521
|
|
Costs related to contracts in process
|
|
|
14,055,905
|
|
|
|
12,115,756
|
|
Total inventories
|
|
|
16,494,790
|
|
|
|
14,788,055
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
506,501
|
|
|
|
396,886
|
|
Total current assets
|
|
|
33,557,399
|
|
|
|
34,741,988
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
3,224,610
|
|
|
|
3,466,778
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
36,782,009
|
|
|
$
|
38,208,766
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,253,983
|
|
|
$
|
2,861,696
|
|
Accrued expenses:
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
|
344,141
|
|
|
|
469,201
|
|
Vacation
|
|
|
666,160
|
|
|
|
689,834
|
|
Other
|
|
|
90,186
|
|
|
|
318,322
|
|
Payroll and other taxes withheld
|
|
|
463,285
|
|
|
|
186,970
|
|
Contract liabilities
|
|
|
1,650,288
|
|
|
|
2,175,235
|
|
Income taxes payable
|
|
|
—
|
|
|
|
47,707
|
|
Total current liabilities
|
|
|
6,468,043
|
|
|
|
6,748,965
|
|
Deferred tax liabilities
|
|
|
197,705
|
|
|
|
232,953
|
|
Total liabilities
|
|
|
6,665,748
|
|
|
|
6,981,918
|
|
Commitments and contingencies (See Note 5)
|
|
|
|
|
|
|
|
|
Common stock, par value $.33-1/3 per share
|
|
|
|
|
|
|
|
|
Authorized 10,000,000 shares; Issued 3,129,874 and 3,029,874
|
|
|
|
|
|
|
|
|
shares as of December 31, 2020 and June 30, 2020, respectively.
|
|
|
|
|
|
|
|
|
Outstanding 2,702,633 and 2,402,633 as of December 31, 2020
|
|
|
|
|
|
|
|
|
And June 30, 2020, respectively (includes 297,061 and 0
|
|
|
|
|
|
|
|
|
Unearned ESOP shares, respectively)
|
|
|
1,043,291
|
|
|
|
1,009,958
|
|
Capital in excess of par value
|
|
|
22,995,640
|
|
|
|
19,073,213
|
|
Accumulated other comprehensive loss
|
|
|
(2,069
|
)
|
|
|
(3,107
|
)
|
Retained earnings
|
|
|
17,605,090
|
|
|
|
18,797,589
|
|
|
|
|
41,641,952
|
|
|
|
38,877,653
|
|
Less: Unearned ESOP shares
|
|
|
(5,487,000
|
)
|
|
|
—
|
|
Cost of 427,241 and 627,241 shares of common stock
|
|
|
|
|
|
|
|
|
in treasury as of December 31, 2020 and June 30, 2020,
|
|
|
|
|
|
|
|
|
respectively
|
|
|
(6,038,691
|
)
|
|
|
(7,650,805
|
)
|
Total stockholders’ equity
|
|
|
30,116,261
|
|
|
|
31,226,848
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
36,782,009
|
|
|
$
|
38,208,766
|
|
The accompanying notes are an integral part of the financial
statements.
ESPEY MFG. & ELECTRONICS CORP.
Statements of Comprehensive Income (Loss) (Unaudited)
Three and Six Months Ended December 31, 2020
and 2019
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
6,962,065
|
|
|
$
|
7,286,674
|
|
|
$
|
14,227,580
|
|
|
$
|
13,210,493
|
|
Cost of sales
|
|
|
6,248,604
|
|
|
|
5,806,526
|
|
|
|
12,386,745
|
|
|
|
10,593,997
|
|
Gross profit
|
|
|
713,461
|
|
|
|
1,480,148
|
|
|
|
1,840,835
|
|
|
|
2,616,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
945,478
|
|
|
|
1,249,742
|
|
|
|
1,860,104
|
|
|
|
2,333,954
|
|
Operating (loss) income
|
|
|
(232,017
|
)
|
|
|
230,406
|
|
|
|
(19,269
|
)
|
|
|
282,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,753
|
|
|
|
33,915
|
|
|
|
16,970
|
|
|
|
66,076
|
|
Other
|
|
|
13,734
|
|
|
|
4,849
|
|
|
|
16,861
|
|
|
|
20,177
|
|
Total other income
|
|
|
15,487
|
|
|
|
38,764
|
|
|
|
33,831
|
|
|
|
86,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for income taxes
|
|
|
(216,530
|
)
|
|
|
269,170
|
|
|
|
14,562
|
|
|
|
368,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit) provision for income taxes
|
|
|
(35,524
|
)
|
|
|
40,206
|
|
|
|
5,745
|
|
|
|
58,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(181,006
|
)
|
|
$
|
228,964
|
|
|
$
|
8,817
|
|
|
$
|
310,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investment securities
|
|
|
2,712
|
|
|
|
(355
|
)
|
|
|
1,038
|
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(178,294
|
)
|
|
$
|
228,609
|
|
|
$
|
9,855
|
|
|
$
|
310,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.08
|
)
|
|
$
|
0.10
|
|
|
$
|
0.00
|
|
|
$
|
0.13
|
|
Diluted
|
|
$
|
(0.08
|
)
|
|
$
|
0.10
|
|
|
$
|
0.00
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,402,665
|
|
|
|
2,391,643
|
|
|
|
2,402,649
|
|
|
|
2,389,526
|
|
Diluted
|
|
|
2,402,665
|
|
|
|
2,395,020
|
|
|
|
2,404,043
|
|
|
|
2,395,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share:
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
The accompanying notes are an integral part of the financial statements.
Espey Mfg. & Electronics Corp.
Statements of Changes in Stockholders' Equity (Unaudited)
Three Months Ended December
31, 2020
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Total
|
|
|
|
Outstanding
|
|
|
Common
|
|
|
Excess of
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
ESOP
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
(Loss) Income
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Equity
|
|
Balance as of September 30, 2020
|
|
|
2,402,633
|
|
|
$
|
1,009,958
|
|
|
$
|
19,120,380
|
|
|
$
|
(4,781
|
)
|
|
$
|
18,386,755
|
|
|
|
627,241
|
|
|
$
|
(7,650,805
|
)
|
|
$
|
—
|
|
|
$
|
30,861,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(181,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(181,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax of $721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(178,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
33,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.25 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(600,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(600,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of stock to ESOP
|
|
|
300,000
|
|
|
|
33,333
|
|
|
|
3,841,553
|
|
|
|
|
|
|
|
|
|
|
|
(200,000
|
)
|
|
|
1,612,114
|
|
|
|
(5,487,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020
|
|
|
2,702,633
|
|
|
$
|
1,043,291
|
|
|
$
|
22,995,640
|
|
|
$
|
(2,069
|
)
|
|
$
|
17,605,090
|
|
|
|
427,241
|
|
|
$
|
(6,038,691
|
)
|
|
$
|
(5,487,000
|
)
|
|
$
|
30,116,261
|
|
The accompanying notes are an integral part of the financial statements.
Espey Mfg. & Electronics Corp.
Statements of Changes in Stockholders' Equity (Unaudited)
Six Months Ended December
31, 2020
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Total
|
|
|
|
Outstanding
|
|
|
Common
|
|
|
Excess of
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
ESOP
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
(Loss) Income
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Equity
|
|
Balance as of June 30, 2020
|
|
|
2,402,633
|
|
|
$
|
1,009,958
|
|
|
$
|
19,073,213
|
|
|
$
|
(3,107
|
)
|
|
$
|
18,797,589
|
|
|
|
627,241
|
|
|
$
|
(7,650,805
|
)
|
|
$
|
—
|
|
|
$
|
31,226,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax of $ 276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
80,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.50 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,201,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,201,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of stock to ESOP
|
|
|
300,000
|
|
|
|
33,333
|
|
|
|
3,841,553
|
|
|
|
|
|
|
|
|
|
|
|
(200,000
|
)
|
|
|
1,612,114
|
|
|
|
(5,487,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020
|
|
|
2,702,633
|
|
|
$
|
1,043,291
|
|
|
$
|
22,995,640
|
|
|
$
|
(2,069
|
)
|
|
$
|
17,605,090
|
|
|
|
427,241
|
|
|
$
|
(6,038,691
|
)
|
|
$
|
(5,487,000
|
)
|
|
$
|
30,116,261
|
|
The accompanying notes are an integral part of the financial statements.
Espey Mfg. & Electronics Corp.
Statements of Changes in Stockholders' Equity (Unaudited)
Three Months Ended December
31, 2019
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Total
|
|
|
|
Outstanding
|
|
|
Common
|
|
|
Excess of
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
ESOP
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
(Loss) Income
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Equity
|
|
Balance as of September 30, 2019
|
|
|
2,402,880
|
|
|
$
|
1,009,958
|
|
|
$
|
18,812,931
|
|
|
$
|
(1,102
|
)
|
|
$
|
19,506,648
|
|
|
|
626,994
|
|
|
$
|
(7,624,347
|
)
|
|
$
|
(204,706
|
)
|
|
$
|
31,499,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax of $ (94)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
45,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.25 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(596,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(596,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(1,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,847
|
|
|
|
(39,658
|
)
|
|
|
|
|
|
|
(39,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
|
|
2,401,033
|
|
|
$
|
1,009,958
|
|
|
$
|
18,858,202
|
|
|
$
|
(1,457
|
)
|
|
$
|
19,138,895
|
|
|
|
628,841
|
|
|
$
|
(7,664,005
|
)
|
|
$
|
(204,706
|
)
|
|
$
|
31,136,887
|
|
The accompanying notes are an integral part of the financial statements.
Espey Mfg. & Electronics Corp.
Statements of Changes in Stockholders' Equity (Unaudited)
Six Months Ended December
31, 2019
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
|
Total
|
|
|
|
Outstanding
|
|
|
Common
|
|
|
Excess of
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
ESOP
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Par Value
|
|
|
(Loss) Income
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Equity
|
|
Balance as of June 30, 2019
|
|
|
2,401,213
|
|
|
$
|
1,009,958
|
|
|
$
|
18,731,975
|
|
|
$
|
(1,299
|
)
|
|
$
|
20,022,132
|
|
|
|
628,661
|
|
|
$
|
(7,632,556
|
)
|
|
$
|
(204,706
|
)
|
|
$
|
31,925,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax of $ (42)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
2,000
|
|
|
|
|
|
|
|
33,780
|
|
|
|
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
16,500
|
|
|
|
|
|
|
|
50,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
92,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.50 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,193,977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,193,977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(2,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,180
|
|
|
|
(47,949
|
)
|
|
|
|
|
|
|
(47,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
|
|
2,401,033
|
|
|
$
|
1,009,958
|
|
|
$
|
18,858,202
|
|
|
$
|
(1,457
|
)
|
|
$
|
19,138,895
|
|
|
|
628,841
|
|
|
$
|
(7,664,005
|
)
|
|
$
|
(204,706
|
)
|
|
$
|
31,136,887
|
|
The accompanying notes are an integral part of the financial statements.
ESPEY MFG. & ELECTRONICS CORP.
Statements of Cash Flows (Unaudited)
Six Months Ended December 31, 2020 and 2019
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,817
|
|
|
$
|
310,740
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided by operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
80,874
|
|
|
|
92,447
|
|
Depreciation
|
|
|
271,341
|
|
|
|
286,549
|
|
ESOP compensation expense
|
|
|
56,274
|
|
|
|
165,820
|
|
Deferred income tax benefit
|
|
|
(35,524
|
)
|
|
|
(18,561
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease in trade accounts receivable
|
|
|
4,805,803
|
|
|
|
6,574,172
|
|
Increase in income taxes receivable
|
|
|
(86,274
|
)
|
|
|
(43,903
|
)
|
Increase in ESOP receivable due to
dividends on unallocated shares
|
|
|
(18,726
|
)
|
|
|
—
|
|
Increase in inventories
|
|
|
(1,706,735
|
)
|
|
|
(2,363,114
|
)
|
Increase in prepaid expenses and other current assets
|
|
|
(109,615
|
)
|
|
|
(512,667
|
)
|
Increase (decrease) increase in accounts payable
|
|
|
392,287
|
|
|
|
(246,984
|
)
|
(Decrease) increase in accrued salaries and wages
|
|
|
(125,060
|
)
|
|
|
54,249
|
|
Decrease in vacation accrual
|
|
|
(23,674
|
)
|
|
|
(72,161
|
)
|
Decrease in ESOP Payable
|
|
|
(56,274
|
)
|
|
|
(7,084
|
)
|
(Decrease) increase in other accrued expenses
|
|
|
(228,136
|
)
|
|
|
76,001
|
|
Increase (decrease) in payroll and other taxes withheld
|
|
|
276,315
|
|
|
|
(60,941
|
)
|
(Decrease) increase in contract liabilities
|
|
|
(524,947
|
)
|
|
|
1,797,286
|
|
Decrease in income taxes payable
|
|
|
(47,707
|
)
|
|
|
(30,481
|
)
|
Net cash provided by operating activities
|
|
|
2,929,039
|
|
|
|
6,001,368
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(29,173
|
)
|
|
|
(177,826
|
)
|
Purchase of investment securities
|
|
|
(2,391,686
|
)
|
|
|
(6,063,558
|
)
|
Proceeds from sale/maturity of investment securities
|
|
|
4,331,407
|
|
|
|
6,079,747
|
|
Net cash provided by (used in) investing activities
|
|
|
1,910,548
|
|
|
|
(161,637
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Dividends on common stock
|
|
|
(1,201,316
|
)
|
|
|
(1,193,977
|
)
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
(47,949
|
)
|
Proceeds from exercise of stock options
|
|
|
—
|
|
|
|
50,280
|
|
Net cash used in financing activities
|
|
|
(1,201,316
|
)
|
|
|
(1,191,646
|
)
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
3,638,271
|
|
|
|
4,648,085
|
|
Cash and cash equivalents, beginning of period
|
|
|
5,402,122
|
|
|
|
1,462,761
|
|
Cash and cash equivalents, end of period
|
|
$
|
9,040,393
|
|
|
$
|
6,110,846
|
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
175,250
|
|
|
$
|
151,000
|
|
The accompanying notes are an integral part of the financial statements.
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. (the Company's) sales backlog. During the quarter ended December 31, 2020 the Company, related to the
pandemic, received notice from a customer to cancel an in-process contract. The Company recorded a write-off of inventory to
cost of sales to the net realizable value of the inventory based on the terms of the contract. The change in estimates may
affect the reported amount of inventories and gross profit in the current or a future period. 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, 2020. Certain reclassifications may have been made to the prior year
financial statements to conform to the current year presentation.
Note 2. Investment Securities
Accounting Standards Codification (“ASC”)
820 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 investment securities, accounts receivable, accounts payable and accrued expenses,
approximated fair value as of December 31, 2020 and June 30, 2020 because of the immediate or short-term maturity of these financial
instruments.
Investment securities at December 31,
2020 and June 30, 2020 consist of certificates of deposit and municipal bonds which are classified as available-for-sale securities
and have been determined to be level 1 assets. The cost, gross unrealized gains, gross unrealized losses and fair value of available-for-sale
securities by major security type at December 31, 2020 and June 30, 2020 are as follows:
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
3,132,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,132,000
|
|
Municipal bonds
|
|
|
70,744
|
|
|
|
369
|
|
|
|
—
|
|
|
|
71,113
|
|
Total investment securities
|
|
$
|
3,202,744
|
|
|
$
|
369
|
|
|
$
|
—
|
|
|
$
|
3,203,113
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
4,679,847
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,679,847
|
|
Municipal bonds
|
|
|
462,618
|
|
|
|
1,243
|
|
|
|
(2,188
|
)
|
|
|
461,673
|
|
Total investment securities
|
|
$
|
5,142,465
|
|
|
$
|
1,243
|
|
|
$
|
(2,188
|
)
|
|
$
|
5,141,520
|
|
The portfolio is diversified and highly
liquid. At December 31, 2020, the Company did not have any investments in individual securities that have been in a continuous
loss position considered to be other than temporary.
As of December 31, 2020 and June 30,
2020, the remaining contractual maturities of available-for-sale securities were as follows:
|
|
Years to Maturity
|
|
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
|
|
|
|
One Year
|
|
|
Five Years
|
|
|
Total
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
$
|
3,203,113
|
|
|
$
|
—
|
|
|
$
|
3,203,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
$
|
5,141,520
|
|
|
$
|
—
|
|
|
$
|
5,141,520
|
|
Note 3. Net (Loss) Income per Share
Basic net (loss) 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 contracts 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. The computation of diluted net (loss) income per share, excluded options to purchase 315,337 and 253,312
shares for the three and six months ended December 31, 2020 and 184,342 shares of our common stock for the three and six months
ended December 31, 2019, as the effect of including them would be anti-dilutive. As unearned ESOP shares are released or committed-to-be-released
the shares become outstanding for earnings-per-share computations.
Note 4. Stock Based Compensation
The
Company follows ASC 718 in establishing standards for the accounting for transactions in which an entity exchanges its equity instruments
for goods or services, as well as transactions in which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based
on the fair value of the share-based payment. ASC 718 establishes fair value as the measurement objective in accounting for share-based
payment transactions with employees, except for equity instruments held by employee share ownership plans.
Total stock-based compensation
expense recognized in the statements of comprehensive income (loss) for the three-month periods ended December 31, 2020 and
2019 was $33,707 and $45,271, respectively, before income taxes. The related total deferred tax benefits were $1,080 and
$2,483 for the same periods. Total stock-based compensation expense recognized in the statements of comprehensive income
(loss) for the six-month periods ended December 31, 2020 and 2019, was $80,874 and $92,447, respectively, before income
taxes. The related total deferred tax benefits were $3,808 and $5,061 for the same periods.
As of December 31, 2020, there was $139,818
of unrecognized compensation cost related to stock option awards that is expected to be recognized as expense over the next 2 years.
The total deferred tax benefit related to these awards is expected to be $ 7,712.
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").
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 133,000 and the maximum aggregate number of shares of Common Stock subject to
options or awards granted to non-employee directors during any single fiscal year is the lesser of 13,300 and 33 1/3% of the total
number of shares subject to options or awards granted in such fiscal year. The maximum number of shares subject to options or awards
granted to any individual employee may not exceed 15,000 in a fiscal year. Generally, options granted have a two-year vesting period
based on two years of continuous service and have a ten-year contractual life. Option grants provide for accelerated vesting if
there is a change in control. Shares issued upon the exercise of options are from those held in Treasury. Options covering 400,000
shares are authorized for issuance under the 2017 Plan, of which 226,354 have been granted as of December 31, 2020. While no further
grants of options may be made under the Company’s 2007 Stock Option and Restricted Stock Plan, as of December 31, 2020, 119,750
options were outstanding under such plan of which all are vested and exercisable.
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 table below outlines the weighted average
assumptions that the Company used to calculate the fair value of each option award for the six months ended December 31, 2020 and
2019.
|
December 31, 2020
|
December 31, 2019
|
|
|
|
Dividend yield
|
5.54 %
|
4.88%
|
Company’s expected volatility
|
23.41%
|
27.81%
|
Risk-free interest rate
|
0.36 %
|
1.67%
|
Expected term
|
5.4 yrs
|
5.3 yrs
|
Weighted average fair value per share
|
|
|
of options granted during the period
|
$1.59
|
$3.03
|
The Company declares regular dividends quarterly
and declared and paid regular cash dividends of $0.50 per share for the six months ended December 31, 2020. The Company declared
regular cash dividends of $0.50 per share for the six months ended December 31, 2019. Expected stock price volatility is based
on the historical volatility of the Company’s stock. The risk-free interest rate is based on the implied yield available
on U.S. Treasury issues with an equivalent term approximating the expected life of the options. The expected option term (in years)
represents the estimated period of time until exercise and is based on actual historical experience.
The following table summarizes stock
option activity during the six months ended December 31, 2020:
|
|
Employee Stock Options Plan
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number of
|
|
Weighted
|
|
Average
|
|
|
|
|
Shares
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
Subject
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
to Option
|
|
Price
|
|
Term
|
|
Value
|
Balance at July 1, 2020
|
|
|
276,712
|
|
|
$
|
24.30
|
|
|
$
|
6.10
|
|
|
|
|
|
Granted
|
|
|
62,025
|
|
|
$
|
18.05
|
|
|
|
9.81
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Forfeited or expired
|
|
|
(23,400
|
)
|
|
$
|
21.20
|
|
|
|
—
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
315,337
|
|
|
$
|
23.30
|
|
|
|
6.60
|
|
|
$
|
53,962
|
|
Vested or expected to vest at December 31, 2020
|
|
|
297,286
|
|
|
$
|
23.55
|
|
|
|
6.43
|
|
|
$
|
44,882
|
|
Exercisable at December 31, 2020
|
|
|
205,187
|
|
|
$
|
25.54
|
|
|
|
5.08
|
|
|
$
|
0
|
|
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 December 31, 2020 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 December 31, 2020. This
amount changes based on the fair market value of the Company’s common stock. The total intrinsic values of the options exercised
during the six months ended December 31, 2020 and 2019 were $0 and $263, respectively.
The following table summarizes changes in non-vested stock
options during the six months ended December 31, 2020:
|
|
Weighted Number
|
|
Average
|
|
|
of Shares
|
|
Grant Date
|
|
|
Subject
|
|
Fair Value
|
|
|
to Option
|
|
(per Option)
|
Non-vested at July 1, 2020
|
|
|
97,192
|
|
|
$
|
4.034
|
|
Granted
|
|
|
62,025
|
|
|
$
|
1.590
|
|
Vested
|
|
|
(44,667
|
)
|
|
$
|
5.140
|
|
Forfeited or expired
|
|
|
(4,400
|
)
|
|
$
|
3.797
|
|
Non-vested at December 31, 2020
|
|
|
110,150
|
|
|
$
|
2.219
|
|
Note 5. Commitments and Contingencies
The Company from time to time, enters into
standby letters of credit agreements with financial institutions primarily relating to the guarantee of future performance on certain
contracts. Contingent liabilities on outstanding standby letters of credit agreements aggregated to zero at December 31, 2020 and
June 30, 2020. The Company, as a U.S. Government contractor, is subject to audits, reviews, and investigations by the U.S. Government
related to its negotiation and performance of government contracts and its accounting for such contracts. Failure to comply with
applicable U.S. Government standards by a contractor may result in suspension from eligibility for award of any new government
contract and a guilty plea or conviction may result in debarment from eligibility for awards. The government may, in certain cases,
also terminate existing contracts, recover damages, and impose other sanctions and penalties. As a result of contract audits the
Company will determine a range of possible outcomes and in accordance with ASC 450 “Contingencies” the Company will
accrue amounts within a range that appears to be its best estimate of a possible outcome. Adjustments are made to accruals, if
any, periodically based on current information.
We are party to various litigation matters
and claims arising from time to time in the ordinary course of business. While the results of such matters cannot be predicted
with certainty, we believe that the final outcome of such matters will not have a material adverse effect on our business, financial
condition, results of operations or cash flows. Currently, there are no matters pending.
Note 6. Revenue
The company follows 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
the satisfaction of performance obligations. Revenues from our performance obligations are satisfied over time using the
output method which considers the appraisal of results achieved and milestones reached or units delivered based on contractual
shipment terms, typically shipping point. Revenue is recognized when 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 work completed. 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.
Total revenue recognized for the three and
six months ended December 31, 2020 based on units delivered totaled $5,865,878 and $11,724,584, respectively, compared to $5,702,565
and $10,820,879 for the same periods in fiscal year 2020. Total revenue recognized for the three and six months ended December
31, 2020 based on milestones achieved totaled $1,096,187 and $2,502,996, respectively, compared to $1,584,109 and $2,389,614 for
the same periods in fiscal year 2020.
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 December 31, 2020. Our payment terms are generally 30-60 days.
Contract liabilities were $1,650,288 and
$2,175,235 as of December 31, 2020 and June 30, 2020, respectively. The decrease in contract liabilities is primarily
due to revenue recognized, offset, in part, by the advance collection of cash on specific contracts. The company used the
practical expedient to expense incremental costs incurred to obtain a contract when the contract term is less than one
year.
The Company’s backlog at December 31,
2020 totaling $60.1 million is expected, based on expected due dates, to be recognized in the following fiscal years: 27% in 2021;
51% in 2022; 12% in 2023, and 10% thereafter.
Note 7. Recently Issued Accounting Standards
Recent Accounting Pronouncements Adopted
In August 2018, the FASB issued ASU No. 2018-13,
“Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This
ASU is part of the FASB’s larger disclosure framework project intended to improve the effectiveness of financial statement
footnote disclosure. ASU 2018-13 modifies required fair value disclosures related primarily to level 3 investments. This
ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. The
adoption of ASU 2018-13 does not have a material effect on the Company’s financial position, results of operations, and cash
flows as our investments are currently Level 1. We will, however, continue to evaluate going forward should we obtain any Level
3 investments.
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued guidance
(ASU 2019-12) intended to simplify the accounting for income taxes. The amendments in this guidance are effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2020 (the Company’s fiscal 2021), with early
adoption permitted. The Company is currently evaluating the potential impact of this guidance on the Company’s disclosures.
Note 8. Employee
Stock Ownership Plan
The Company sponsors a leveraged
employee stock ownership plan (the "ESOP") that covers all nonunion employees who work 1,000 or more hours per year and
are employed on June 30. Prior to December 1, 2020, the ESOP owned 469,119 shares, all of which were allocated to employees.
On December 1, 2020, pursuant to a Stock Purchase Agreement dated as of such date, the Company, by selling 300,000 shares of its
common stock, par value $0.33 1/3 per share, to the Espey Mfg. & Electronics Corp. Employee Stock Ownership Plan Trust, provided
more shares to be allocated to employees for services rendered over the next 15 years. The ESOP paid $18.29 per share, for
an aggregate purchase price of $5,487,000. The determination of the purchase price was based on a fairness opinion obtained
by an independent valuation firm. The ESOP borrowed from the Corporation an amount equal to the purchase price. The
loan will be repaid in fifteen (15) equal annual installments of principal. The Board of Directors has fixed the interest
rate and the unpaid balance will bear interest at a fixed rate of 3.00% per annum.
The Board of Directors of the Company had approved
a purchase price per share equal to the lesser of the trading value on the day of closing or the lowest price listed in the valuation
established by the independent valuation firm plus $0.25. The valuation identified a range of $18.04 - $19.43 per share.
In making the sale, the Company
relied on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, because the shares sold
were offered only to the ESOP.
After giving effect to the
transaction, the ESOP owned 769,119 shares of the Company's 2,702,633 outstanding shares of common stock as of December 1, 2020.
The Company makes annual contributions to the
ESOP equal to the ESOP's debt service less dividends on unallocated shares received by the ESOP. All dividends on unallocated shares
received by the ESOP are used to pay debt service. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings.
As the debt is repaid, shares are released and allocated to active employees, based on the proportion of debt service paid in the
year. The Company accounts for its ESOP in accordance with FASB ASC 718-40. Accordingly, the shares purchased by the ESOP are reported
as Unearned ESOP shares in the balance sheets and the statements of changes in stockholders’ equity. As shares are released
or committed-to-be-released, the Company reports compensation expense equal to the current average market price of the shares,
and the shares become outstanding for earnings-per-share (EPS) computations. ESOP compensation expense was $56,274 and $77,987
for the three-month periods ended December 31, 2020 and 2019, respectively. ESOP compensation expense was $56,274 and $165,820
for the six-month periods ended December 31, 2020 and 2019, respectively.
The ESOP shares as
of December 31, 2020 and 2019 were as follows:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Allocated shares
|
|
|
468,663
|
|
|
|
452,763
|
|
Committed-to-be-released shares
|
|
|
2,939
|
|
|
|
7,083
|
|
Unreleased shares
|
|
|
297,061
|
|
|
|
7,083
|
|
|
|
|
|
|
|
|
|
|
Total shares held by the ESOP
|
|
|
768,663
|
|
|
|
466,929
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
5,620,394
|
|
|
$
|
152,993
|
|
The Company may at times be required
to repurchase shares at the ESOP participants’ request at the fair market value. During the three and six months ended December
31, 2020 the Company did not repurchase shares previously held by the ESOP. During the three and six months ended December 31,
2019 the Company repurchased 1,847 and 2,180 shares previously held by the ESOP for $39,658 and $47,949, respectively.
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. Share distributions
from the ESOP during the six months ended December 31, 2020 and 2019 totaled 456 and 2,180, respectively.
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
highly reliable products for use in military and severe environment applications. Design, manufacturing, and testing is performed
in our 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 ISO 9001:2015 and AS9100:2016 certified.
Our primary products are power supplies, power converters, filters, power transformers, magnetic components, power distribution
equipment, UPS systems, antennas and high power radar systems. 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 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.
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.
We continue to place an emphasis on
securing “build to print” opportunities, which will allow production work to go directly to the manufacturing
floor, limiting the impact on our engineering staff. This allows us to keep our manufacturing team busy while the products
are being developed in-house to production.
The total backlog at December 31, 2020
was approximately $60.1 million, which included $26.5 million from three significant customers, compared to $58.4 million at
December 31, 2019, which included $30 million from four significant customers. The Company’s total backlog represents
the estimated remaining sales value of work to be performed under firm contracts. The funded portion of this backlog at
December 31, 2020 is approximately $57.7 million. This includes items that have been authorized and appropriated by Congress
and/or funded by the customer. The unfunded backlog at December 31, 2020 is approximately $2.4 million and represents two
firm multi-year orders from a single customer for which funding has not yet been appropriated by Congress or funded by our
customer. While there is no guarantee that future budgets and appropriations will provide funding for individual programs,
management has included in unfunded backlog only those programs that it believes are likely to receive funding based on
discussions with customers and program status. The unfunded backlog at December 31, 2019 was $2.7 million, comprised of one
of the same multi-year orders from a single customer. 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 as information is known and estimable.
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 schedule delays could negatively impact the timing of the conversion
of backlog into sales, or the profitability of such sales. We continue to experience technical and schedule delays with our
major development programs. However, these delays are being resolved as they arise and we do not expect any negative impact on
our customer order fulfillment projections for fiscal year 2021. Engineering programs in both the funded and unfunded portions
of the current backlog aggregate $5.7 million.
The global outbreak of the novel strain
of coronavirus COVID-19 disease was declared a pandemic by The World Health Organization (WHO) during March 2020. This
resulted in initial country and state-wide mandated closures of non-essential businesses lasting various durations as
determined by local jurisdictions. In most instances, businesses have since re-opened, some with limited or reduced capacity
due to adherence and compliance with reopening and mitigation guidelines set in place to help prevent workplace exposures.
Deemed an essential business, authorized by the Department of Homeland Security, we remained open and continue to be fully
operational. Global supply chain disruptions from closures has had an impact on our ability to ship product during the
first half of fiscal year 2021. As the effects of the pandemic continue world-wide, we believe it is likely we
will continue to experience some trickle-down effects to our direct supply base which may impact our ability to ship some
scheduled deliveries for the foreseeable future. Presently, we expect these disruptions to be minimal in nature and could
result in our suppliers extending lead times for materials or, in some rare instances, require us to procure materials from
an alternate supplier in order to meet contractual dates which could impact our anticipated material costs.
The pandemic has had a direct effect on at
least one key customer of the Company with resulting significant impact on the Company. Subsequent to fiscal year ended June 30,
2020, the Company received a request from a customer to stop work temporarily on a design and production contract for a product
to be used in the airline industry for a minimum of 120 days. As of December 31, 2020, the contract was cancelled by the customer
and as a result the Company has reduced the contract value from $1.7 million to approximately $0.4 million to cover the carrying
value of inventory and selling, general and administrative expenses. The current impact to the financial statements for this reduction
is discussed in Results of Operations, below. The Company is reviewing legal options and will continue to evaluate the financial
statement impact.
Management expects revenues in fiscal
year 2021 to approximate revenues during fiscal year 2020 but expects the net income per share to be lower in fiscal year 2021
than the net income per share during fiscal year 2020. These expectations are driven by orders already in our sales backlog. Net
income per share has been lowered due to a lower sales expectation and an adjustment made to gross profit in the current quarter
related to an inventory write-off discussed in greater detail in Results of Operations.
The Company currently expects new orders
in fiscal 2021 to approximate the $40.9 million in new orders received in fiscal year 2020. As market factors including competition
and product costs impact gross profit margins, management will continue to evaluate our sales strategy, employment levels, and
facility costs.
New orders received in the first six months
of fiscal year 2021 were $19.4 million as compared to $26 million new orders received in the first six months of fiscal 2020. It
is presently anticipated that a minimum of $16.3 million of orders comprising the December 31, 2020 backlog will be filled during
the fiscal year ending June 30, 2021. The minimum of $16.3 million does not include any shipments, which may be made against orders
subsequently received during the fiscal year ending June 30, 2021. The estimate of the December 31, 2020 backlog to be shipped
in fiscal year 2021 is subject to future events, which may cause the amount of the backlog actually shipped to differ from such
estimate.
In addition to the backlog, the Company currently
has outstanding opportunities representing approximately $80.8 million in the aggregate as of February 5, 2021 for both repeat
and new programs. The outstanding quotations encompass various new and previously manufactured power supplies, transformers,
and subassemblies. However, there can be no assurance that the Company will acquire any of the anticipated orders described above,
many of which are subject to allocations of the United States defense spending and factors affecting the defense industry.
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 three significant customers represented 47% of the Company’s total sales for the three-month
period ended December 31, 2020. Net sales to three significant customers represented 42% of the Company’s total sales for
the three-month period ended December 31, 2019. Net sales to four significant customer represented 58% of the Company’s total
sales for the six-month period ended December 31, 2020. Net sales to one significant customer represented 25.2% of the Company’s
total sales for the six-month period ended December 31, 2019. This high concentration level with these customers presents significant
risk. A loss of one of these customers or programs related to these customers 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.
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 net sales is generated
from contracts with industrial manufacturers and defense companies, the Department of Defense, other agencies of the government
of the United States and foreign governments for the design, development and/or manufacture of products. 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 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 collectability of consideration 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 and reduce inventory balances 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.
Results of Operations
Net sales decreased for the three months ended
December 31, 2020 to $6,962,065 as compared to $7,286,674 for the same period in 2019. Net sales for the six months ended December
31, 2020 increased to $14,227,580 as compared to $13,210,493 for the same period in 2019. For the three months ended December 31,
2020, sales decreased due to a decline in magnetic and power supply sales offset, in part, by an increase in build to print shipments.
For the six months ended December 31, 2020, the increase in net sales is primarily due to an increase in build to print sales,
offset in part, by a decline in power supply shipments. Magnetic sales decreased in the current three month period primarily from
product mix. Several programs which had reached completion, provided little or no sales in the current period when compared to
the same period last year offset, in part, by shipments in the current period on one existing significant design and production
contract in which there were no sales in the same period last year. Magnetic sales were also negatively impacted in the current
three month period from fewer sales on one specific contract due to the timing of contractual delivery dates. Power supply sales
decreased modestly in the three month period and decreased more significantly in the six month period when compared to the same
periods last year. The decline in sales in both periods resulted primarily from two specific programs which had reached completion,
providing little or no sales in the current periods when compared to the same periods last year. These decreases were offset, in
part, by shipments on a larger contract which had minimal sales in the comparative periods last year. Build to print sales increased
in both the three and six month periods from multiple contracts of varying size, scope and duration with the largest concentration
of sales in both periods related to one significant contract.
We continued to be constrained by
engineering design changes required to meet customer requirements, certain supplier product non-conformances, obtaining
timely resolutions on issues encompassing build to print customer-owned drawings and an increase in lead times for many
parts, including certain electronic components due to industry shortages and volatility within the power electronics
industry. We are also experiencing an increase in delays with certain supplier deliveries resulting from COVID. Engineering,
program management, and supply chain personnel are working closely with our customers and suppliers to execute on our past
due deliveries and we do not expect this situation to affect future business opportunities. We anticipate that many of these
issues will be resolved during fiscal 2021. However, COVID has had a direct impact on the airline industry and, as noted
above, a resulting impact on the Company contract which has been cancelled by the customer.
Gross profits for the three months ended December
31, 2020 and 2019 were $713,461 and $1,480,148, respectively. Gross profit as a percentage of sales was 10.2% and 20.3%, for the
same periods, respectively. For the six months ended December 31, 2020 and 2019, gross profits were $1,840,835 and $2,616,496,
respectively. Gross profit as a percentage of sales was 12.9% and 19.8%, for the same periods, respectively. 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.
Several factors contributed to a decrease in
the gross profit percentage in the three months ended December 31, 2020 as compared to the same period in 2019. First, the
Company wrote down the value of inventory by $335,000, equivalent to approximately fifty percent of the inventory balance, pertaining
to a certain design and production contract serving the airline industry which was cancelled by the customer during the fiscal
quarter. We made the adjustment to the cost of sales after the customer rejected our initial proposal for a contract
settlement. Discussions with this customer continue and the Company is reviewing its legal options. Collections in
respect of this contract which may be received in the future will be recognized in income, if and when received. Second,
build to print shipments, including on one contract which yielded no gross profit, in the aggregate yielded lower margins on a
higher sales base when compared to the same period last year. There had been no sales on the specific contract during the
prior year. Third, the gross profit percentage was negatively impacted by a reduction of shipments during the fiscal quarter
of magnetic products which had represented robust sales and margins during the same quarter last year. The gross profit percentage
decreased in the six months ended December 31, 2020 as compared to the same period in 2019 primarily from product mix, specifically
on build to print shipments which yielded lower margins on a higher sales base when compared to the same period last year.
This is largely attributed to a specific contract which had no comparable sales in the prior period. In addition, the gross
profit percentage was negatively impacted by the inventory adjustment made to a specific contract discussed above.
Selling, general and administrative
expenses were $945,478 for the three months ended December 31, 2020, a decrease of $304,264, compared to the three months
ended December 31, 2019. Selling, general and administrative expenses were $1,860,104 for the six months ended December 31,
2020, a decrease of $473,850 compared to the six months ended December 31, 2019. The decrease for the three months ended
December 31, 2020 as compared to the same period in 2019 relates primarily to the decrease in employee compensation, travel,
and board of director’s fees resulting from a reduction of one director. The decrease for the six months ended December
31, 2020 as compared to the same period in 2019 relates primarily to the decrease in employee compensation, travel,
conference and training expenditures, audit fees due to the timing of progress billings, reduction in outside services
supporting sales leads, and a decrease in board of director’s fees due to a reduction of one director. For both
periods, employee compensation decreased due to a reduction in workforce and cost reduction measures implemented that
included forgoing cost of living increases and the payment of bonuses during the current fiscal year.
Other income for the three months ended
December 31, 2020 and 2019 was $15,487 and $38,764, respectively. Other income for the six months ended December 31, 2020 and
2019 was $33,831 and $86,253, respectively. The decrease for the three and six months ended is primarily due to the reduction
in investment securities and interest rate reductions. Interest income is a function of the level of investments and investment
strategies which generally tend to be conservative.
The Company’s effective tax rates for
the three and six months ended December 31, 2020, were 16.4% and 39.5%, respectively, compared to 14.9% and 15.7% for the three
and six months ended December 30, 2019, respectively. The effective tax rate in fiscal 2021 and 2020 is less than the statutory
tax rate mainly due to the benefit derived from the ESOP dividends paid on allocated shares. The increase in the effective tax
rate between periods resulted from discreet tax adjustments relative to income before taxes.
Net loss for the three months ended December
31, 2020, was $(181,006) or $(0.08) per share, basic and diluted, compared to net income of $228,964 or $0.10 per share, basic
and diluted, for the three months ended December 31, 2019. Net income for the six months ended December 31, 2020, was $8,817 or
$0.00 per share, basic and diluted, compared to $310,740 or $0.13 per share, basic and diluted, for the six months ended December
31, 2019. The decrease in net income in the three and six months ended resulted from the decrease in gross profit and lower other
income offset, in part, by the decrease in selling, general and administrative, 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, 2020 and
2019. The line of credit is reviewed annually in November for renewal by December 1st.
The Company's working capital as of December
31, 2020 and 2019 was approximately $27.1 million and $27.7 million, respectively. The Company may at times be required to repurchase
shares at the ESOP participants’ request at the fair market value. During the three and six months ended December 31, 2020
the Company did not repurchase any shares held by the ESOP. During the three and six months ended December 31, 2019 the Company
repurchased 1,847 and 2,180 shares previously held by the ESOP for $39,658 and $47,949, respectively. Under existing authorizations
from the Company's Board of Directors, as of December 31, 2020, 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,
|
|
|
|
2020
|
|
|
2019
|
|
Net cash provided by operating activities
|
|
$
|
2,929,039
|
|
|
$
|
6,001,368
|
|
Net cash provided by (used in) investing activities
|
|
|
1,910,548
|
|
|
|
(161,637
|
)
|
Net cash used in financing activities
|
|
|
(1,201,316
|
)
|
|
|
(1,191,646
|
)
|
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 the decrease in cash collected from customers as advances in contract liabilities,
a decrease in trade accounts receivables collected, and the decrease in net income, offset, in part, by a decrease in spending
on accounts payable, inventory purchases and prepaid expenses. Net cash provided by investing activities increased in the six months
ended December 31, 2020 as compared to the same period in 2019 primarily due to maturing investments that were not reinvested during
this period when compared to the same period last year. Cash used in financing activities increased minimally during the current
period. The increase is primarily due to the decrease in cash proceeds collected from the exercise of stock options offset by the
decrease in the purchase of treasury stock as compared to the same period last year.
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, 2020 and 2019, the Company expended $29,173 and $177,826, respectively, for plant improvements and new equipment. The Company
has budgeted approximately $200,000 for new equipment and plant improvements in fiscal year 2021. Management anticipates that the
funds required will be available from current operations.
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 the COVID-19 pandemic 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.