ESPEY MFG & ELECTRONICS CORP

Previous wording

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.

Current wording

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.

Previous wording

Our sales strategy includes identifying and obtaining multiple new engineering design and development contracts in any given fiscal year to ensure optimal utilization of our engineering personnel in addition to securing follow-on production awards for product previously designed in-house, as well as, new or follow-on build to print opportunities. The Company targets those programs and opportunities which will generate future longer-term production tails in ensuing years. From time to time, we accept work associated with engineering design studies. While unlikely to result in near-term follow-on orders, this positions us competitively for future awards and expands our engineering team’s skillset.

Current wording

Our sales strategy includes identifying and obtaining multiple new engineering design and development contracts in any given fiscal year to ensure optimal utilization of our engineering personnel in addition to securing follow-on production awards for product previously designed in-house, as well as, new or follow-on build to print opportunities. The Company targets those programs and opportunities which will generate future longer-term production tails in ensuing years. Occasionally, we accept work associated with engineering design studies. While unlikely to result in near-term follow-on orders, this positions us competitively for future awards and expands our engineering team’s skillset.

Previous wording

The total backlog at September 30, 2025 was approximately $141.1 million, which included $92.3 million from three significant customers, compared to approximately $94.6 million at September 30, 2024, which included $58.0 million from four 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 purchase date. Accordingly, a customer’s future reorder point may vary. The backlog at September 30, 2025 is fully funded, except for approximately $26 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. Contracts are generally not cancellable without penalty or recourse.

Current wording

The total backlog at December 31, 2025 was $134.7 million, which included approximately $88.8 million from three significant customers, compared to approximately $120.1 million at December 31, 2024, which included $78.3 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 December 31, 2025 is fully funded, with the exception of $25.3 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. Contracts are generally not cancellable without penalty or recourse.

Previous wording

Management expects revenues to be higher in fiscal year 2026 than fiscal year 2025. This expectation is driven primarily by orders already in our backlog that are expected to be shipped before the end of fiscal year 2026. Following the review of the first quarter results, management believes that net income for fiscal year 2026 will approximate net income from fiscal year 2025. The Company does not anticipate that the government shutdown will have an adverse effect on future financial performance. However, the ultimate impact of such events is inherently uncertain and beyond the Company’s control, and actual results could differ from current expectations.

Current wording

Management continues to expect higher revenues in fiscal year 2026 when compared to fiscal year 2025. This expectation is driven primarily by orders already in our backlog that are planned to ship before the end of fiscal year 2026. Although the first-half fiscal 2026 sales were lighter when compared to the first-half of prior year, management is encouraged by current trends and expects stable performance for the remainder of the year. Further, management believes that net income for fiscal year 2026 will approximate net income from fiscal year 2025. The recent government shutdowns have had some impact on short term deliverables but based on current information management does not believe there will be a material impact on the fiscal year-end results. The ultimate impact of such events is inherently uncertain and beyond the Company’s control, and actual results could differ from current expectations.

Previous wording

From time to time, we encounter part obsolescence which requires us to identify an alternate part suitable for use. We continue to work with our customers on strategies to mitigate any adverse impact upon our ability to service their requirements. Factors which may arise after the placement of the customer’s order may cause us to miss projected delivery dates. Inflationary costs are expected to continue, but are not expected to have a significant impact on operating income in fiscal year 2026. Tariffs on steel and aluminum imports from various countries remain in effect and, while not directly imposed on the Company, have contributed to higher costs from suppliers. Although we are not currently experiencing any significant financial or raw material sourcing issues resulting from the product tariffs, the Company cannot provide any assurance that the existing tariffs, the potential of additional tariffs, and the associated volatility arising from foreign trade policies, will not have a negative impact on our future earnings.

Current wording

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 2026. 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, the Company 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.

Previous wording

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

Current wording

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.

Previous wording

Successful conversion of engineering program backlog into sales is largely dependent on the execution and completion of our engineering design efforts. It is not uncommon to experience technical or scheduling delays which arise from time to time as a result of, among other reasons, design complexity, the availability of personnel with the requisite expertise, and the requirements to obtain customer approval at various milestones. Cost overruns which may arise from technical and scheduling delays and increased raw material costs could negatively impact the timing of the conversion of backlog into sales, or the profitability of such sales. Engineering programs in both the funded and unfunded portions of the current backlog aggregate $11.8 million.

Current wording

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 $14.6 million.

Previous wording

It is presently anticipated that a minimum of $38.9 million of orders comprising the September 30, 2025 backlog will be filled during the fiscal year ending June 30, 2026 subject, however, to the impact of the factors identified above. The minimum of $38.9 million does not include any shipments which may be made against orders subsequently received during the fiscal year ending June 30, 2026.

Current wording

It is presently anticipated that a minimum of $26.8 million of orders comprising the December 31, 2025 backlog will be filled during the fiscal year ending June 30, 2026 subject, however, to the impact of the factors identified above. The minimum of $26.8 million does not include any shipments which may be made against orders subsequently received during the fiscal year ending June 30, 2026.

Previous wording

The Company currently expects new orders in fiscal year 2026 to be lower than those received in fiscal year 2025. During fiscal year 2025, the Company received $86.4 million in new orders which included two significant, multi-year contract awards in an aggregate sum of $49.4 million. New orders received in the first three months of fiscal year 2026 were approximately $10.5 million as compared to $7.8 million of new orders received in the first three months of fiscal year 2025. In addition to the backlog, the Company currently has outstanding opportunities representing approximately $161.5 million in the aggregate as of November 10, 2025, 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.

Current wording

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.

Previous wording

Net sales for the three months ended September 30, 2025 and 2024 were $9,092,876 and $10,443,218, respectively, a 12.9% decrease. 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.

Current wording

Net sales for the three months ended December 31, 2025 and 2024 were $12,136,903 and $13,608,740, respectively. Net sales for the six months ended December 31, 2025 and 2024 were $21,229,779 and $24,051,958, 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 subtle decline in sales during the three and six months ended December 31, 2025 when compared to the same period last year reflects the change in timing of shipments and milestone completion on select programs and is not indicative of a sustained change in overall sales trends or order volume. Certain factors outside of the Company’s control, including government approval timelines and vendor related issues can adversely affect our ability to meet deliveries that were originally scheduled within any given quarter. Given the non-seasonal nature of our business, these results are not indicative of management’s current anticipated year-over-year results.

Previous wording

For the three months ended September 30, 2025, the decrease in sales when compared to the same period last year is primarily due to less deliveries and milestones met during the quarter due to the product mix comprising those shipments and milestones. The decrease in sales in the current year was mainly related to a few specific programs for our magnetics, power supply and build to print product groups. During the current quarter, sales declined due to the completion of a key build-to-print program that we saw in the prior comparable period and reduced deliveries on a power supply contract compared to the same quarter last year. Additionally, we saw a decrease in deliveries for a key multi-year magnetics program when compared to the first quarter in fiscal year 2024. These decreases were partially offset by the increase in sales on core power supply, magnetics, and build-to-print programs, different from those mentioned above. These decreases are attributable to the timing of shipments on certain programs. The decline in sales during the first quarter primarily reflects the timing of shipments on select programs and is not indicative of a sustained change in overall sales trends or order volume.

Current wording

For the six months ended December 31, 2025, the decrease in sales when compared to the same period last year is primarily due to the product mix and timing of milestone achievement. The decrease in sales in the current year was related to a specific magnetics program, build to print program, and power supply program. A portion of the decline in sales was due to the timing of milestone deliveries for a key magnetics program, which occurred in the prior comparable period and is targeted to be met in a future quarter. Additionally, fewer units were delivered this quarter for a core power supplies contract that has now been fully satisfied. A follow-on order has already been previously accepted and is expected to ship in a future quarter. The remaining sales decline was attributed to a decrease in the number of units delivered on a build to print program when compared to prior year. These decreases were partially offset by the increase in sales for units delivered on main power supply and magnetics programs, different from those mentioned above.

Previous wording

Gross profits for the three months ended September 30, 2025 and 2024 were $3,217,002 and $2,800,882, respectively. Gross profit as a percentage of sales was approximately 35.4% and 26.8%, for the same periods, respectively. The increase in gross margin percentage for the three months ended September 30, 2025, was primarily driven by product mix, labor cost efficiencies, and negotiated savings on material purchases for major power supply programs, as well as effective management of field support and subcontracting costs. The improvement in gross profits in the first quarter of fiscal year 2026 compared to the prior year, was partially offset by unanticipated costs on certain fixed-price engineering design contracts for power supplies, arising from unforeseen complexities in the designs.

Current wording

Gross profits for the three months ended December 31, 2025 and 2024 were $4,212,581 and $3,163,712, respectively. Gross profit as a percentage of sales was 34.7% and approximately 23.2%, for the same periods, respectively. Gross profits for the six months ended December 31, 2025 and 2024 were $7,429,583 and $5,964,594, respectively. Gross profit as a percentage of sales was 35.0% and approximately 24.8%, for the same periods, respectively. We continue to see improvements in gross profits in the first half of fiscal year 2026 compared to the prior year which is being driven by product mix, continued labor cost efficiencies, and further process improvements. The increase in gross profits are being slightly offset by unanticipated costs on certain fixed-price engineering design contracts for power supplies where more testing and effort is being needed than originally anticipated as a result of additional design considerations identified during the development process.

Previous wording

Selling, general and administrative expenses were $1,151,266 for the three months ended September 30, 2025, an increase of $69,597, compared to the three months ended September 30, 2024. The slight increase in spending for the three months ended September 30, 2025 as compared to the same period last year relates to the increase in employee compensation costs, facility costs, and outside selling costs related to non-employee sales representatives. These increases were partially offset by a decrease in officer compensation, stock option expense, and shipping costs.

Current wording

Selling, general and administrative expenses were $1,141,440 for the three months ended December 31, 2025, an increase of $2,165, compared to the three months ended December 31, 2024. Selling, general and administrative expenses were $2,292,706 for the six months ended December 31, 2025, an increase of $71,762 compared to the six months ended December 31, 2024. The slight increase in spending for the three months ended December 31, 2025 as compared to the same period last year relates to an increase in ESOP contributions and professional services. These increases were partially offset by a decrease in employee health expenses, payroll taxes, and stock option expense for the quarter. The increase in selling, general, and administrative expenses for the six months ended December 31, 2025 compared to the same period last year was driven by an increase in total salaries, ESOP contribution expense, facilities expenses, and professional services. These increases were offset in part by a decrease in stock option expense, marketing and advertising costs, and outbound freight.

Previous wording

Other income for the three months ended September 30, 2025 and 2024 was $491,782 and $278,408, respectively. The increase for the three months ended September 30, 2025 is entirely due to the increase in interest income resulting from an increase 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.

Current wording

Other income for the three months ended December 31, 2025 and 2024 was $444,694 and $268,425, respectively. Other income for the six months ended December 31, 2025 and 2024 was $936,476 and $546,833, respectively. The increase for the three and six months ended December 31, 2025 is due to the increase in interest income resulting from an increase 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.

Previous wording

The Company’s effective tax rate for the three months ended September 30, 2025 was approximately 15.2%, compared to approximately 20.0% for the three months ended September 30, 2024. The effective tax rate in fiscal year 2026 is less than the statutory tax rate mainly due to the benefit received from ESOP dividends paid on allocated shares, the benefit from stock-based compensation, and FDII deductions, offset in part by the permanent difference in ESOP fair market value and cost which is not deductible for tax purposes. The effective tax rate for the three months ended September 30, 2025 was lower than the same period in the prior year, primarily due to a greater benefit derived from the ESOP dividends paid on allocated shares and the benefit derived from the exercise of incentive stock options, and the foreign-derived intangible income deduction in the current period when compared to the same period last year. In July 2025, the One Big Beautiful Bill Act (the "Tax Act") was enacted, introducing a series of corporate tax changes in the U.S., including 100% bonus depreciation on qualified property and full expensing for research and development expenditures. The impacts of the Tax Act are reflected in our results for the fiscal quarter ended September 30, 2025, and there was no material impact to our income tax expense or effective tax rate.

Current wording

The Company’s effective tax rate for the three and six months ended December 31, 2025 was approximately 20.2% and 18.1% respectively, compared to approximately 16.8% and 18.3% for the three and six months ended December 31, 2024. The effective tax rate in fiscal year 2026 is slightly less than the statutory tax rate mainly due to the benefit received from ESOP dividends paid on allocated shares, the benefit from stock-based compensation, and FDII deductions, offset in part by the permanent difference in ESOP fair market value and cost which is not deductible for tax purposes. The effective tax rate for the three months ended December 31, 2025 was higher than the same period last year, primarily due to the increase in net income and the decrease in tax benefit for stock forfeitures and ISO exercises within the quarter. The lower effective tax rate for the six months ended December 31, 2025 compared to the same period in 2024 is primarily due to an increased foreign-derived intangible income deduction, partially offset by an increase in net income. In July 2025, the One Big Beautiful Bill Act (the "Tax Act") was enacted, introducing a series of corporate tax changes in the U.S., including 100% bonus depreciation on qualified property and full expensing for research and development expenditures. The impacts of the Tax Act are reflected in our results for the three and six months ended December 31, 2025, and there was no material impact to our income tax expense or effective tax rate.

Previous wording

Net income for the three months ended September 30, 2025 was $2,169,836 or $0.80 and $0.76 per share, basic and diluted, compared to net income of $1,598,317 or $0.63 and $0.61 per share, basic and diluted, for the three months ended September 30, 2024. The increase in net income in the three months ended September 30, 2025 when compared to the same period last year resulted primarily from the increase in gross profits, increase in interest income, and a decrease in the provision for income taxes which is slightly offset by an increase in selling, general, and administrative expenses, all discussed above.

Current wording

Net income for the three months ended December 31, 2025 was $2,805,109 or $1.02 and $0.99 per share, basic and diluted, compared to net income of $1,908,499 or $0.74 and $0.71 per share, basic and diluted, for the three months ended December 31, 2024. Net income for the six months ended December 31, 2025 was $4,974,945 or $1.82 and $1.75 per share, basic and diluted, compared to net income of $3,506,816 or $1.37 and $1.32 per share, basic and diluted, for the six months ended December 31, 2024. The increase in net income in the three and six months ended December 31, 2025 when compared to the same period last year resulted primarily from the increase in gross profit and increase in interest income which was offset in part by the increase in selling, general, and administrative expenses and the provision for income taxes discussed in detail above.

Previous wording

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 on outstanding standby letters of credit agreements aggregated to zero at September 30, 2025 and 2024. The existing line of credit was renewed in February 2025.

Current wording

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 December 31, 2025 and 2024. The existing line of credit was renewed in February 2025.

Previous wording

The Company's working capital as of September 30, 2025 and 2024 was approximately $46.9 million and approximately $38.6 million, respectively. 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, 2025 and 2024, 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, 2025, management is authorized to purchase an additional $783,460 of Company stock.

Current wording

The Company's working capital as of December 31, 2025 and 2024 was approximately $48.9 million and approximately $40.2 million, respectively. The Company may at times be required to repurchase shares at the ESOP participants’ request at fair market value. During the three and six months ended December 31, 2025 and 2024, the Company did not repurchase any shares held by the ESOP. Under existing authorizations from the Company's Board of Directors, as of December 31, 2025, management is authorized to purchase an additional $783,460 of Company stock.

Previous wording

Net cash provided by operating activities fluctuates between periods primarily as a result of differences in sales and net income, provision for income taxes, the timing of the collection of accounts receivable, purchase of inventory, and payment of accounts payable. The increase in cash provided by operating activities compared to the prior year primarily relates to an increase in contract liabilities for cash advances received from customers and a decrease in trade accounts receivables. This is offset in part by an increase in inventories, decrease in accrued salaries and wages, and an increase in prepaid expenses and other current assets. Net cash used in investing activities decreased in the three months ended September 30, 2025 as compared to the same period in 2024 due to less purchased investment securities offset in part by proceeds from the maturity of investment securities as well as grant proceeds received when compared to the same period last year. Net cash used in financing activities increased solely due to the increase in dividends paid when 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.

Current wording

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 an increase in inventories, an increase in accounts receivable, a decrease in accrued expenses, and a decrease in the ESOP payable. This is offset in part by an increase in accounts payable and an increase in contract liabilities for cash advances received from customers. Net cash used in investing activities decreased in the six months ended December 31, 2025 as compared to the same period in 2024 due to an increase in proceeds collected from awarded grants, and proceeds from the sale and maturity of investment securities offset by an increase in property, plant, and equipment. Net cash used in financing activities increased solely due to the increase in dividends paid when compared to the same period last year offset in part by the proceeds collected from the exercise of stock options. 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.

Previous wording

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. During the three months ended September 30, 2024, the Company expended $664,351 for plant improvements and new equipment, of which $595,823 was either reimbursed or eligible to be reimbursed under the $7.4 million award received by the Company in fiscal year 2023. The awards received by the Company are in support of facility and capital equipment upgrades for testing and qualification for the United States Navy. These funding awards are part of the Navy’s investment to improve and sustain the Surface Combatant Industrial Base. The Company has budgeted approximately $850,000 for new equipment and plant improvements in fiscal year 2026, not reimbursable under the funding awards received. A majority of these expenditures will be made to upgrade our facilities, stay competitive in the marketplace, and to meet the needs of current contracts.

Current wording

During the six months ended December 31, 2025, the Company expended $2,612,276 for plant improvements and new equipment, of which $2,029,608 was reimbursed under the $3.4 million award that was received by the Company in the second quarter of fiscal year 2025. During the six months ended December 31, 2024, the Company expended $1,547,922 for plant improvements and new equipment, of which $1,346,396 was eligible to be reimbursed under the $7.4 million award received by the Company in fiscal year 2023. The awards received by the Company are in support of facility and capital equipment upgrades for testing and qualification for the United States Navy. These funding awards are part of the Navy’s investment to improve and sustain the Surface Combatant Industrial Base. The Company has budgeted approximately $850,000 for new equipment and plant improvements in fiscal year 2026, not reimbursable under the funding awards received. A majority of these expenditures will be made to upgrade our facilities, stay competitive in the marketplace, and to meet the needs of current contracts.