What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2021-02-09 · 208 added, 147 removed, 523 unchanged (40% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2020

March 31, 2021

June 30, 2020

2 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 196 and $ 326 at December 31, 2020 and June 30, 2020, respectively, and other reserves

Marketable securities

Accounts receivable, net of allowance for doubtful accounts of $ 196 and $ 326 at March 31, 2021 and June 30, 2020, respectively, and other reserves

Inventories, net

17 unchanged sentences

Total Liabilities

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES (Note 13)

STOCKHOLDERS’ EQUITY

1 unchanged sentence

40,000,000 shares authorized;

21,241,066 shares issued;

and 18,347,351 shares outstanding

21,243,926 and 21,241,066 shares issued;

and 18,350,211 and 18,347,351 shares outstanding, respectively

Additional paid-in capital

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Three Months ended December 31,

Three Months ended March 31,

(in thousands, except for share and per share data)

7 unchanged sentences

Operating Income

Other expense (income):

Interest expense (income), net

Other expense:

Interest and other expense, net

Income before Provision for Income Taxes

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Six Months ended December 31,

Nine Months Ended March 31,

(in thousands, except for share and per share data)

7 unchanged sentences

Operating Income

Other expense (income):

Interest expense (income), net

Other expense:

Interest and other expense, net

Income before Provision for Income Taxes

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (unaudited)

Six months ended December 31, 2020 (in thousands, except for share data)

Nine months ended March 31, 2021 (in thousands, except for share data)

Treasury Stock

7 unchanged sentences

( 2,893,715 )

Six months ended December 31, 2019 (in thousands, except share data)

Stock-based compensation expense

Stock options exercised

Balances at March 31, 2021

( 2,893,715 )

Nine months ended March 31, 2020 (in thousands, except share data)

Treasury Stock

7 unchanged sentences

( 2,749,310 )

Stock options exercised

Stock-based compensation expense

Repurchase of Treasury Shares

Balances at March 31, 2020

( 2,886,613 )

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Six Months ended December 31,

Nine Months ended March 31,

(in thousands)

2 unchanged sentences

Depreciation and amortization

Loss on marketable securities

(Recovery of) provision for doubtful accounts

8 unchanged sentences

Purchases of property, plant, and equipment

Purchases of marketable securities

Net Cash Used in Investing Activities

Net Change in Cash and Cash Equivalents

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from stock option exercises

Cash paid for purchase of treasury stock

Net Cash Used in Investing Activities

Net increase in Cash and Cash Equivalents

CASH AND CASH EQUIVALENTS - Beginning

7 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

DECEMBER 31, 2020

MARCH 31, 2021

NOTE 1 - Nature of Business and Summary of Significant Accounting Policies

11 unchanged sentences

Deterioration of the current economic conditions may also affect this trend.

Our fourth quarter of fiscal 2020 and the first and second quarters of fiscal 2021 reflected the challenging business environment resulting from the COVID-19 pandemic.

Our fourth quarter of fiscal 2020 and the first three quarters of fiscal 2021 reflected the challenging business environment resulting from the COVID-19 pandemic.

The COVID-19 pandemic has caused difficulties for security equipment professionals getting access to both commercial and residential installation sites.

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The methods and assumptions used to estimate the fair value of the following classes of financial instruments were:

Current Assets and Current Liabilities - The carrying amount of cash and cash equivalents, certificates of deposits, current receivables and payables and certain other short-term financial instruments approximate their fair value as of December 31, 2020 and June 30, 2020 due to their short-term maturities.

Current Assets and Current Liabilities - The carrying amount of cash and cash equivalents, marketable securities, current receivables and payables and certain other short-term financial instruments approximate their fair value as of March 31, 2021 and June 30, 2020 due to their short-term maturities.

Long-term debt and lease liabilities approximate fair value based on prevailing market rates.

Cash and Cash Equivalents

Cash and cash equivalents include approximately $ 460,000 of short-term time deposits at December 31, 2020 and June 30, 2020.

Cash and cash equivalents include approximately $ 63,000 of short-term time deposits at March 31, 2021 and June 30, 2020.

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of December 31, 2020 and June 30, 2020.

The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of March 31, 2021 and June 30, 2020.

The Company has not historically experienced any credit losses with balances in excess of FDIC limits.

Marketable Securities

The Company’s marketable securities include investments in mutual funds, which invest primarily in various government and corporate obligations, stocks and money market funds.

The Company’s marketable securities are reported at fair value with the related unrealized and realized gains and losses included in other expense (income).

Realized gains or losses on mutual funds are determined on a specific identification basis.

The Company evaluates its investments periodically for possible other-than-temporary impairment by reviewing factors such as the length of time and extent to which fair value had been below cost basis, the financial condition of the issuer and the Company’s ability and intent to hold the investment for a period of time, which may be sufficient for anticipated recovery of market value.

The Company records an impairment charge to the extent that the cost of the available-for-sale securities exceeds the estimated fair value of the securities and the decline in value is determined to be other-than-temporary.

During the three and nine months ended March 31, 2021, the Company did not record an impairment charge regarding its investment in marketable securities because management believes, based on its evaluation of the circumstances, that the decline in fair value below the cost of certain of the Company’s marketable securities is temporary.

Accounts Receivable

Accounts receivable is stated net of the reserves for doubtful accounts of $ 196,000 as of December 31, 2020 and $ 326,000 as of June 30, 2020.

Accounts receivable is stated net of the reserves for doubtful accounts of $ 196,000 as of March 31, 2021 and $ 326,000 as of June 30, 2020.

Our reserves for doubtful accounts are subjective critical estimates that have a direct impact on reported net earnings.

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At the acquisition, the Marks trade name was deemed to have an indefinite life.

At the conclusion of fiscal 2020, the Company determined that the trade-name was impaired.

At the conclusion of fiscal 2020, the Company determined that the tradename was impaired.

Accordingly, the Company recorded an impairment charge of $ 1,852,000 and reclassified the remaining balance of the underlying asset from indefinite-lived to a long-lived asset with a remaining useful life of 20 years as of June 30, 2020.

Changes in intangible assets are as follows (in thousands):

December 31, 2020

March 31, 2021

June 30, 2020

Customer relationships

Amortization expense for intangible assets subject to amortization was approximately $ 107,000 and $ 66,000 for the three months ended December 31, 2020 and 2019, respectively.

Amortization expense for intangible assets subject to amortization was approximately $ 213,000 and $ 132,000 for the six months ended December 31, 2020 and 2019, respectively.

Amortization expense for intangible assets subject to amortization was approximately $ 106,000 and $ 66,000 for the three months ended March 31, 2021 and 2020, respectively.

Amortization expense for intangible assets subject to amortization was approximately $ 319,000 and $ 198,000 for the nine months ended March 31, 2021 and 2020, respectively.

Amortization expense for each of the next five fiscal years is estimated to be as follows:

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2023 - $ 361,000 ;

2024 - $ 337,000 ;

and 2025 - $ 315,000 .

The weighted average remaining amortization period for intangible assets was 17.2 years and 17.5 years at December 31, 2020 and June 30, 2020, respectively.

The weighted average remaining amortization period for intangible assets was 17.0 years and 17.5 years at March 31, 2021 and June 30, 2020, respectively.

Long-Lived Assets

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expenses in the consolidated statements of income and are expensed as incurred.

Advertising expense for the three months ended December 31, 2020 and 2019 was $ 347,000 and $ 627,000 , respectively.

Advertising expense for the six months ended December 31, 2020 and 2019 was $ 690,000 and $ 1,141,000 , respectively.

Advertising expense for the three months ended March 31, 2021 and 2020 was $ 229,000 and $ 307,000 , respectively.

Advertising expense for the nine months ended March 31, 2021 and 2020 was $ 919,000 and $ 1,448,000 , respectively.

Research and Development Costs

Research and development (“R&D”) costs incurred by the Company are charged to expense as incurred and are included in operating expenses in the consolidated statements of income.

Research and development expense for the three months ended December 31, 2020 and 2019 was $ 1,884,000 and $ 1,823,000 , respectively.

Research and development expense for the six months ended December 31, 2020 and 2019 was $ 3,773,000 and $ 3,572,000 , respectively.

Research and development expense for the three months ended March 31, 2021 and 2020 was $ 1,902,000 and $ 1,815,000 , respectively.

Research and development expense for the nine months ended March 31, 2021 and 2020 was $ 5,675,000 and $ 5,387,000 , respectively.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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Diluted net income per common share (Diluted EPS) is computed by dividing net income by the weighted average number of common shares and dilutive common share equivalents and convertible securities then outstanding.

The following provides a reconciliation of information used in calculating the per share amounts for the three months ended December 31 (in thousands, except per share data):

The following provides a reconciliation of information used in calculating the per share amounts for the three months ended March 31 (in thousands, except per share data):

Weighted Average Shares

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Stock Options

Options to purchase 32,000 and 36,000 shares of common stock were excluded for the three months ended December 31, 2020 and 2019, respectively, and were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive.

Options to purchase 8,000 and 44,000 shares of common stock were excluded for the three months ended March 31, 2021 and 2020, respectively, and were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive.

These options were still outstanding at the end of the period.

The following provides a reconciliation of information used in calculating the per share amounts for the six months ended December 31 (in thousands, except per share data):

The following provides a reconciliation of information used in calculating the per share amounts for the nine months ended March 31 (in thousands, except per share data):

Weighted Average

2 unchanged sentences

Stock Options

Options to purchase 36,000 and 18,000 shares of common stock were excluded for the six months ended December 31, 2020 and 2019, respectively, and were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive.

Options to purchase 27,000 shares of common stock were excluded for each of the nine months ended March 31, 2021 and 2020, and were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive.

These options were still outstanding at the end of the period.

3 unchanged sentences

Determining the fair value of share-based awards at the grant date requires assumptions and judgments about expected volatility and forfeiture rates, among other factors.

Stock-based compensation costs of $ 84,000 and $ 308,000 were recognized for the three months ended December 31, 2020 and 2019, respectively.

Stock-based compensation costs of $ 188,000 and $ 325,000 were recognized for the six months ended December 31, 2020 and 2019, respectively.

Stock-based compensation costs of $ 84,000 and $ 172,000 were recognized for the three months ended March 31, 2021 and 2020, respectively.

Stock-based compensation costs of $ 272,000 and $ 497,000 were recognized for the nine months ended March 31, 2021 and 2020, respectively.

Foreign Currency

2 unchanged sentences

The day-to-day operations of all foreign subsidiaries are dependent on the economic environment of the U.S.

Therefore, no realized and unrealized gains and losses associated with foreign currency translation are recorded for the three or six months ended December 31, 2020 or 2019.

Therefore, no realized and unrealized gains and losses associated with foreign currency translation are recorded for the three or nine months ended March 31, 2021 or 2020.

Comprehensive Income

For the three and six months ended December 31, 2020 and 2019, the Company’s operations did not give rise to material items includable in comprehensive income, which were not already included in net income.

For the three and nine months ended March 31, 2021 and 2020, the Company’s operations did not give rise to material items includable in comprehensive income, which were not already included in net income.

Accordingly, the Company’s comprehensive income approximates its net income for all periods presented.

5 unchanged sentences

Shipping and Handling Sales and Costs

The Company records the amount billed to customers for shipping and handling in net sales ($ 93,000 and $ 108,000 in the three months ended December 31, 2020 and 2019, respectively and $ 199,000 and $ 220,000 in the six months ended December 31, 2020 and 2019, respectively);

and classifies the costs associated with these revenues in cost of sales ($ 230,000 and $ 271,000 in the three months ended December 31, 2020 and 2019, respectively, and $ 451,000 and $ 531,000 in the six months ended December 31, 2020 and 2019, respectively).

The Company records the amount billed to customers for shipping and handling in net sales ($ 91,000 and $ 135,000 in the three months ended March 31, 2021 and 2020, respectively and $ 290,000 and $ 355,000 in the nine months ended March 31, 2021 and 2020, respectively);

and classifies the costs associated with these revenues in cost of sales ($ 281,000 and $ 300,000 in the three months ended March 31, 2021 and 2020, respectively, and $ 732,000 and $ 831,000 in the nine months ended March 31, 2021 and 2020, respectively).

Effective July 1, 2019, the Company adopted the new lease accounting standard using the modified retrospective transition option of applying the new standard at the adoption date.

1 unchanged sentence

Adoption of the new standard resulted in the recording of an operating ROU asset and lease liabilities of approximately $ 7.7 million.

Given the length of the lease term, the right-of-use asset and corresponding liability assume a weighted discount rate as disclosed below.

Given the length of the lease term, the right-of-use asset and corresponding liability assume a weighted discount rate as disclosed in Note 13.

A change in the rate utilized could have a material effect on the amounts reported.

2 unchanged sentences

Leases for additional accounting policies and transition disclosures.

Recently Issued and Adopted Accounting Standards

Reference Rate Reform (ASC Topic 848)

In March 2020, the FASB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”), which is expected to be phased out at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate.

In January 2021, the FASB issued authoritative guidance that makes amendments to the new rules on accounting for reference rate reform.

The amendments clarify that for all derivative instruments affected by the changes to interest rates used for discounting, margining or contract price alignment, regardless of whether they reference LIBOR or another rate expected to be discontinued as a result of reference rate reform, an entity may apply certain practical expedients in ASC Topic 848.

Effective for the Company – This guidance can be applied for a limited time through December 31, 2022.

The guidance will no longer be available to apply after December 31, 2022.

Impact on consolidated financial statements – The Company is currently assessing the impact of applying this guidance on its existing derivative contracts, leases and other arrangements, as well as when to adopt this guidance.

NOTE 2 – Revenue Recognition and Contracts with Customers

The Company is engaged in two major lines of business:

The Company markets and sells two major product lines:

(1) the development, manufacture, and distribution of security products, encompassing access control systems, door security products, intrusion and fire alarm systems, alarm communication services, and video surveillance products for commercial and residential use and (2) the Company provides wireless communication service for intrusion and fire alarm systems on a monthly basis.

14 unchanged sentences

Changes to the estimated variable consideration in subsequent periods are not material.

As of December 31, 2020 and June 30, 2020, the Company included refund liabilities of approximately $ 3,798,000 and $ 3,331,000 , respectively, in current liabilities.

As of December 31, 2020 and June 30, 2020, the Company included return-related assets of approximately $ 792,000 and $ 701,000 , respectively, in other current assets.

As of March 31, 2021 and June 30, 2020, the Company included refund liabilities of approximately $ 3,791,000 and $ 3,331,000 , respectively, in current liabilities.

As of March 31, 2021 and June 30, 2020, the Company included return-related assets of approximately $ 840,000 and $ 701,000 , respectively, in other current assets.

The Company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the Company’s past history.

2 unchanged sentences

Actual results could differ from those estimates.

As a percentage of gross sales, sales returns, rebates and allowances were 13 % and 11 % for the three months ended December 31, 2020 and 2019, respectively.

As a percentage of gross sales, sales returns, rebates and allowances were 11 % and 9 % for the six months ended December 31, 2020 and 2019, respectively.

As a percentage of equipment sales, sales returns, rebates and allowances were 15 % and 12 % for the three months ended March 31, 2021 and 2020.

As a percentage of equipment sales, sales returns, rebates and allowances were 16 % and 13 % for the nine months ended March 31, 2021 and 2020, respectively.

The Company disaggregates revenue from contracts with customers into major product lines.

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Following is the disaggregation of revenues based on major product lines (in thousands):

Three months ended December 31,

Six months ended December 31,

Three months ended March 31,

Nine months ended March 31,

Major Product Lines:

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Such risks of loss manifest themselves differently, depending on the nature of the concentration, and vary in significance.

The Company had one customer with an accounts receivable balance that comprised 18 % and 24 % of the Company’s accounts receivable at December 31, 2020 and June 30, 2020, respectively.

Sales to this customer comprised 14 % and 10 % of net sales in the three and six months ended December 31, 2020, respectively.

Sales to this customer comprised 10 % of net sales in the six months ended December 31, 2019, respectively.

The Company had another customer with an accounts receivable balance that comprised 12 % of the Company’s accounts receivable at December 31, 2020.

The Company had one customer which had an accounts receivable balance that comprised 11 % and 24 % of the Company’s accounts receivable at March 31, 2021 and June 30, 2020, respectively.

Sales to this customer comprised 4 % and 8 % of net sales in the three and nine months ended March 31, 2021, respectively.

Sales to this customer comprised 12 % and 11 % of net sales in the three and nine months ended March 31, 2020, respectively.

The Company had a second customer which had an accounts receivable balance that comprised 15 % of the Company’s accounts receivable at March 31, 2021.

The customer's accounts receivable balance did not exceed 10% of accounts receivable at June 30, 2020.

Sales to this customer did not exceed 10 % of net sales in either of the six or three months ended December 31, 2020 and 2019.

The Company had another customer with an accounts receivable balance that comprised 11 % of the Company's accounts receivable at December 31, 2020.The customer’s accounts receivable balance did not exceed 10 % of accounts receivable at June 30, 2020.

Sales to this customer did not exceed 10 % of net sales in either of the six or three months ended December 31, 2020 and 2019.

Sales to this customer did not exceed 10% of net sales in either of the three months ended March 31, 2021 and 2020 or the nine months ended March 31, 2021 and 2020.

The Company had a third customer which had an accounts receivable balance that comprised 11 % of the Company's accounts receivable at March 31, 2021.The customer’s accounts receivable balance did not exceed 10% of accounts receivable at June 30, 2020.

Sales to this customer did not exceed 10% of net sales in either of the three months ended March 31, 2021 and 2020 or the nine months ended March 31, 2021 and 2020.

NOTE 4 – Marketable Securities

Marketable securities include investments in fixed income mutual funds, which are reported at their fair values.

The disaggregated net gains and losses on the marketable securities recognized in the income statement for the three months and nine months ended March 31, 2021 are as follows:

Net gains recognized during the period on marketable securities

Net gains recognized during the year on marketable securities sold during the period

Unrealized (losses) gains recognized during the reporting year on marketable securities still held at the reporting date

The fair values of the Company’s marketable securities are determined in accordance with US GAAP, with fair value being defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, the Company utilizes the three-tier value hierarchy, as prescribed by US GAAP, which prioritizes the inputs used in measuring fair value as follows:

● Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

● Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

● Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The Company’s marketable securities, which are considered available-for-sale securities, are re-measured to fair value on a recurring basis and are valued using Level 1 inputs using quoted prices (unadjusted) for identical assets in active markets.

The following tables summarize the Company’s investments:

Marketable Securities

Investment income is recognized when earned and consists principally of interest income from fixed income mutual funds.

Realized gains and losses on sales of investments are determined on a specific identification basis.

For the three months and nine months ended March 31, 2021, there were no transfers between Levels 1 and 2 investments and no transfers in or out of Level 3.

NOTE 5 - Inventories

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Property, plant and equipment consist of the following (in thousands):

December 31, 2020

March 31, 2021

June 30, 2020

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accumulated depreciation and amortization

Depreciation and amortization expense on property, plant, and equipment was approximately $ 319,000 and $ 311,000 for the three months ended December 31, 2020 and 2019, respectively.

Depreciation and amortization expense on property, plant, and equipment was approximately $ 637,000 and $ 606,000 for the six months ended December 31, 2020 and 2019, respectively.

Depreciation and amortization expense on property, plant, and equipment was approximately $ 302,000 and $ 306,000 for the three months ended March 31, 2021 and 2020, respectively.

Depreciation and amortization expense on property, plant, and equipment was approximately $ 939,000 and $ 912,000 for the nine months ended March 31, 2021 and 2020, respectively.

NOTE 7 - Income Taxes

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In addition, changes in judgment from the evaluation of new information resulting in the recognition de-recognition or re-measurement of a tax position taken in a prior annual period is recognized separately in the quarter of the change.

For the six months ended December 31, 2020, the Company recognized net income tax expense of $ 798,000 .

During the six months ended December 31, 2020, the Company increased its reserve for uncertain income tax positions by $ 69,000 .

For the nine months ended March 31, 2021, the Company recognized net income tax expense of $ 1,422,000 .

During the nine months ended March 31, 2021, the Company’s reserve for uncertain income tax positions decreased by $ 425,000 .

The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes.

As of December 31, 2020, the Company had accrued interest totaling $ 100,000 as well as $ 918,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period.

As of March 31, 2021, the Company had accrued interest totaling $ 81,000 as well as $ 443,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period.

For the nine months ended March 31, 2021, additional interest expense was accrued for in the amount of $ 19,000 .

The Company claims R&D tax credits on eligible R&D expenditures.

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income tax return and tax returns in certain state and local and foreign jurisdictions.

As of December 31, 2020, we remain subject to examination in all tax jurisdictions for all relevant jurisdictional statutes for fiscal years 2017 and thereafter.

As of March 31, 2021, we remain subject to examination in all tax jurisdictions for all relevant jurisdictional statutes for fiscal years 2017 and thereafter.

The Company was audited by the IRS for fiscal year 2016.

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During fiscal year 2020, the Company settled the issue at Appeals and recorded a provision for the federal and state impact of $ 762,000 and $ 70,000 respectively.

During the six months ended December 31, 2020, the Company recorded an additional provision of $ 15,000 for interest.

As of December 31, 2020 all federal and state liabilities related to the fiscal year 2016 audit have been paid.

The Company is currently under audit for the fiscal year 2017.

The IRS has raised the IRC Section 956 issue that was settled during the fiscal year 2016 audit.

The Company strongly believes that the position of the IRS with regard to this matter is inconsistent with the provisions of IRC Section 956 and that the Company is willing to litigate, if necessary to argue its position.

During fiscal year 2020, the Company’s provision for income taxes included a provision for the incremental tax liability of $ 657,000 and interest of $ 66,000 was recorded for the 2017 and 2018 fiscal years.

For the six months ended December 31, 2020, additional interest expense was accrued for in the amount of $ 12,000 .

As of March 31, 2021, all federal and state liabilities related to the fiscal year 2016 audit have been paid.

The Company was audited by the IRS for the fiscal year 2017 .

The Company received Form 4549-A, Income Tax Examination Changes from the IRS proposing an adjustment to income for the fiscal 2017 tax year regarding deemed dividends based on its interpretation under IRC Section 956 arising from the intercompany balances on the books of the Company.

During the third quarter of fiscal 2021, the Company settled the issue and paid the IRS $ 399,000 .

The Company reported the results of the IRS exam to all the jurisdictions in which it files and paid taxes and interest totaling $ 97,000 .

Subsequent to the quarter end, the Company paid the IRS $ 68,000 for interest.

None of the payments were recorded to expense since adequate liabilities had previously been established.

The Company has identified its U.S.

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NOTE 8 - Long-Term Debt

As of December 31, 2020, long-term debt consisted of a revolving line of credit of $ 11,000,000 (“Revolver Agreement”) which expires in June 2024 and term loans from the U.S.

As of March 31, 2021, long-term debt consisted of a revolving line of credit of $ 11,000,000 (“Revolver Agreement”) which expires in June 2024 and term loans from the U.S.

Small Business Administration totaling $ 3,904,000 through its Payroll Protection Program.

Outstanding balances and interest rates as of December 31, 2020 and June 30, 2020 are as follows (dollars in thousands):

December 31, 2020

Outstanding balances and interest rates as of March 31, 2021 and June 30, 2020 are as follows (dollars in thousands):

March 31, 2021

June 30, 2020

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During the fourth quarter of fiscal 2020, the Company received the proceeds of promissory notes (“Notes”) dated between April 17, 2020 and May 7, 2020 (the “PPP Loan Agreement”), entered into between the Company and HSBC Bank USA N.A., as lender (the “Lender”).

The Lender made the loans pursuant to the Paycheck Protection Program (the “PPP”), created by Section 1102 of the CARES Act and governed by the CARES Act, Section 7(a)(36) of the Small Business Act, any rules or guidance that has been issued by the SBA implementing the PPP and acting as guarantor, or any other applicable loan program requirements, as defined in 13 CFR § 120.10, as amended from time to time.

as amended from time to time.

Pursuant to the PPP Loan Agreement, the Lender made loans to the Company with an aggregate principal amount of $ 3,904,000 (the “PPP Loan”).

Pursuant to the CARES Act, the loan may be forgiven by the SBA.

The Company anticipates applying for forgiveness of these loans during fiscal 2021.

The Company is in the process of applying for forgiveness of these loans.

The amount of loan forgiveness is determined by and is subject to the sole approval of the SBA.

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Based on the guidance in FASB ASC 405-20-40-1, the proceeds from the loan would remain recorded as a liability until either (1) the loan is, in part or wholly, forgiven and the debtor has been “legally released” or (2) the debtor pays off the loan to the creditor.

Once the loan is, in part or wholly, forgiven and legal release is received, the Company will reduce the liability by the amount forgiven and record a gain on extinguishment.

NOTE 8 - Stock Options

Once the loan

is, in part or wholly, forgiven and legal release is received, the Company will reduce the liability by the amount forgiven and record a gain on extinguishment.

NOTE 9 - Stock Option

The Company follows ASC Topic 718, "Compensation-Stock Compensation", which requires that all share-based payments to employees, including stock options, be recognized as compensation expense in the consolidated financial statements based on their fair values and over the requisite service period.

The Company recorded non-cash compensation expense relating to stock-based compensation of $ 84,000 and $ 308,000 for the three months ended December 31, 2020 and 2019, respectively ($ 0.00 and $ 0.02 per basic and diluted share for each period, respectively) and $ 188,000 and $ 325,000 for the six months ended December 31, 2020 and 2019, respectively ($ 0.01 and $ 0.02 per basic and diluted share for each period, respectively).

The Company recorded non-cash compensation expense relating to stock-based compensation of $ 84,000 and $ 172,000 for the three months ended March 31, 2021 and 2020, respectively ($ 0.00 and $ 0.01 per basic and diluted share for each period, respectively) and $ 272,000 and $ 497,000 for the nine months ended March 31, 2021 and 2020, respectively ($ 0.01 and $ 0.03 per basic and diluted share for each period, respectively).

2012 Employee Stock Option Plan

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An option granted under this plan shall vest in full upon a “change in control” as defined in the plan.

At December 31, 2020, 117,840 stock options were outstanding, 47,800 stock options were exercisable and 731,960 stock options were available for grant under this plan.

No options were granted during the three or six months ended December 31, 2020.

The fair value of each option granted during the six months ended December 31, 2019 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

At March 31, 2021, 112,040 stock options were outstanding, 44,600 stock options were exercisable and 731,960 stock options were available for grant under this plan.

No options were granted during the three or nine months ended March 31, 2021.

The fair value of each option granted during the nine months ended March 31, 2020 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rates

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Expected dividend yields

The following table reflects activity under the 2012 Employee Plan for the six months ended December 31,:

The following table reflects activity under the 2012 Employee Plan for the nine months ended March 31:

Weighted average

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Total intrinsic value of options exercisable

No stock options were exercised during the six or three months ended December 31, 2020 or 2019.

No cash was received from option exercises during either of the six or three months ended December 31, 2020 or 2019 and the actual tax benefit realized for the tax deductions from option exercises was $ 0 for both periods.

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at December 31, 2020:

1,800 and 14,100 stock options were exercised during the three months ended March 31, 2021 and March 31, 2020, respectively.

$ 0 and $ 71,000 cash was received from option exercises during the three months ended March 31, 2021 and 2020, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $ 3,000 and $ 8,000 , respectively.

1,800 and 14,100 stock options were exercised during the nine months ended March 31, 2021 and 2020, respectively.

$ 0 and $ 71,000 of cash was received from option exercises during the nine months ended March 31, 2021 and 2020, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $ 3,000 and $ 8,000 , respectively.

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at March 31, 2020:

Options outstanding

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exercise price

As of December 31, 2020, there was $ 748,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan.

0 and 28,000 options were granted during the six months ended December 31, 2020 and 2019, respectively.

10,400 and 13,000 options vested during the three months ended December 31, 2020 and 2019, respectively.

12,800 and 14,600 options vested during the six months ended December 31, 2020 and 2019, respectively.

The total fair value of the options vesting during the three months ended December 31, 2020 and 2019 under this plan was $ 106,000 and $ 133,000 , respectively.

The total fair value of the options vesting during the six months ended December 31, 2019 and 2018 under this plan was $ 135,000 and $ 150,000 , respectively.

As of March 31, 2021, there was $ 705,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan.

0 and 41,000 options were granted during the nine months ended March 31, 2021 and 2020, respectively.

2,600 and 13,000 options vested during the three months ended March 31, 2021 and 2020, respectively.

15,400 and 17,200 options vested during the nine months ended March 31, 2021 and 2020, respectively.

The total fair value of the options vesting during the three months ended March 31, 2021 and 2020 under this plan was $ 63,000 and $ 33,000 , respectively.

The total fair value of the options vesting during the nine months ended March 31, 2020 and 2019 under this plan was $ 168,000 and $ 183,000 , respectively.

2012 Non-Employee Stock Option Plan

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An option granted under this plan shall vest in full upon a “change in control” as defined in the plan.

At December 31 2020, 12,000 stock options were outstanding, 8,520 stock options were exercisable and no further stock options were available for grant under this plan.

The following table reflects activity under the 2012 Non-Employee Plan for the six months ended December 31,:

At March 31, 2021, 10,800 stock options were outstanding, 7,320 stock options were exercisable and no further stock options were available for grant under this plan.

The following table reflects activity under the 2012 Non-Employee Plan for the nine months ended March 31:

Weighted average

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Total intrinsic value of options exercisable

No stock options were exercised during the six or three months ended December 31, 2020 or 2019.

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at December 31, 2020:

1,200 and 0 stock options were exercised during the three months ended March 31, 2021 and 2020.

No cash was received from option exercises during either of the three months ended March 31, 2021 or 2020 and the actual tax benefit realized for the tax deductions from option exercises was $ 6,000 and $0, respectively.

1,200 and 0 stock options were exercised during the nine months ended March 31,

2021 and 2020, respectively.

No cash was received from option exercises during either of the nine months ended March 31, 2021 or 2020 and the actual tax benefit realized for the tax deductions from option exercises was $6,000 and $0, respectively.

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at March 31, 2021:

Options outstanding

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$4.37 - $23.35

As of December 31, 2020, there was $ 24,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan.

No options were granted during the six or three months ended.

2,760 and 2,400 options vested during the six and three months ended December 31, 2020 and 2019, respectively.

The total fair value of the options vesting during the six and three months ended December 31, 2020 and 2019 under this plan was $ 18,000 and $ 13,000 , respectively.

As of March 31, 2021, there was $ 19,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan.

0 and 1,800 options were granted during the three months ended March 31, 2021 and 2020, respectively.

360 options vested during each of the three months ended March 31, 2021 and 2020, respectively.

0 and 1,800 options were granted during the nine months ended March 31, 2021 and 2020, respectively.

2,760 options vested during each of the nine months ended March 31, 2021 and 2020, respectively.

The total fair value of the options vesting during the three months ended March 31, 2021 and 2020 under this plan was $ 5,000 and $ 3,000 , respectively.

The total fair value of the options vesting during the nine months ended March 31, 2021 and 2020 under this plan was $ 18,000 and $ 18,000 , respectively.

2018 Non-Employee Stock Option Plan

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An option granted under this plan shall vest in full upon a “change in control” as defined in the plan.

At December 31, 2020, 48,400 stock options were outstanding, 18,640 stock options were exercisable and 0 stock options were available for grant under this plan.

No options were granted during the three or six months ended December 31, 2020.

At March 31, 2021, 46,800 stock options were outstanding, 20,480 stock options were exercisable and no further stock options were available for grant under this plan.

No options were granted during the three or nine months ended March 31, 2021.

Risk-free interest rates

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Expected dividend yields

The following table reflects activity under the 2018 Non-Employee Plan for the six months ended December 31,:

The following table reflects activity under the 2018 Non-Employee Plan for the nine months ended March 31:

Weighted average

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Total intrinsic value of options exercisable

No stock options were exercised during the six or three months ended December 31, 2020 or 2019.

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at December 31, 2020:

1,600 and 0 stock options were exercised during the three months ended March 31, 2021 and 2020, respectively.

1,600 and 0 stock options were exercised during the nine months ended March 31, 2021 and 2020, respectively.

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at March 31, 2021:

Options outstanding

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$16.20-$30.54

As of December 31, 2020, there was $ 344,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan.

0 and 16,000 options were granted during the six months ended December 31, 2020 and 2019, respectively.

6,400 options vested during the six and three months ended December 31, 2020 and 2019, respectively.

The total fair value of the options vesting during the six and three months ended December 31, 2020 and 2019 under this plan was $ 88,000 .

As of March 31, 2021, there was $ 311,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan.

0 and 17,200 options were granted during the three months ended March 31, 2021 and 2020, respectively.

3,440 options vested during each of the three months ended March 31, 2021 and 2020.

0 and 33,200 options were granted during the nine months ended March 31, 2021 and 2020, respectively.

9,840 and 24,400 options vested during the nine months ended March 31, 2021 and 2020, respectively.

The total fair value of the options vesting during the three months ended March 31, 2021 and 2020 under this plan was $ 45,000 and $ 88,000 , respectively.

The total fair value of the options vesting during the nine months ended March 31, 2020 and 2019 under this plan was $133,000 and $133,000, respectively.

2020 Non-Employee Stock Option Plan

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An option granted under this plan shall vest in full upon a “change in control” as defined in the plan.

At December 31, 5,000 stock options were outstanding, 1,000 stock options were exercisable and 45,000 stock options were available for grant under this plan.

The fair value of each option granted during the six months ended December 31 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

At March 31, 5,000 stock options were outstanding, 1,000 stock options were exercisable and 45,000 stock options were available for grant under this plan.

The fair value of each option granted during the nine months ended March 31 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rates

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Expected dividend yields

The following table reflects activity under the 2020 Non-Employee Plan for the six months ended December 31,:

The following table reflects activity under the 2020 Non-Employee Plan for the nine months ended March 31:

Weighted average

7 unchanged sentences

Total intrinsic value of options exercisable

No stock options were exercised during the six or three months ended December 31, 2020 or 2019.

The following table summarizes information about stock options outstanding under the 2020 Non-Employee Plan at December 31, 2020:

No stock options were exercised during the three months ended March 31, 2021 or 2020.

The following table summarizes information about stock options outstanding under the 2020 Non-Employee Plan at March 31, 2021:

Options outstanding

7 unchanged sentences

exercise price

As of December 31, 2020, there was $ 43,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan.

0 options were granted during the three months ended December 31, 2020.

5,000 options were granted during the six months ended December 31, 2020.

1,000 options vested during the six months ended December 31, 2020.

0 options vested during the three months ended December 31, 2020.

The total fair value of the options vesting during the six months ended December 31, 2020 under this plan was $ 12,000 .

As of March 31, 2021, there was $ 40,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan.

No options were granted during the three months ended March 31, 2021.

No options vested during the three months ended March 31, 2021.

5,000 options were granted during the nine months ended March 31, 2021.

1,000 options vested during the nine months ended March 31, 2021.

The total fair value of the options vesting during the nine months ended March 31, 2021 under this plan was $ 12,000 .

NOTE 10 – Stockholders’ Equity Transactions

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Pursuant to the PPP Loan Agreement described in Note 8, the Company may not repurchase any of its shares of common stock until 12 months after the termination of the term loans described therein.

No shares were repurchased during the six months ended December 31, 2020.

No shares were repurchased during the nine months ended March 31, 2021.

During the fiscal year ended June 30, 2020, the Company repurchased 144,405 shares of its outstanding common stock at a weighted average price of $ 16.99 .

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During fiscal 2020, certain employees and Directors exercised stock options under the Company's 2012 Employee and Non-Employee Stock Option Plans totaling 15,600 shares.

3,600 of these exercises were completed as cashless exercises as allowed for under the Plans, where the exercise shares are issued by the Company in exchange for shares of the Company's common stock that are owned by the optionees.

The number of shares surrendered by the optionees was 1,628 and was based upon the per share price on the effective date of the option exercise.

During fiscal 2021, certain employees and Directors exercised stock options under the Company’s 2012 Employee Plan, the 2012 Non-employees Plan and the 2018 Non-employee Plan totaling 4,600 shares as cashless exercises as allowed under the plans, where the exercise shares are issued by the Company in exchange for the shares of the Company’s common stock that are owned by the optionee.

The number of shares surrendered by the optionees was 1,740 and was based upon the per share price effective the date of the exercise.

NOTE 11 – Related Party Transaction

On December 15, 2020, 2,333,071 shares of common stock were sold in a secondary offering by an existing shareholder, the Company's President and Chairman.

On December 15, 2020, 2,333,071 shares of common stock were sold in a secondary offering by the Company's President and Chairman.

On December 21, 2020, the underwriters of the secondary offering fully exercised the option granted at the time of the secondary offering to purchase an additional 334,961 shares of common stock at the secondary offering price of $ 26.00 per share ("Greenshoe"), less underwriting discounts and commissions, which consists solely of shares sold by the Company's President and Chairman.

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non-union employees with one or more years of service and is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code.

Company contributions to this plan are discretionary and totaled $ 36,000 and $ 34,000 for the three months ended December 31, 2020 and 2019, respectively.

Company contributions to this plan are discretionary and totaled $ 68,000 and $ 64,000 for the six months ended December 31, 2020 and 2019, respectively.

Company contributions to this plan are discretionary and totaled $ 32,000 and $ 33,000 for the three months ended March 31, 2021 and 2020, respectively.

Company contributions to this plan are discretionary and totaled $ 100,000 and $ 98,000 for the nine months ended March 31, 2021 and 2020, respectively.

NOTE 13 - Commitments and Contingencies

Effective July 1, 2019, the Company adopted the new lease accounting standard using the modified retrospective transition option of applying the new standard at the adoption date.

In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases.

Adoption of the new standard resulted in the recording of an operating ROU asset and lease liabilities of approximately $ 7.7 million.

Given the length of the lease term, the right-of-use asset and corresponding liability assume a weighted discount rate as disclosed below.

A change in the rate utilized could have a material effect on the amounts reported.

Financial positions for reporting periods beginning on or after July 1, 2019 are presented under new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.

Our lease obligation consists of a 99-year lease which commenced on April 26, 1993 with one of the Company’s foreign subsidiaries, expiring in 2092 , for approximately four acres of land in the Dominican Republic at an annual cost of $ 288,000 , on which the Company’s principal production facility is located.

Operating leases are included in operating lease right-of-use assets, accrued expenses and operating lease liabilities, non-current on our condensed consolidated balance sheets.

For the three and six months ended December 30, 2020, cash payments against operating lease liabilities totaled $ 72,000 and $ 144,000 , respectively.

For the three and six months ended December 31, 2019, cash payments against operating lease liabilities totaled $ 72,000 and $ 168,000 , respectively.

For the three and nine months ended March 31, 2021, cash payments against operating lease liabilities totaled $ 72,000 and $ 216,000 , respectively.

For the three and nine months ended March 31, 2020, cash payments against operating lease liabilities totaled $ 72,000 and $ 240,000 , respectively.

Supplemental balance sheet information related to operating leases was as follows:

1 unchanged sentence

Weighted-average discount rate

The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2020 (in thousands):

The following is a schedule, by years, of payments of lease liabilities as of March 31, 2021 (in thousands):

Year Ending June 30,

Operating lease expense totaled approximately $ 79,000 and $ 79,000 , for the three months ended December 31, 2020 and 2019, respectively.

Operating lease expense totaled approximately $ 158,000 and $ 158,000 , for the six months ended December 31, 2020 and 2019, respectively.

Operating lease expense totaled approximately $ 78,000 and $ 79,000 for the three months ended March 31, 2021 and 2020, respectively.

Operating lease expense totaled approximately $ 236,000 and $ 237,000 for the nine months ended March 31, 2021 and 2020, respectively.

In the normal course of business, the Company is a party to claims and/or litigation.

1 unchanged sentence

Employment Agreements

As of December 31, 2020, the Company was obligated under two employment agreements and one severance agreement.

As of March 31, 2021, the Company was obligated under two employment agreements and one severance agreement.

The employment agreements are with the Company’s CEO and the Senior Vice President of Engineering (“the SVP of Engineering”).

6 unchanged sentences

The Company is engaged in one major line of business:

the development, manufacture, and distribution of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products for commercial and residential use.

The Company also provides wireless communication service for intrusion and fire alarm systems.

the development, manufacture, and distribution of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems, video surveillance products, and providing wireless communication services for intrusion and fire alarm systems.

These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold worldwide principally to independent distributors, dealers and installers of security equipment.

3 unchanged sentences

Financial Information Relating to Domestic and Foreign Operations (in thousands)

Three months ended December 31,

Six months ended December 31,

Three months ended March 31,

Nine months ended March 31,

Sales to external customers (1):

Total Net Sales

December 31, 2020

March 31, 2021

June 30, 2020

5 unchanged sentences

There were no sales into any one foreign country in excess of 10% of total Net Sales.

(2) Consists primarily of inventories (December 31, 2020 = $ 23,648 ;

June 30, 2020 = $ 25,246 ), operating lease assets (December 31, 2020 = $ 7,384 ;

June 30, 2020 = $ 7,395 ) and fixed assets (December 31, 2020 = $ 3,276 ;

(2) Consists primarily of inventories (March 31, 2021 = $ 22,996 ;

June 30, 2020 = $ 25,246 ), operating lease assets (March 31, 2021 = $ 7,379 ;

June 30, 2020 = $ 7,395 ) and fixed assets (March 31, 2021 = $ 3,223 ;

June 30, 2020 = $ 3,481 ) located at the Company's principal manufacturing facility in the Dominican Republic.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements