What changed in this filing

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Item 1. Financial Statements

2021-11-08 compared with 2021-05-10 · 203 added, 285 removed, 446 unchanged (52% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2021

September 30, 2021

June 30, 2021

3 unchanged sentences

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

Accounts receivable, net of allowance for doubtful accounts of $ 226 at September 30, 2021 and June 30, 2021, and other reserves

Inventories, net

Income tax receivable

Prepaid expenses and other current assets

31 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Three Months ended March 31,

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

Equipment revenues

Service revenues

Cost of sales:

Equipment related expenses

Service-related expenses

Research and development

Selling, general, and administrative expenses

Operating Income

Other expense:

Interest and other expense, net

Income before Provision for Income Taxes

Provision for Income Taxes

Income per share:

Weighted average number of shares outstanding:

See accompanying notes to condensed consolidated financial statements.

NAPCO SECURITY TECHNOLOGIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Nine Months Ended March 31,

Three Months ended September 30,

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

4 unchanged sentences

Service-related expenses

Operating expenses:

Research and development

Selling, general, and administrative expenses

Total Operating Expenses

Operating Income

Other expense:

Interest and other expense, net

Other income (expense):

Interest and other income (expense), net

Gain on extinguishment of debt

Income before Provision for Income Taxes

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (unaudited)

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

Three months ended September 30, 2021 (in thousands, except for share data)

Treasury Stock

2 unchanged sentences

Stock-based compensation expense

Balances at September 30, 2020

( 2,893,715 )

Stock-based compensation expense

Balances at December 31, 2020

( 2,893,715 )

Stock-based compensation expense

Stock options exercised

Balances at March 31, 2021

Balances at September 30, 2021

( 2,893,715 )

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

Three months ended September 30, 2020 (in thousands, except share data)

Treasury Stock

4 unchanged sentences

( 2,893,715 )

Stock-based compensation expense

Balances at December 31, 2019

( 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)

Nine Months ended March 31,

Three Months ended September 30,

(in thousands)

2 unchanged sentences

Depreciation and amortization

Loss on marketable securities

(Recovery of) provision for doubtful accounts

Gain on marketable securities

Deferred income taxes

Stock based compensation expense

Gain on extinguishment of debt

Changes in operating assets and liabilities:

9 unchanged sentences

Proceeds from stock option exercises

Cash paid for purchase of treasury stock

Net Cash Used in Investing Activities

Net Cash Provided by Financing Activities

Net increase in Cash and Cash Equivalents

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

MARCH 31, 2021

SEPTEMBER 30, 2021

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

Nature of Business :

Napco Security Technologies, Inc.

(“NAPCO”, “the Company”, “we”) is one of the leading manufacturers and designers of high-tech electronic security devices, wireless communication services for intrusion and fire alarm systems as well as a leading provider of school safety solutions.

Napco Security Technologies, Inc (“NAPCO”, “the Company”, “we”) is one of the leading manufacturers and designers of high-tech electronic security devices, as well as a leading provider of school safety solutions.

We offer a diversified array of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products.

1 unchanged sentence

We have experienced significant growth in recent years, primarily driven by fast growing recurring service revenues generated from wireless communication services for intrusion and fire alarm systems, as well as our school security products that are designed to meet the increasing needs to enhance school security as a result of on-campus shooting and violence in the U.S.

While recurring service revenues have continued to increase during the COVID-19 pandemic, equipment sales were negatively impacted by the economic slowdown associated with this pandemic.

The Company’s fiscal year begins on July 1 and ends on June 30.

Historically, the end users of the Company’s products want to install its products prior to the summer;

therefore sales of its products historically peak in the period April 1 through June 30, the Company's fiscal fourth quarter, and are reduced in the period July 1 through September 30, the Company's fiscal first quarter.

Historically, the end users of the Company’s equipment products want to install these products prior to the summer;

therefore, sales of these products historically peak in the period April 1 through June 30, the Company’s fiscal fourth quarter, and are reduced in the period July 1 through September 30, the Company’s fiscal first quarter.

In addition, demand for our products is affected by the housing and construction markets.

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

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.

We sell our products primarily through distribution to dealers and we are now seeing strong sell-through statistics from several of our largest distributors.

Our results for fiscal 2021 and the first quarter of fiscal 2022 reflected the increase in customer demand after the creation of the challenging business environment resulting from the COVID-19 pandemic.

While the Company believes this recovery will continue, there can be no assurances that it will do so in the event of a return to building and construction restrictions that might result from a return to higher levels of COVID-19 cases.

Significant Accounting Policies:

1 unchanged sentence

The consolidated financial statements include the accounts of Napco Security Technologies, Inc.

and all of its wholly-owned subsidiaries.

and its wholly-owned subsidiaries.

All inter-company balances and transactions have been eliminated in consolidation.

5 unchanged sentences

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, 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.

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 September 30, 2021 and June 30, 2021 due to their short-term maturities.

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

Cash and Cash Equivalents

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 March 31, 2021 and June 30, 2020.

Cash and cash equivalents include approximately $ 63,000 of short-term time deposits for each of the periods ended September 30, 2021 and June 30, 2021.

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

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

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

5 unchanged sentences

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.

During the three months ended September 30, 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 March 31, 2021 and $ 326,000 as of June 30, 2020.

Accounts receivable is stated net of the reserves for doubtful accounts of $ 226,000 as of September 30, 2021 and June 30, 2021, respectively.

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

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costs of major renewals and improvements are capitalized.

At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and accumulated depreciation accounts and the profit or loss on such disposition is reflected in income.

Depreciation is recorded over the estimated service lives of the related assets using the straight-line method.

At the time property and equipment are retired or

otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and accumulated depreciation accounts and the profit or loss on such disposition is reflected in income.

Depreciation is recorded over the estimated service lives of the related assets using primarily the straight-line method.

Amortization of leasehold improvements is calculated by using the straight-line method over the estimated useful life of the asset or lease term, whichever is shorter.

Intangible Assets

Intangible assets with definite lives are amortized over their useful lives and are reviewed for impairment whenever there is an indication that the carrying amount may not be recovered.

Long-Lived and Intangible Assets

Long-lived assets are amortized over their useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable.

Impairment would be recorded in circumstances where undiscounted cash flows expected to be generated by an asset are less than the carrying value of that asset.

Intangible assets determined to have indefinite lives were not amortized but were tested for impairment at least annually.

The Company’s acquisition of substantially all of the assets and certain liabilities of G.

2 unchanged sentences

The customer relationships are amortized over their estimated useful lives of twenty years.

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 tradename was impaired.

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

During the 4th quarter of fiscal 2020, the Company determined that the trade-name 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):

March 31, 2021

September 30, 2021

June 30, 2021

Customer relationships

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 intangible assets subject to amortization was approximately $ 98,000 and $ 106,000 for the three months ended September 30, 2021 and 2020, respectively.

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

4 unchanged sentences

and 2026-$ 297,000 .

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

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable.

Impairment would be recorded in circumstances where undiscounted cash flows expected to be generated by an asset are less than the carrying value of that asset.

The weighted average remaining amortization period for intangible assets was 16.7 years and 16.9 years at September 30, 2021 and June 30, 2021, respectively.

Revenue Recognition

The Company recognizes revenue when its customers obtain control of its products or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods and services.

See Note 2 – Revenue Recognition for additional accounting policies and transition disclosures.

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.

For product sales, the Company typically transfers control at a point in time upon shipment or delivery of the product.

For monthly communication services the Company satisfies its performance obligation as the services are rendered and therefore recognizes revenue over the monthly period.

Typically timing of revenue recognition coincides with the timing of invoicing to the customers, at which time the Company has an unconditional right to consideration.

As such, the Company typically records a receivable when revenue is recognized.

The contract with the customer states the final terms of the sale, including the description, quantity, and price of each product purchased.

Payment for product sales is typically due within 30 and 180 days of the delivery date.

Payment for monthly communication services is billed on a monthly basis and is typically due at the beginning of the month of service.

The Company provides limited standard warranty for defective products, usually for a period of 24 to 36 months.

The Company accepts returns for such defective products as well as for other limited circumstances.

The Company also provides rebates to customers for meeting specified purchasing targets and other coupons or credits in limited circumstances.

The Company establishes reserves for the

estimated returns, rebates and credits and measures such variable consideration based on the expected value method using an analysis of historical data.

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

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

Estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers.

Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns.

Actual results could differ from those estimates.

Advertising and Promotional Costs

1 unchanged sentence

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

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.

Advertising expense for the three months ended September 30, 2021 and 2020 was $ 1,086,000 and $ 343,000 , 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 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.

Company-sponsored R&D expense for the three months ended September 30, 2021 and 2020 was $1,931,000 and $ 1,889,000 , 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.

4 unchanged sentences

The Company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Net Income per Share

1 unchanged sentence

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 March 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 September 30, 2021 and 2020 (in thousands, except share and per share data):

Weighted Average Shares

2 unchanged sentences

Stock Options

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 nine months ended March 31 (in thousands, except per share data):

Weighted Average

Net Income per

Effect of Dilutive Securities:

Stock Options

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.

Options to purchase 40,000 shares of common stock were excluded for the three months ended September 30, 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.

There were no anti-dilutive common share equivalents for the three months ended September 30, 2021.

Stock-Based Compensation

2 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 $ 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.

Stock-based compensation costs of $ 89,000 and $ 104,000 were recognized for the three months ended September 30, 2021 and 2020, respectively.

Foreign Currency

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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 nine months ended March 31, 2021 or 2020.

Therefore, no realized and unrealized gains and losses associated with foreign currency translation are recorded for the three months ended September 30, 2021 or 2020.

Comprehensive 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.

For the three months ended September 30, 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.

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Shipping and Handling Sales and Costs

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).

The Company records the amount billed to customers for shipping and handling in net sales ($ 106,000 in each of the three months ended September 30, 2021 and 2020) and classifies the costs associated with these sales in cost of sales ($ 333,000 and $ 221,000 in the three months ended September 30, 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 in Note 13.

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.

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.

See Note 13 – Commitments and Contingencies;

Leases for additional accounting policies and transition disclosures.

Recently Issued and Adopted Accounting Standards

Recently Issued Accounting Standards

Reference Rate Reform (ASC Topic 848)

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NOTE 2 – Revenue Recognition and Contracts with Customers

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.

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

The Company is engaged in one major line of business:

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.

The Company also provides wireless communication service for intrusion and fire alarm systems on a monthly basis.

All of 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.

Sales to unaffiliated customers are primarily shipped from the United States.

For product sales, the Company typically transfers control at a point in time upon shipment or delivery of the product.

For monthly communication services the Company satisfies its performance obligation as the services are rendered and therefore recognizes revenue over the monthly period.

Typically timing of revenue recognition coincides with the timing of invoicing to the customers, at which time the Company has an unconditional right to consideration.

As such, the Company typically records a receivable when revenue is recognized.

The contract with the customer states the final terms of the sale, including the description, quantity, and price of each product purchased.

Payment for product sales is typically due within 30 and 180 days of the delivery date.

Payment for monthly communication services is billed on a monthly basis and is typically due at the beginning of the month of service.

The Company provides limited standard warranty for defective products, usually for a period of 24 to 36 months .

The Company accepts returns for such defective products as well as for other limited circumstances.

The Company also provides rebates to customers for meeting specified purchasing targets and other coupons or credits in limited circumstances.

The Company establishes reserves for the estimated returns, rebates and credits and measures such variable consideration based on the expected value method using an analysis of historical data.

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

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.

Estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers.

Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns.

Actual results could differ from those estimates.

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.

As of September 30, 2021 and June 30, 2021, the Company included refund liabilities of approximately $ 3,846,000 and $ 4,277,000 , respectively, in current liabilities.

As of September 30, 2021 and June 30, 2021, the Company included return-related assets of approximately $ 911,000 and $ 890,000 , respectively, in other current assets.

As a percentage of gross sales, sales returns, rebates and allowances were 8 % and 9 % for the three months ended September 30, 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 March 31,

Nine months ended March 31,

Three months ended September 30,

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 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 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.

The Company had one customer with an accounts receivable balance that comprised 12 % and 12 % of the Company’s accounts receivable at September 30, 2021 and June 30.

2021, respectively.

Sales to this customer did not exceed 10 %of net sales during the three months ended September 30, 2021 and 2020, respectively.

The Company had another customer with an accounts receivable balance that comprised 11 % of the Company’s accounts receivable at each September 30, 2021 and June 30, 2021.

Sales to this customer did not exceed 10 % of net sales during the three months ended September 30, 2021 and 2020, respectively.

The Company had another customer with an accounts receivable balance that comprised 23 % and 19 % of the Company’s accounts receivable at September 30, 2021 and June 30, 2021.

Sales to this customer were 14 % of net sales during the three months ended September 30, 2021.

Sales to this customer did not exceed 10 % of net sales during the three months ended September 30, 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:

There were no realized or unrealized gains and losses for the three months ended September 30, 2020.

The disaggregated net gains and losses on the marketable securities recognized within the accompanying condensed consolidated statements of income for the three months ended September 30, 2021, are as follows (in thousands):

September 30, 2021

Net gains recognized during the period on marketable securities

1 unchanged sentence

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.

The fair values of the Company’s marketable securities are determined as being 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.

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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:

The following tables summarize the Company’s investments at September 30, 2021 and June 30, 2021, respectively (in thousands):

September 30, 2021

June 30, 2021

Marketable Securities

1 unchanged sentence

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

Inventories, net of reserves are valued at lower of cost (first-in, first-out method) or net realizable value.

The Company regularly reviews parts and finished goods inventories on hand and, when necessary, records a provision for excess or obsolete inventories.

The Company also regularly reviews the period over which its inventories will be converted to sales.

Any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current.

Inventories, net of reserves consist of the following (in thousands):

September 30,

Component parts

4 unchanged sentences

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

March 31, 2021

September 30, 2021

June 30, 2021

6 unchanged sentences

accumulated depreciation and amortization

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.

Depreciation and amortization expense on property, plant, and equipment was approximately $ 340,000 and $ 317,000 in the three months ended September 30, 2021 and 2020, respectively.

NOTE 7 - Income Taxes

The provision for income taxes represents Federal, foreign, and state and local income taxes.

The effective rate differs from statutory rates due to the effect of state and local income taxes, tax rates in foreign jurisdictions, global intangible low-taxed income (“GILTI”), tax benefit of R&D credits and certain nondeductible expenses.

Our effective tax rate will change from quarter to quarter based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, and state and local income taxes.

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 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 .

For the three months ended September 30, 2021, the Company recognized net income tax expense of $ 348,000 .

During the three months ended September 30, 2021, the Company’s reserve for uncertain income tax positions increased by $ 6,000 .

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 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 .

As of September 30, 2021, the Company had accrued interest totaling $ 69,000 , as well as $ 679,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period.

For the three months ended September 30, 2021, additional interest expense was accrued for in the amount of $ 6,000 .

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

3 unchanged sentences

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

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.

As of September 30, 2021, we remain subject to examination in all tax jurisdictions for all relevant jurisdictional statutes for fiscal years 2018 and thereafter.

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

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NOTE 8 - Long-Term Debt

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 March 31, 2021 and June 30, 2020 are as follows (dollars in thousands):

March 31, 2021

As of September 30, 2021 and June 30, 2021, the Company had a revolving line of credit of $ 11,000,000 (“Revolver Agreement”) which expires in June 2024.

Also, at June 30, 2021, long-term debt consisted of a term loan from the U.S.

Small Business Administration through its Payroll Protection Program.

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

September 30, 2021

June 30, 2021

9 unchanged sentences

The Revolver Agreement contains various restrictions and covenants including, among others, restrictions on payment of dividends, restrictions on borrowings and compliance with certain financial ratios, as defined in the Revolver Agreement.

In September 2020, the Company and its lender amended the Revolver Agreement, which had an expiration date of June 2021, to expire in June 2024.

The amended Revolver Agreement also removed certain requirements and restrictions on the Company as well as removing the mortgage on the Company’s Amityville facility.

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.

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 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.

The amount of loan forgiveness is determined by calculating allowable expenses during a period of 24 weeks from the date of the receipt of the loan proceeds (the “Effective Period”) and may be reduced if loan proceeds are not used for qualified expenses.

To receive loan forgiveness, the Company must apply for loan forgiveness and provide documentation as requested by the SBA.

There will be no loan forgiveness without the Company’s submission of the proper application and documentation to Lender to include all SBA requirements.

Not more than 25% of the amount forgiven can be attributable to non-payroll costs.

While the Company believes it is eligible for forgiveness, no assurance can be provided that the Company will obtain forgiveness of the PPP Loan in whole or in part or, if forgiven, will not be disallowed by the SBA if audited.

The maturity dates of the PPP Loan are between April 17, 2022 and May 7, 2022, which is two years from the PPP Loan Agreement date.

The interest accrues from the date of disbursement of the PPP Loan (the “Effective Date”).

The PPP Loan bears interest at a fixed rate equal to one percent (1%) per annum and interest will accrue from the Effective Date.

PPP Loan payments are deferred for ten months after the end of the effective period.

Subject to adjustment for any PPP Loan forgiveness granted by the CARES Act, the Company will subsequently pay 18 fully amortized monthly consecutive principal and interest payments for all principal and all accrued interest not yet paid, with the first PPP Loan payment due on the date that is ten months after the end of the effective period.

The proceeds of the PPP Loan shall be used for the following purposes only:

(i) payroll costs as defined by the CARES Act, (ii) costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;

(iii) mortgage interest payments, (iv) rent payments, (v) utility payments, (vi) interest payments on any other debt obligations incurred before February 15, 2020, and/or (vii) refinancing a SBA Economic Injury Disaster Loan made between January 31, 2020 and April 3, 2020.

The PPP Loan and the related documentation contain customary events of default, including:

(i) any representation or warranty made, or financial or other information provided, by the Company under the PPP Loan Agreement being false or misleading in any material respect;

(ii) the failure by the Company to make required payments;

(iii) the failure by the Company to perform or comply with certain agreements;

and (iv) the dissolution or termination of the Company's existence as a going business, the insolvency of the Company, the appointment of a receiver for any part of the Company's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Company.

Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then the Company will pay that amount.

Lender may hire or pay someone else to help collect this Note if the Company does not pay.

The Company will pay Lender that amount.

This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals.

The Company also will pay any court costs, in addition to all other sums provided by law.

Should the Company default on the PPP Loan, SBA may be required to pay Lender under the SBA guarantee.

SBA may then seek recovery of these funds from the Company and the Company may not claim or assert against SBA any immunities or defenses available under local law to defeat, modify or otherwise limit the Company's obligation to repay to SBA any funds advanced by Lender to the Company.

If the Company defaults on the SBA-guaranteed loan and SBA suffers a loss, the names of the small business will be referred for listing in the Credit Alert Verification Reporting System (CAIVRS) database, which may affect their eligibility for further assistance.

The Company is accounting for the PPP Loan as debt in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 470, Debt and accrues interest in accordance with the interest method under FASB ASC 835-30.

The Company will not impute additional interest at a market rate (even though the stated interest rate may be below market) as transactions where interest rates are prescribed by governmental agencies are excluded from the scope of the FASB ASC 835-30 guidance on imputing interest.

For purposes of de-recognition or forgiveness of the liability, FASB ASC 470-50-15-4 refers to guidance in FASB ASC 405-20.

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.

The Company received the proceeds of promissory notes dated between April 17, 2020 and May 7, 2020 with an aggregate principal amount of $ 3,904,000 (the "PPP Loan"), 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 Small Business Association (“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.

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

During the three months ended September 30, 2021, the PPP Loans were legally forgiven, in their entirety, in accordance with guidelines set forth in the PPP.

The Company recognized a gain on the extinguishment of debt in the first quarter of 2022 in the amount of $ 3,904,000 within the other income (expense) section in the accompanying condensed consolidated statements of income.

The SBA reserves the right to audit PPP forgiveness applications for a period of six years from the date of forgiveness.

It has indicated that it will audit all of those that are in excess of $2 million.

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 $ 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).

The Company follows ASC 718 (“Share-Based Payment”), 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.

For the three months ended September 30, 2021 and 2020, the Company recorded non-cash compensation expense of $ 89,000 ($ 0.00 per basic and diluted share) and $ 104,000 ($ 0.01 per basic and diluted share), respectively, relating to stock-based compensation.

2012 Employee Stock Option Plan

In December 2012, the stockholders approved the 2012 Employee Stock Option Plan ("

2012 Employee Plan").

In December 2012, the stockholders approved the 2012 Employee Stock Option Plan (the 2012 Employee Plan).

The 2012 Employee Plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 950,000 shares of the Company’s common stock to be acquired by the holders of such awards.

Under this plan, the Company may grant stock options, which are intended to qualify as incentive stock options ("ISOs"), to valued employees.

Under this plan, the Company may grant stock options, which are intended to qualify as incentive stock options (ISOs), to valued employees.

Any plan participant who is granted ISOs and possesses more than 10 % of the voting rights of the Company’s outstanding common stock must be granted an option with a price of at least 110 % of the fair market value on the date of grant.

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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 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:

At September 30, 2021, 104,540 stock options were outstanding, 48,988 stock options were exercisable and 738,460 stock options were available for grant under this plan.

During the quarter ended September 30, 2021, certain employees exercised options totaling 2,500 shares.

No options were granted under this plan during the quarter ended September 30, 2021 and 2020, respectively.

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

Risk-free interest rates

1.30 % - 2.10

Expected lives

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Expected dividend yields

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

The following table reflects activity under the 2012 Employee Plan for the three months ended September 30:

Weighted average

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Outstanding, beginning of year

Forfeited/Lapsed

Outstanding, end of period

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Total intrinsic value of options exercisable

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:

2,500 stock options were exercised during the three months ended September 31, 2021.

There were no stock options exercised during the quarter ended September 30, 2020.

$ 16,000 cash was received from option exercises during the three months ended September 30, 2021, and the actual tax benefit realized for the tax deductions from option exercises was $ 0 .

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at September 30, 2021:

Options outstanding

7 unchanged sentences

exercise price

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.

$ 4.37 ‑ $ 33.59

As of September 30, 2021, there was $ 499,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan.

There were no grants of options in either quarter ended September 30, 2021 and 2020, respectively.

2,400 options vested during the three months ended September 30, 2021 and 2020, respectively.

The total fair value of the options vesting during the three months ended September 30, 2021 and 2020 under this plan was $ 29,000 and $ 29,000 , 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 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:

At September 30, 2021, 6,000 stock options were outstanding, 3,120 stock options were exercisable and 4,800 stock options were available for grant under this plan.

There were no exercises during the three months ended September 30, 2021.

No options were granted under this plan during the three months ended September 30, 2021 and 2020, respectively.

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

Risk-free interest rates

Expected lives

Expected volatility

Expected dividend yields

The following table reflects activity under the 2012 Non-Employee Plan for the three months ended September 30:

Weighted average

3 unchanged sentences

Outstanding, beginning of year

Forfeited/Lapsed

Outstanding, end of period

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Total intrinsic value of options exercisable

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:

No stock options were exercised during the three months ended September 30, 2021 or 2020.

No cash was received from option exercises during either of the three months ended September 30, 2021 or 2020 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 Non-Employee Plan at September 30, 2021:

Options outstanding

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$ 8.70 - $ 23.35

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.

As of September 30, 2021, there was $ 10,000 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 three months ended September 30, 2021 or 2020.

No options vested during the three months ended September 30, 2021 or 2020.

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 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.

At September 30, 2021, 35,050 stock options were outstanding, 14,980 stock options were exercisable and 11,750 stock options were available for grant under this plan.

options were exercised under this plan for the three months ended September 30, 2021.

No options were granted under this plan during the three months ended September 30, 2021 and 2020, respectively.

The fair value of each option granted 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 2018 Non-Employee Plan for the nine months ended March 31:

The following table reflects activity under the 2018 Non-Employee Plan for the three months ended September 30:

Weighted average

3 unchanged sentences

Outstanding, beginning of year

Forfeited/Lapsed

Outstanding, end of period

4 unchanged sentences

Total intrinsic value of options exercisable

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:

No stock options were exercised during the three months ended September 30, 2021 or 2020.

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at September 30, 2021:

Options outstanding

6 unchanged sentences

$ 16.20 - $ 30.54

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.

As of September 30, 2021, there was $ 186,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan.

No options were granted during the three months ended September 30, 2021 or 2020.

No options vested during the three months ended September 30, 2021 or 2020.

2020 Non-Employee Stock Option Plan

In May 2020, the stockholders approved the 2020 Non-Employee Stock Option Plan (the “2020 Non-Employee Plan”).

This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 50,000 shares of the Company's common stock to be acquired by the holders of such awards.

This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 50,000 shares of the Company's common

stock to be acquired by the holders of such awards.

Under this plan, the Company may grant stock options to non-employee directors and consultants to the Company and its subsidiaries.

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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 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:

At September 30, 2021, 5,000 stock options were outstanding, 2,000 stock options were exercisable and 45,000 stock options were available for grant under this plan.

There were no grants for the three months ended September 30, 2021.

The fair value of each option granted during the three months year ended September 30, 2021 and 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 2020 Non-Employee Plan for the nine months ended March 31:

The following table reflects activity under the 2020 Non-Employee Plan for the three months ended September 30:

Weighted average

exercise price

Outstanding, beginning of year

Forfeited/Lapsed

Outstanding, end of period

4 unchanged sentences

Total intrinsic value of options exercisable

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:

No stock options were exercised during the three months ended September 30, 2021 or 2020.

The following table summarizes information about stock options outstanding under the 2020 Non-Employee Plan at September 30, 2021:

Options outstanding

7 unchanged sentences

exercise price

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 .

As of September 30, 2021, there was $ 34,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan.

There were no grants of options in the three months ended September 30, 2021.

There were 5,000 options granted during the three months ended September 30, 2020.

1,000 options vested during the three months ended September 30, 2021 and 2020, respectively.

The total fair value of the options vesting during the three months ended September 30, 2021 and 2020 under this plan was $ 12,000 and $ 12,000 , respectively.

NOTE 10 – Stockholders’ Equity Transactions

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Such repurchases may be made from time to time in the open market or in privately negotiated transactions subject to market conditions and the market price of the common stock.

Relative to the loan agreement described in Note 8, the Company’s lender gave its consent to this stock repurchase plan.

During the three months ended September 30, 2021, and the fiscal year ended June 30, 2021, the Company did no t repurchase any shares of its outstanding common stock.

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 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 .

Shares repurchased through June 30, 2020 are included in the Company’s Treasury Stock as of June 30, 2020.

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

During the three months ended September 30, 2021, an employee exercised stock options under the Company's 2012 Employee Stock Option Plan totaling 2,500 shares.

This exercises was completed as a cash exercises as allowed for under the Plan.

$ 16,000 was received in exchange for 2,500 shares of the Company’s stock.

During fiscal 2021, certain employees and Directors exercised stock options under the Company's 2012 Employee and Non-Employee and 2018 Non-employee Stock Option Plans totaling 7,100 shares.

All 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 3,367 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

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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 $ 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.

Company contributions to this plan are discretionary and totaled $ 36,000 and $ 32,000 for the three months ended September 30, 2021 and 2020, respectively.

NOTE 13 - Commitments and Contingencies

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.

Our lease obligation consists of a 99-year lease, entered into by one of the Company’s foreign subsidiaries, for approximately four acres of land in the Dominican Republic on which the Company’s principal production facility is located.

The lease, which commenced on April 26, 1993 and expires in 2092, has an annual cost of approximately $ 288,000 .

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 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.

For the three months ended September 30, 2021 and 2020, cash payments against operating lease liabilities totaled $ 72,000 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 payments of lease liabilities as of March 31, 2021 (in thousands):

The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2021 (in thousands):

Year Ending June 30,

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.

Operating lease expense totaled approximately $ 80,000 and $ 79,000 , for the three months ended September 30, 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 March 31, 2021, the Company was obligated under two employment agreements and one severance agreement.

As of September 30, 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, video surveillance products, and providing wireless communication services 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 and video surveillance products for commercial and residential use.

The Company also provides wireless communication service 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.

1 unchanged sentence

The Company has customers worldwide with major concentrations in North America.

Financial Information Relating to Domestic and Foreign Operations

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

Three months ended March 31,

Nine months ended March 31,

Three months ended September 30,

Sales to external customers (1):

Total Net Sales

March 31, 2021

September 30, 2021

June 30, 2021

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 (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 ;

(2) Consists primarily of inventories (September 30, 2021 = $ 22,481 ;

June 30, 2021 = $ 21,020 ), operating lease assets (September 30, 2021 = $ 7,367 ;

June 30, 2021 = $ 7,373 ) and fixed assets (September 30, 2021 = $ 3,248 ;

June 30, 2021 = $ 3,208 ) 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