What changed in this filing

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Item 1. Financial Statements

2022-11-07 compared with 2022-05-17 · 194 added, 277 removed, 474 unchanged (50% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2022

September 30, 2022

June 30, 2022

2 unchanged sentences

Cash and cash equivalents

Investments - other

Marketable securities

Accounts receivable, net of allowance for doubtful accounts of $ 226 at both March 31, 2022 and June 30, 2021

Accounts receivable, net of allowance for doubtful accounts of $ 216 and $ 243 as of September 30, 2022 and June 30, 2022, respectively

Inventories, net

Income tax receivable

Prepaid expenses and other current assets

3 unchanged sentences

Intangible assets, net

Deferred income taxes

Operating lease asset

3 unchanged sentences

Accrued salaries and wages

Current portion of long-term debt

Accrued income taxes

Total Current Liabilities

Long term debt, net of current portion

Deferred income taxes

5 unchanged sentences

Common Stock, par value $ 0.01 per share;

100,000,000 shares authorized as of March 31, 2022 (Note 10) and 80,000,000 shares authorized as of June 30, 2021;

100,000,000 shares authorized as of September 30, 2022 and June 30, 2022;

39,636,677 and 39,628,197 shares issued;

9 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

Operating expenses:

Research and development

Selling, general, and administrative expenses

Total Operating Expenses

Operating Income

Other (expense) income:

Interest and other income (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)

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Other (expense) income:

Interest and other income (expense), net

Interest and other (expense) income, net

Gain on extinguishment of debt

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (unaudited)

Nine months ended March 31, 2022 (in thousands, except for share data)

Three months ended September 30, 2022 (in thousands, except for share data)

Treasury Stock

Balances at June 30, 2021, Prior to considering Retrospective effect of Stock Split

Retrospective Effects of 2:1 Stock Split Declared on December 20, 2021

Balances at June 30, 2021, considering Retrospective effect of Stock Split

Balances at June 30, 2022

( 2,893,715 )

3 unchanged sentences

( 2,893,715 )

Stock-based compensation expense

Stock options exercised

Balances at December 31, 2021

( 2,893,715 )

Stock-based compensation expense

Stock options exercised

Balances at March 31, 2022

( 2,893,715 )

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

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

Treasury Stock

Balances at June 30, 2020, Prior to considering Retrospective effect of Stock Split

Retrospective Effects of 2:1 Stock Split Declared on December 20, 2021

Balances at June 30, 2020, considering Retrospective effect of Stock Split

( 2,893,715 )

Stock-based compensation expense

Balances at September 30, 2020

( 2,893,715 )

Stock-based compensation expense

Balances at December 31, 2020

Balances at June 30, 2021

( 2,893,715 )

1 unchanged sentence

Stock options exercised

Balances at March 31, 2021

Balances at September 30, 2021

( 2,893,715 )

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine Months ended March 31,

Three Months ended September 30,

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization

Unrealized loss on marketable securities

(Recovery of) provision for doubtful accounts

Gain on disposal of fixed asset

Interest (income) on other investments

Unrealized loss (gain) on marketable securities

Provision for (recovery of) doubtful accounts

Change to inventory reserve

5 unchanged sentences

Prepaid expenses and other current assets

Income tax receivable

Accounts payable, accrued expenses, accrued salaries and wages, accrued income taxes

Net Cash Provided by Operating Activities

Net Cash (Used in) Provided by Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property, plant, and equipment

Purchases of marketable securities

Proceeds from disposal of fixed asset

Purchases of marketable securities and other investments

Net Cash Used in Investing Activities

2 unchanged sentences

Net Cash Provided by Financing Activities

Net increase in Cash and Cash Equivalents

Net (decrease) increase in Cash and Cash Equivalents

CASH AND CASH EQUIVALENTS - Beginning

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

MARCH 31, 2022

September 30, 2022

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 recurring 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, cellular communication services for intrusion and fire alarm systems 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.

2 unchanged sentences

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

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

Historically, the end users of the Company’s hardware 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.

In addition, demand for all of our products may be affected by the housing and construction markets.

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

Our results for fiscal 2021 and the first three quarters of fiscal 2022 reflected the increase in customer demand after 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.

The monthly recurring revenue, which is less susceptable to these fluctuations, allows us to generate a more consistent and predictable stream of income and mitigates the risk of fluctuation in market demand for our equipment products.

Significant Accounting Policies :

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All share and per share amounts (except par value) have been retroactively adjusted to reflect the stock split.

There was no net effect on total stockholders' equity as a result of the stock split.

There was no net effect on stockholders’ equity as a result of the stock split.

Upon distribution of the dividend, the total number of shares outstanding increased from 18,365,878 to 36,731,756 .

1 unchanged sentence

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent gains and losses at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Critical estimates

include management’s judgments associated with reserves for sales returns and allowances, allowance for doubtful accounts, inventory reserves, valuation of intangible assets and income taxes.

Critical estimates include management’s judgments associated with reserves for sales returns and allowances, allowance for doubtful accounts, overhead expenses applied to inventory, inventory reserves, valuation of intangible assets, share based compensation and income taxes.

Actual results could differ from those estimates.

1 unchanged sentence

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 March 31, 2022 and June 30, 2021 due to their short-term maturities.

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, 2022 and 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 both March 31, 2022 and June 30, 2021, respectively.

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, 2022 and June 30, 2021.

Cash and cash equivalents include approximately $ 5,066,000 and $ 63,000 of short-term time deposits at September 30, 2022 and June 30, 2022, respectively.

The Company classifies all highly liquid investments with original maturities of three months or less as cash equivalents.

During the three months ended September 30, 2022, the Company purchased three certificate of deposits totaling $ 15,000,000 .

One certificate of deposit with a original maturity of three months has been included in cash and cash equivalents while two with original maturities greater than three months have been included in investments - other.

Certificate of deposits are recorded at the original cost plus accrued interest.

As of September 30, 2022 and June 30, 2022, the Company included $ 5,003,000 and $ 0 , respectively, of certificate of deposits within Cash and 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 September 30, 2022 and June 30, 2022.

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

Investments – other

The Company classifies certificates of deposit with an original maturity greater than three months as investments - other.

Certificate of deposits are recorded at the original cost plus accrued interest.

As of September 30, 2022 and June 30, 2022, the Company included $ 10,008,000 and $ 0 , respectively, of certificate of deposits within investments - other.

Marketable Securities

3 unchanged sentences

The Company would record an impairment charge if 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, 2022, 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, 2022, 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 $ 226,000 as of both March 31, 2022 and June 30, 2021.

Accounts receivable is stated net of the reserves for doubtful accounts of $ 216,000 and $ 243,000 as of both September 30, 2022 and June 30, 2022.

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

6 unchanged sentences

In addition, the Company records an inventory obsolescence reserve, which represents any excess of the cost of the inventory over its estimated realizable value.

This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, requirements to support forecasted sales, and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand.

In addition, and as necessary, the Company

may establish specific reserves for future known or anticipated events.

This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, product life cycle, requirements to support forecasted sales, and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand.

In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events.

There is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage.

12 unchanged sentences

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.

Marks Hardware, Inc.

(“Marks”) in August 2008 included intangible assets recorded at fair value on the date of acquisition.

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

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, 2022

September 30, 2022

June 30, 2022

Customer relationships

Amortization expense for intangible assets subject to amortization was approximately $ 98,000 and $ 106,000 for the three months ended March 31, 2022 and 2021, respectively.

Amortization expense for intangible assets subject to amortization was approximately $ 293,000 and $ 319,000 for the nine months ended March 31, 2022 and 2021, respectively.

Amortization expense for intangible assets subject to amortization was approximately $ 90,000 and $ 98,000 for the three months ended September 30, 2022 and 2021, respectively.

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

4 unchanged sentences

and 2027 - $ 283,000 .

The weighted average remaining amortization period for intangible assets was 16.3 years and 16.9 years at March 31, 2022 and June 30, 2021, respectively.

The weighted average remaining amortization period for intangible assets was 16.0 years and 16.2 years at September 30, 2022 and June 30, 2022, respectively.

Revenue Recognition

6 unchanged sentences

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.

Payment for monthly communication services is billed on a monthly basis and is typically due at the beginning of the month of service or in 30 days for customers with an open account.

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

10 unchanged sentences

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

Advertising expense for the three months ended March 31, 2022 and 2021 was $ 655,000 and $ 229,000 , respectively.

Advertising expense for the nine months ended March 31, 2022 and 2021 was $ 2,253,000 and $ 919,000 , respectively

Advertising expense for the three months ended September 30, 2022 and 2021 was $ 754,000 and $ 1,086,000 , 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.

Company-sponsored R&D expense for the three months ended March 31, 2022 and 2021 was $ 2,009,000 and $ 1,902,000 , respectively.

R&D expense for the nine months ended March 31, 2022 and 2021 was $ 5,918,000 and $ 5,675,000 , respectively.

Company-sponsored R&D expense for the three months ended September 30, 2022 and 2021 was $ 2,428,000 and $ 1,931,000 , 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.

8 unchanged sentences

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, 2022 and 2021 (in thousands, except share and per share data):

The following provides a reconciliation of information used in calculating the per share amounts for the three months ended September 30, 2022 and 2021 (in thousands, except share and per share data):

Weighted Average Shares

2 unchanged sentences

Stock Options

Options to purchase 388,000 and 16,000 shares of common stock were excluded for the three months ended March 31, 2022 and 2021, 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, 2022 and 2021 (in thousands, except share and per share data):

Weighted Average

Net Income per

Effect of Dilutive Securities:

Stock Options

Options to purchase 156,145 and 53,333 shares of common stock were excluded for the nine months ended March 31, 2022 and 2021, respectively, and were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive.

Options to purchase 62,500 and 0 shares of common stock were excluded for the three months ended September 30, 2022 and 2021, 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.

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 $ 35,000 and $ 84,000 were recognized for the three months ended March 31, 2022 and 2021, respectively.

Stock-based compensation costs of $ 1,379,000 and $ 272,000 were recognized for the nine months ended March 31, 2022 and 2021, respectively.

Stock-based compensation costs of $ 477,000 and $ 89,000 were recognized for the three months ended September 30, 2022 and 2021, 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 nine months ended March 31, 2022 or 2021.

Therefore, no realized and unrealized gains and losses associated with foreign currency translation are recorded for the three months ended September 30, 2022 or 2021.

Comprehensive Income

For the three and nine months ended March 31, 2022 and 2021, 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, 2022 and 2021, 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 ($ 106,000 and $ 91,000 in the three months ended March 31, 2022 and 2021, respectively and $ 318,000 and $ 290,000 in the nine months ended March 31, 2022 and 2021, respectively);

and classifies the costs associated with these sales in cost of sales ($ 339,000 and $ 281,000 in the three months ended March 31, 2022 and 2021, respectively and $ 1,033,000 and $ 732,000 in the nine months ended March 31, 2022 and 2021, 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.

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.

The Company records the amount billed to customers for shipping and handling in net sales ($ 112,000 and $ 106,000 in the three months ended September 30, 2022 and 2021, respectively);

and classifies the costs associated with these sales in cost of sales ($ 394,000 and $ 333,000 in the three months ended September 30, 2022 and 2021, respectively).

The Company records lease assets and correspoinding lease liabilities for the operating lease on our Consolidated Balance Sheets, excluding short-term leases (leases with terms of 12 months or less) as described under ASU No.

2016-02, Leases (Topic 842) .

Lease payments are discounted using a third-party secured incremental borring rate based on information available at lease commencement.

The Company analyzes whether or not amendments to existing leases classify as a Lease Modification or a full or partial termination of the existing lease.

See Note 12 – Commitments and Contingencies;

Leases for additional accounting policies and transition disclosures.

Leases for additional accounting policies and disclosures.

Recently Issued 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.

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.

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The Company does not believe that this transition will have a material impact on its financial condition.

Financial Instruments – Credit Losses (Topic 326)

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326),” which requires financial assets measured at amortized cost, such as our trade receivables, to be presented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectations for each pool of similar financial assets.

ASU 2016-13 becomes effective for the Company beginning in the quarter ended September 30, 2023.

The Company is currently evaluating the impact of adoption on its consolidated financial statements.

NOTE 2 – Revenue Recognition and Contracts with Customers

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

As of March 31, 2022 and June 30, 2021, the Company included refund liabilities of approximately $ 4,771,000 and $ 4,277,000 , respectively, in current liabilities.

As of March 31, 2022 and June 30, 2021, the Company included return-related assets of approximately $ 961,000 and $ 890,000 , respectively, in other current assets.

As a percentage of gross sales, returns, rebates and allowances were 11 % and 10 % for the three months ended March 31, 2022 and 2021, respectively.

As a percentage of gross sales, returns, rebates and allowances were 10 % and 9 % for the nine months ended March 31, 2022 and 2021, respectively.

As of September 30, 2022 and June 30, 2022, the Company included refund liabilities of approximately $ 4,242,000 and $ 5,863,000 , respectively, in current liabilities.

As of September 30, 2022 and June 30, 2022, the Company included return-related assets of approximately $ 987,000 and $ 974,000 , respectively, in other current assets.

As a percentage of gross sales, returns, rebates and allowances were 5 % and 8 % for the three months ended September 30, 2022 and 2021, respectively.

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

2 unchanged sentences

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 did not have any customers which exceeded 10% of net sales for the three or nine months ended March 31, 2022 and March 31, 2021, respectively.

The Company had three customers with an accounts receivable balance that comprised 13 %, 15 % and 13 % of the Company’s accounts receivable at March 31, 2022.

The same three customers had accounts receivable balances that comprise of 12 %, 19 % and 11 %, of the Company’s accounts receivable at June 30, 2021.

The Company had one customer with an accounts receivable balance that comprised of 15 % and 16 % as of September 30, 2022 and June 30, 2022.

Sales to this customer did not exceed 10% of net sales during the three months ended September 30, 2022 and 2021, respectively.

The Company had another customer with an accounts receivable balance of 24 % and 22 % as of September 30, 2022 and June 30, 2022.

Sales to this customer were 11 % and 14 % for the three months ended September 30, 2022 and 2021, respectively.

NOTE 4 – 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, and are reported at their fair values.

The disaggregated net gains and losses on the marketable securities recognized within the accompanying condensed consolidated statements of income for the three and nine months ended March 31, 2022 and 2021, are as follows (in thousands):

Three months ended March 31,

Nine months ended March 31,

The Company’s marketable securities include investments in fixed income mutual funds, which invest primarily in various government and corporate obligations, stocks and money market funds, and are reported at their fair values.

The disaggregated net gains and losses on the marketable securities recognized within the accompanying condensed consolidated statements of income for the three ended September 30, 2022 and 2021, are as follows (in thousands):

Three months ended September 30,

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

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

Unrealized (losses) recognized during the reporting period on marketable securities still held at the reporting 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.

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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 at March 31, 2022 and June 30, 2021, respectively (in thousands):

March 31, 2022

The following tables summarize the Company’s investments at September 30, 2022 and June 30, 2022, respectively (in thousands):

September 30, 2022

June 30, 2022

Marketable Securities

Mutual Funds - Level 1

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

3 unchanged sentences

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, 2022

September 30, 2022

June 30, 2022

6 unchanged sentences

accumulated depreciation and amortization

Depreciation and amortization expense on property, plant, and equipment was approximately $ 338,000 and $ 302,000 for the three months ended March 31, 2022 and 2021, respectively.

Depreciation and amortization expense on property, plant and equipment was approximately $ 1,028,000 and $ 939,000 for the nine months ended March 31, 2022 and 2021, respectively.

Depreciation and amortization expense on property, plant, and equipment was approximately $ 367,000 and $ 340,000 for the three months ended September 30, 2022 and 2021, 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, a gain on extinguishment of debt of the Company’s PPP loans 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 three and nine months ended March 31, 2022, the Company recognized net income tax expense of $ 1,132,000 and $ 1,771,000 , respectively.

During the nine months ended March 31, 2022, the Company’s reserve for uncertain income tax positions increased by $ 6,000 .

For the three months ended September 30, 2022 and September 30,2021, the Company recognized net income tax expense of $ 744,000 and $ 348,000 , respectively.

During the three months ended September 30, 2022, the Company’s reserve for uncertain income tax positions increased by $ 12,000 .

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, 2022, the Company had accrued interest totaling $ 82,000 , as well as $ 678,000 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, 2022, additional interest expense was accrued for in the amount of $ 6,000 .

As of Septemebr 30, 2022, the Company had accrued interest totaling $ 100,000 , as well as $ 678,000 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, 2022, additional interest expense was accrued for in the amount of $ 12,000 .

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, 2022, 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.

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.

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.

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 .

In fiscal 2021, 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.

Federal income tax return and its State return in New York as its major tax jurisdictions.

As of September 30, 2022, we remain subject to examination in all tax jurisdictions for all relevant jurisdictional statutes for fiscal years 2018 and thereafter.

In January 2022, the Company received a letter from the IRS (“IRS”) notifying it that the IRS would be examining the Company’s income tax return for fiscal year ended June 30, 2020.

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NOTE 8 - Long-Term Debt

As of March 31, 2022 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.

All amounts borrowed under this loan were forgiven in the first quarter of fiscal 2022.

Outstanding balances and interest rates as of March 31, 2022 and June 30, 2021 are as follows (dollars in thousands):

March 31, 2022

As of September 30, 2022 and June 30, 2022, the Company had a revolving line of credit of $ 11,000,000 (“Revolver Agreement”) which expires in June 2024.

Outstanding balances and interest rates as of September 30, 2022 and June 30, 2022 are as follows (dollars in thousands):

September 30, 2022

June 30, 2022

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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.

The Company received $ 3,904,000 in loans (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.

During the first quarter of fiscal 2022, the PPP Loans were 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.

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

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

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 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).

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

The PPP Loan and related extinguishement was accounted for in accordance with ASC 470 “Debt”.

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

During the year ended June 30, 2022, the PPP Loans were forgiven, in their entirety, in accordance with guidelines set forth in the PPP loan documents.

The Company recognized a gain on the extinguishment of debt during the quarter ended September 30, 2021 in the amount of $ 3,904,000 within the other (expense) income 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 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 March 31, 2022 and 2021, the Company recorded non-cash compensation expense of $ 35,000 ($ 0.00 per basic and diluted share) and $ 84,000 ($ 0.00 per basic and diluted share), respectively, relating to stock-based compensation.

For the nine months ended March 31, 2022 and 2021, the Company recorded non-cash compensation expense of $ 1,379,000 ($ 0.04 per basic and diluted share) and $ 272,000 ($ .01 per basic and diluted share).

For the three months ended September 30, 2022 and 2021, the Company recorded non-cash compensation expense of $ 477,000 ($ 0.01 per basic and diluted share) and $ 89,000 ($ 0.00 per basic and diluted share), respectively, relating to stock-based compensation.

2022 Employee Stock Option Plan

The Company’s Board of Directors approved a new Employee Stock Option Plan (“2022 Plan”) in August 2022.

The 2022 Plan is subject to shareholder approval at the Company’s annual shareholder’s meeting in December 2022.

The plan would authorize 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.

The terms of the 2022 Plan are substantially the same as those of the 2012 Employee Stock Option Plan.

The 2022 Plan is intended to replace the 2012 Employee Stock Option Plan, which expires in 2022.

2012 Employee Stock Option Plan

In December 2012, the stockholders approved the 2012 Employee Stock Option Plan (the 2012 Employee 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, 2022, 523,080 stock options were outstanding, 164,776 stock options were exercisable and 1,138,920 stock options were available for grant under this plan.

At September 30, 2022, 555,380 stock options were outstanding, 183,852 stock options were exercisable and 1,101,420 stock options were available for grant under this plan.

No options may be granted under this plan after December 2022.

338,000 Options were granted during the nine months ended March 31, 2022.

There were no options granted during the three months ended March 31, 2022.

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

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:

37,500 Options were granted during the three months ended September 30, 2022.

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

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 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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Total intrinsic value of options exercisable

1,000 and 29,000 stock options were exercised during the three and nine months ended March 31, 2022, respectively.

The 1,000 options that were exercised during the three months ended March 31, 2022, were settled by exchanging 153 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

$ 155,000 cash was received from option exercises during the nine months ended March 31, 2022.

The actual tax benefit realized for the tax deductions from option exercises during the three and nine months ended March 31, 2022 was $ 1,000 for both periods.

3,600 stock options were exercised during the three and nine months ended March 31, 2021, which were settled by exchanging 1,350 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

The actual tax benefit realized for the tax deductions from option exercises during the three and nine months ended March 31, 2021 was $ 3,000 for both periods.

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at March 31, 2022:

5,200 and 5,000 stock options were exercised during the three months ended September 31, 2022 and 2021, respectively.

$ 45,000 and $ 16,000 cash was received from the option exercises during the three months ended September 30, 2022 and 2021, respectively.

The actual tax benefit realized for the tax deductions from option exercises during the three months ended September 30, 2022 and 2021 was $ 0 for each period.

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at September 30, 2022:

Options outstanding

8 unchanged sentences

$ 2.99 ‑ $ 26.94

As of March 31, 2022, there was $ 2,704,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan.

0 and 338,000 options were granted during the three and nine months ended March 31, 2022, respectively.

There were no options granted during each of the three and nine months ended March 31, 2021.

5,200 and 95,600 options vested during the three and nine months ended March 31, 2022, respectively.

5,200 and 30,800 options vested during the three and nine months ended March 31, 2021, respectively.

The total grant date fair value of the options vesting during the three months ended March 31, 2022 and 2021 under this plan was $ 36,000 and $ 63,000 , respectively.

The total grant date fair value of the options vesting during the nine months ended March 31, 2022 and 2021 under this plan was $ 975,000 and $ 168,000 , respectively.

As of September 30, 2022, there was $ 2,651,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan.

37,500 and 0 options were granted during the three months ended September 30, 2022 and 2021, respectively.

12,300 and 4,800 options vested during the three months ended September 30, 2022 and 2021, respectively.

The total grant date fair value of the options vesting during the three months ended September 30, 2022 and 2021 under this plan was $ 129,000 and $ 29,000 , respectively.

2012 Non-Employee Stock Option Plan

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

This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 100,000 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 100,000 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.

1 unchanged sentence

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

At March 31, 2022, 21,600 stock options were outstanding, 12,480 stock options were exercisable and no further stock options were available for grant under this plan.

9,600 Options were granted during the nine months ended March 31, 2022.

There were no options granted during the three months ended March 31, 2022.

There were no options granted during the three or six months ended March 31, 2021.

At September 30, 2022, 20,400 stock options were outstanding, 11,280 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three months ended September 30, 2022 and 2021.

No options may be granted under this plan after December 2022.

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Expected dividend yields

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

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

Weighted average

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Total intrinsic value of options exercisable

No stock options were exercised during the three or nine months ended March 31, 2022 or 2021.

No cash was received from option exercises during either of the three or nine months ended March 31, 2022 or 2021 and the actual tax benefit realized for the tax deductions from option exercises was $ 0 .

2,400 stock options were exercised during the three and nine months ended March 31, 2021, which were settled by exchanging 913 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

The actual tax benefit realized for the tax deductions from option exercises was $ 6,000 for both periods.

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at March 31, 2022:

No stock options were exercised during the three months ended September 30, 2022 or 2021.

No cash was received from option exercises during either of the three months ended September 30, 2022 or 2021 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, 2022:

Options outstanding

6 unchanged sentences

$ 4.35 - $ 22.93

As of March 31, 2022, there was $ 76,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan.

0 and 9,600 options were granted during the three and nine months ended March 31, 2022.

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

720 and 6,240 options vested during the three and nine months ended March 31, 2022.

720 and 5,520 options vested during the three and nine months ended March 31, 2021.

The total grant

date fair value of the options vesting during the three months ended March 31, 2022 and 2021 under this plan was $ 5,000 , for each period.

The total grant date fair value of the options vesting during the nine months ended March 31, 2022 and 2021 under this plan was $ 39,000 and $ 18,000 , respectively.

As of September 30, 2022, there was $ 64,000 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, 2022 and 2021.

No options vested during the three months ended September 30, 2022 and 2021.

2018 Non-Employee Stock Option Plan

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Under the 2018 Non-Employee Plan, stock options may be granted with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable in whole or in part at 20 % per year beginning on the date of grant.

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

At March 31, 2022, 89,000 stock options were outstanding, 45,040 stock options were exercisable and no further stock options were available for grant under this plan.

23,500 Options were granted during the nine months ended March 31, 2022.

There were no options granted during the three months ended March 31, 2022.

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

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

At September 30, 2022, 82,700 stock options were outstanding, 38,740 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three months ended September 30, 2022 and 2021.

No options may be granted under this plan after December 2028.

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Expected dividend yields

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

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

Weighted average

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Total intrinsic value of options exercisable

1,600 and 4,600 options were exercised during the three months and nine months ended March 31, 2022.

The 1,600 options that were exercised during the three months ended March 31, 2022, were settled by exchanging 663 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

The 4,600 options that were exercised during the nine months ended March 31, 2022, were settled by exchanging 2,075 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

No cash was received from option exercises during either of the three or nine months ended March 31, 2022 and the actual tax benefit realized for the tax deductions from option exercises was $ 4,000 and $ 12,000 , respectively.

3,200 stock options were exercised during the three and nine months ended March 31, 2021, were settled by exchanging 1,217 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

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

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at March 31, 2022:

6,300 and 0 options were exercised during the three months ended September 30, 2022 and 2021, respectively.

The 6,300 options that were exercised during the three months ended September 30, 2022, were settled by exchanging 3,020 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

No cash was received from option exercises during either the three months ended September 30, 2022 and 2021 and the actual tax benefit realized for the tax deductions from option exercises was $ 21,000 and $ 0 , respectively.

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at September 30 2022:

Options outstanding

6 unchanged sentences

$ 8.10 - $ 22.93

As of March 31, 2022, there was $ 302,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan.

0 and 23,500 options were granted during the three and nine months ended March 31, 2022.

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

5,380 and 19,680 options vested during the three and nine months ended March 31, 2022.

6,880 and 19,680 options vested during the three and nine months ended March 31, 2021.

The total grant date fair value of the options vesting during the three months ended March 31, 2022 and 2021 under this plan was $ 35,000 and $ 45,000 , respectively.

The total grant date fair value of the options vesting during the nine months ended March 31, 2022 and 2021 under this plan was $ 160,000 and $ 133,000 , respectively.

As of September 30, 2022, there was $ 228,000 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, 2022 and 2021.

No options vested during the three months ended September 30, 2022.

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 100,000 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 100,000 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.

1 unchanged sentence

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

At March 31, 2022, 26,900 stock options were outstanding, 7,380 stock options were exercisable and 73,100 stock options were available for grant under this plan.

16,900 and 10,000 Options were granted during the nine months ended March 31, 2022 and 2021, respectively.

There were no options granted during the three months ended March 31, 2022 and 2021, respectively.

At September 30, 2022, 51,900 stock options were outstanding, 14,380 stock options were exercisable and 48,100 stock options were available for grant under this plan.

25,000 Options were granted during the three months ended September 30, 2022.

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

No options may be granted under this plan after May 2030.

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:

3 unchanged sentences

Expected dividend yields

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

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

Weighted average

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Total intrinsic value of options exercisable

No stock options were exercised during the three or nine months ended March 31, 2022 or 2021.

The following table summarizes information about stock options outstanding under the 2020 Non-Employee Plan at March 31, 2022:

No stock options were exercised during the three months ended September 30, 2022 or 2021.

The following table summarizes information about stock options outstanding under the 2020 Non-Employee Plan at September 30, 2022:

Options outstanding

8 unchanged sentences

$ 11.40 - $ 26.94

As of March 31, 2022, there was $ 147,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan.

16,900 and 10,000 options were granted during the nine months ended March 31, 2022 and 2021, respectively.

There were 0 options granted during the three months ended March 31, 2022 and 2021, respectively.

0 and 5,380 options vested during the three and nine months ended March 31, 2022, respectively.

0 and 2,000 options vested during the three and nine months ended March 31, 2021, respectively.

The total grant date fair value of the options vesting during the three and nine months ended March 31, 2022 under this plan was $ 0 and $ 55,000 , respectively.

The total grant date fair value of the options vesting during the three and nine months ended March 31, 2021 under this plan was $ 0 and $ 12,000 , respectively.

As of September 30, 2022, there was $ 374,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan.

25,000 and 0 options were granted during the three months ended September 30, 2022 and 2021, respectively.

7,000 and 2,000 options vested during the three months ended September 30, 2022 and 2021, respectively.

The total grant date fair value of the options vesting during the three months ended September 30, 2022 and 2021 under this plan was $ 79,000 and $ 12,000 , respectively.

NOTE 10 – Stockholders’ Equity Transactions

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

During the three and nine months ended March 31, 2022, and the fiscal year ended June 30, 2021, the Company did no t repurchase any shares of its outstanding common stock.

During the three months ended September 30, 2022, and the fiscal year ended June 30, 2022, the Company did no t repurchase any shares of its outstanding common stock.

Pursuant to the PPP 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 which occurred between August, 2021 and September, 2021.

During the three months ended March 31, 2022, certain employees and Directors exercised stock options under the Company's 2012 Employee and 2018 Non-Employee Stock Option Plan totaling 2,600 shares.

All of these exercises were completed as cashless exercises as allowed for under the Plan, 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 816 and was based upon the per share price on the effective date of the option exercise.

During the nine months ended March 31, 2022, certain employees and Directors exercised stock options under the Company's 2012 Employee and 2018 Non-Employee Stock Option Plan totaling 33,600 shares.

5,600 of these exercises were completed as cashless exercises as allowed for under the Plan, 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 2,228 and was based upon the per share price on the effective date of the option exercise.

$ 155,000 was received in exchange for the remaining 28,000 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 14,200 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 6,734 and was based upon the per share price on the effective date of the option exercise.

On December 6, 2021, the Stockholders of the Company approved an amendment of the Company’s Certificate of Incorporation increasing the number of authorized shares the Company may issue to 100,000,000 shares of common stock at $ .01 par value per share.

3 unchanged sentences

There was no net effect on total stockholders' equity as a result of the stock split.

NOTE 11 – Related Party Transaction

On December 15, 2020, 4,666,142 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 669,922 shares of common stock at the secondary offering price of $ 13.00 per share ("Greenshoe"), less underwriting discounts and commissions, which consists solely of shares sold by the Company's President and Chairman.

The Company received no proceeds from the secondary offering or the Greenshoe, but incurred $ 289,000 in offering expenses, which are recorded in selling, general, and administrative expenses in the accompanying condensed consolidated statements of income.

During the three months ended September 30, 2022, certain employees and Directors exercised stock options under the Company's 2012 Employee and 2018 Non-Employee Stock Option Plan totaling 11,500 shares.

6,300 of these exercises were completed as cashless exercises as allowed for under the Plan, 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 3,020 and was based upon the per share price on the effective date of the option exercise.

During fiscal 2022, certain employees and Directors exercised stock options under the Company's 2012 Employee and Non-Employee and 2018 Non-employee Stock Option Plans totaling 34,800 shares.

6,800 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 2,486 and was based upon the per share price on the effective date of the option exercise.

NOTE 11 - 401(k) Plan

The Company maintains a 401(k) plan (“the Plan”) that covers all U.S.

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 $ 59,000 and $ 32,000 for the three months ended March 31, 2022 and 2021, respectively.

Company contributions to this plan are discretionary and totaled $ 132,000 and $ 100,000 for the nine months ended March 31, 2022 and 2021, respectively.

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

Company contributions to this plan are discretionary and totaled $ 63,000 and $ 36,000 for the three months ended September 30, 2022 and 2021, respectively.

NOTE 12 - Commitments and Contingencies

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 .

The lease, which commenced on April 26, 1993 and expires in 2092, initially had an annual base rent of approximately $ 235,000 plus $ 53,000 in annual service charges.

On September 14, 2022, a lease modification was executed which provides for an annual base rent of $ 235,000 plus $ 105,000 in annual

service charges.

The service charges increase 2 % annually over the remaining life of the lease.

The modification resulted in a remeasurement of the operating lease asset and liability and the effect was a reduction to the asset and liability of $ 1.3 million.

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, 2022 and 2021 cash payments against operating lease liabilities totaled $ 72,000 and $ 216,000 respectively.

For the three months September 30, 2022 and 2021 cash payments against operating lease liabilities totaled $ 72,000 for each period.

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 March 31, 2022 (in thousands):

The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2022 (in thousands):

Year Ending June 30,

Operating lease expense totaled approximately $ 80,000 and $ 78,000 for the three months ended March 31, 2022 and 2021, respectively.

Operating lease expense totaled approximately $ 239,000 and $ 236,000 for the nine months ended March 31, 2022 and 2021, respectively.

Operating lease expense totaled approximately $ 80,000 for each the three months ended September 30, 2022 and 2021, 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, 2022, the Company was obligated under three employment agreements and one severance agreement.

As of September 30, 2022, the Company was obligated under two employment agreements and one severance agreement.

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

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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, 2022

September 30, 2022

June 30, 2022

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, 2022 = $ 31,847 ;

June 30, 2021 = $ 20,712 ), operating lease assets (March 31, 2022 = $ 7,356 ;

June 30, 2021 = $ 7,373 ) and fixed assets (March 31, 2022 = $ 3,297 ;

(2) Consists primarily of inventories (September 30, 2022 = $ 49,032 ;

June 30, 2022 = $ 38,755 ), operating lease assets (September 30, 2022 = $ 6,046 ;

June 30, 2022 = $ 7,350 ) and fixed assets (September 30, 2022 = $ 3,167 ;

June 30, 2022 = $ 3,253 ) located at the Company’s principal manufacturing facility in the Dominican Republic.

NOTE 14 - Subsequent Events

The Company has evaluated subsequent events occurring after the date of the consolidated financial statements for events requiring recording or disclosure in the consolidated financial statements.

The Company has evaluated subsequent events occurring after the date of the condensed consolidated financial statements for events requiring recording or disclosure in the condensed consolidated financial statements.

The Company’s Board of Directors approved a new Employee Stock Option Plan (“2022 Plan”) in August 2022.

The 2022 Plan is subject to shareholder approval at the Company’s annual shareholder’s meeting in December 2022.

The plan would authorize 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.

The terms of the 2022 Plan are substantially the same as those of the 2012 Employee Stock Option Plan.

The 2022 Plan is intended to replace the 2012 Employee Stock Option Plan, which expires in 2022.

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