What changed in this filing

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Item 1. Financial Statements

2023-02-06 compared with 2022-11-07 · 242 added, 152 removed, 516 unchanged (43% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2022

December 31, 2022

June 30, 2022

4 unchanged sentences

Marketable securities

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

Accounts receivable, net of allowance for credit losses of $ 215 and $ 243 as of December 31, 2022 and June 30, 2022, respectively

Inventories, net

Income tax receivable

Prepaid expenses and other current assets

18 unchanged sentences

Common Stock, par value $ 0.01 per share;

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

100,000,000 shares authorized as of December 31, 2022 and June 30, 2022;

39,639,433 and 39,628,197 shares issued;

9 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Three Months ended September 30,

Three Months ended December 31,

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

9 unchanged sentences

Operating Income

Other (expense) income:

Interest and other (expense) income, net

Other income (expense):

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)

Six Months Ended December 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 income (expense):

Interest and other income (expense), net

Gain on extinguishment of debt

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (unaudited)

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

Six months ended December 31, 2022 (in thousands, except for share data)

Treasury Stock

5 unchanged sentences

( 2,893,715 )

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

Stock-based compensation expense

Stock options exercised

Balances at December 31, 2022

( 2,893,715 )

Six months ended December 31, 2021 (in thousands, except share data)

Treasury Stock

5 unchanged sentences

( 2,893,715 )

Stock-based compensation expense

Stock options exercised

Balances at December 31, 2021

( 2,893,715 )

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Three Months ended September 30,

Six Months ended December 31,

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

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

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

Depreciation and amortization

2 unchanged sentences

Unrealized loss (gain) on marketable securities

Provision for (recovery of) doubtful accounts

(Recovery of) provision for credit losses

Change to inventory reserve

7 unchanged sentences

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

Net Cash (Used in) Provided by Operating Activities

Net Cash Provided by (Used in) Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

16 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

September 30, 2022

December 31, 2022

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

9 unchanged sentences

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

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.

The monthly recurring service 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 :

10 unchanged sentences

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, overhead expenses applied to inventory, inventory reserves, valuation of intangible assets, share based compensation and income taxes.

Critical estimates include management’s judgments associated with reserves for sales returns and allowances, allowance for credit losses, 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 September 30, 2022 and 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 December 31, 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 and Investments – other

Cash and cash equivalents include approximately $ 20,112,000 and $ 63,000 of short-term time deposits, consisting of several certificates of deposit totaling $ 20,049,000 and $ 0 , at December 31, 2022 and June 30, 2022, respectively, and $ 63,000 in a money market fund as of both December 31, 2022 and June 30, 2022.

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

Certificates of Deposit with an original maturity greater than three months are classified as Investments-other.

Cash and cash equivalents consists of the following as of (in thousands):

December 31, 2022

June 30, 2022

Money Market Fund

Certificates of Deposit

Investments-other consists of the following as of (in thousands):

December 31, 2022

June 30, 2022

Certificates of Deposit

Certificates of deposit are recorded at the original cost plus accrued interest.

The Company’s Certificates of Deposit consist of the following as of (in thousands):

December 31, 2022

Balance Sheet Classification

Interest Rate

Maturity Date

Carrying Value

Cash and Cash Equivalents

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.

4.25 % - 4.40 %

2/23/2023 - 3/21/2023

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.

2.25 % - 2.50 %

1/23/2023 - 2/21/2023

The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of December 31, 2022 and June 30, 2022.

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

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 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.

During the six months ended December 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.

Accounts Receivable

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.

Accounts receivable is stated net of the reserves for credit losses of $ 215,000 and $ 243,000 as of December 31, 2022 and June 30, 2022, respectively.

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

These reserves are based upon the evaluation of our accounts receivable aging, specific exposures, sales levels and historical trends.

19 unchanged sentences

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.

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.

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

September 30, 2022

December 31, 2022

June 30, 2022

Customer relationships

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 intangible assets subject to amortization was approximately $ 90,000 and $ 98,000 for the three months ended December 31, 2022 and 2021, respectively.

Amortization expense for intangible assets subject to amortization was approximately $ 181,000 and $ 196,000 for the six months ended December 31, 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 16.0 years and 16.2 years at September 30, 2022 and June 30, 2022, respectively.

The weighted average remaining amortization period for intangible assets was 15.8 years and 16.2 years at December 31, 2022 and June 30, 2022, respectively.

Revenue Recognition

19 unchanged sentences

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

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

Advertising expense for the three months ended December 31, 2022 and 2021 was $ 505,000 and

$ 512,000 , respectively.

Advertising expense for the six months ended December 31, 2022 and 2021 was $ 1,259,000 and $ 1,598,000 , 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 September 30, 2022 and 2021 was $ 2,428,000 and $ 1,931,000 , respectively.

Company-sponsored R&D expense for the three months ended December 31, 2022 and 2021 was $ 2,222,000 and $ 1,978,000 , respectively.

Company-sponsored R&D expense for the six months ended December 31, 2022 and 2021 was $ 4,650,000 and $ 3,909,000 , 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 September 30, 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 December 31, 2022 and 2021 (in thousands, except share and per share data):

Weighted Average Shares

2 unchanged sentences

Stock Options

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.

Options to purchase 0 and 80,435 shares of common stock were excluded for the three months ended December 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 six months ended December 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 12,568 and 40,217 shares of common stock were excluded for the six months ended December 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.

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 $ 477,000 and $ 89,000 were recognized for the three months ended September 30, 2022 and 2021, respectively.

Stock-based compensation costs of $ 335,000 and $ 1,255,000 were recognized for the three months ended December 31, 2022 and 2021, respectively.

Stock-based compensation costs of $ 812,000 and $ 1,344,000 were recognized for the six months ended December 31, 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 months ended September 30, 2022 or 2021.

Therefore, no realized and unrealized gains and losses associated with foreign currency translation are recorded for the three or six months ended December 31, 2022 or 2021.

Comprehensive 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.

For the three and six months ended December 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.

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 ($ 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.

The Company records the amount billed to customers for shipping and handling in net sales ($ 128,000 and $ 106,000 in the three months ended December 31, 2022 and 2021, respectively, and $ 240,000 and $ 212,000 in the six months ended December 31, 2022 and 2021, respectively);

and classifies the costs associated with these sales in cost of sales ($ 454,000 and $ 361,000 in the three months ended December 31, 2022 and 2021, respectively, and $ 848,000 and $ 694,000 in the six months ended December 31, 2022 and 2021, respectively).

The Company records lease assets and corresponding 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) .

5 unchanged sentences

Reference Rate Reform (ASC Topic 848)

and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate.

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 for new arrangements at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate.

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

4 unchanged sentences

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

4 unchanged sentences

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

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.

As of December 31, 2022 and June 30, 2022, the Company included refund liabilities of approximately $ 4,096,000 and $ 5,863,000 , respectively, in current liabilities.

As of December 31, 2022 and June 30, 2022, the Company included return-related assets of approximately $ 909,000 and $ 974,000 , respectively, in other current assets.

As a percentage of gross sales, returns, rebates and allowances were 5 % and 13 % for the three months ended December 31, 2022 and 2021, respectively.

As a percentage of gross sales, returns, rebates and allowances were 5 % and 11 % for the six months ended December 31, 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 September 30,

Three months ended December 31,

Six months ended December 31,

Major Product Lines:

5 unchanged sentences

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

The Company had one customer with an accounts receivable balance that comprised 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.

The Company had one customer with an accounts receivable balance that comprised of 13 % and 16 % as of December 31, 2022 and June 30, 2022.

Sales to this customer did not exceed 10% of net sales during the three or six months ended December 31, 2022 and 2021.

The Company had another customer with an accounts receivable balance of 14 % and 22 % as of December 31, 2022 and June 30, 2022.

Sales to this customer was 10 % for the six months ended December 31, 2021.

Sales for the three and six months ended December 31, 2022 and the three months ended December 31, 2021 did not exceed 10% of net sales.

The Company had another customer with an accounts receivable balance that comprised of 11 % as of December 31, 2022.

As of June 30, 2022, the accounts receivable balance with this respective customer did not exceed 10%.

Sales for the three and six months ended December 31, 2022 and 2021 did not exceed 10% either.

NOTE 4 – Marketable Securities

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,

The disaggregated net gains and losses

on the marketable securities recognized within the accompanying condensed consolidated statements of income for the three and six months ended December 31, 2022 and 2021, are as follows (in thousands):

Three months ended December 31,

Six months ended December 31,

Net gains recognized during the period on marketable securities

8 unchanged sentences

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 September 30, 2022 and June 30, 2022, respectively (in thousands):

September 30, 2022

The following tables summarize the Company’s investments at December 31, 2022 and June 30, 2022, respectively (in thousands):

December 31, 2022

June 30, 2022

5 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):

September 30, 2022

December 31, 2022

June 30, 2022

6 unchanged sentences

accumulated depreciation and amortization

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.

Depreciation and amortization expense on property, plant, and equipment was approximately $ 379,000 and $ 348,000 for the three months ended December 31, 2022 and 2021, respectively.

Depreciation and amortization expense on property, plant, and equipment was approximately $ 747,000 and $ 690,000 for the six months ended December 31, 2022 and 2021, respectively.

NOTE 7 - Income Taxes

3 unchanged sentences

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 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 .

For the six months ended December 31, 2022 and December 31,2021, the Company recognized net income tax expense of $ 1,921,000 and $ 639,000 , respectively.

During the six months ended December 31, 2022, the Company’s reserve for uncertain income tax positions increased by $ 24,000 .

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 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.

The R&D tax credits are recognized as a reduction to income tax expense.

The Company does not expect that our unrecognized tax benefits will significantly change within the next twelve months.

As of December 31, 2022, the Company had accrued interest totaling $ 112,000 , 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 six months ended December 31, 2022, additional interest expense was accrued for in the amount of $ 24,000 .

The Company does not expect that our unrecognized tax benefits will change within the next twelve months due to statute of limitation lapses.

We file a consolidated U.S.

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

Management believes that its provision for income taxes for this period is adequate.

However, the outcome cannot be predicted with certainty.

As of December 31, 2022, we remain subject to examination in all tax jurisdictions for all relevant jurisdictional statutes for fiscal years 2018 and thereafter.

In December 2022, the Company received a letter from the IRS (“IRS”) notifying it that the IRS has closed it's examination of the Company’s income tax return for fiscal year ended June 30, 2020.

There has been no changes proposed in relation to this examination.

NOTE 8 - Long-Term Debt

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

As of December 31, 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 December 31, 2022 and June 30, 2022 are as follows (dollars in thousands):

December 31, 2022

June 30, 2022

22 unchanged sentences

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, 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.

For the three months ended December 31, 2022 and 2021, the Company recorded non-cash compensation expense of $ 335,000 ($ 0.01 per basic and diluted share) and $ 1,255,000 ($ 0.03 per basic and diluted share), respectively, relating to stock-based compensation.

For the six months ended December 31, 2022 and 2021, the Company recorded non-cash compensation expense of

$ 812,000 ($ 0.02 per basic and diluted share) and $ 1,344,000 ($ 0.04 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 Company’s Board of Directors approved a new Employee Stock Option Plan (the 2022 Employee Plan) in August 2022.

The 2022 Employee Plan was approved by the Company’s shareholders at the Company’s annual shareholder’s meeting in December 2022.

The 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.

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.

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

As of December 31, 2022, no options have been granted under the 2022 Employee Plan.

2012 Employee Stock Option Plan

5 unchanged sentences

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

At December 31, 2022, 553,380 stock options were outstanding, 262,252 stock options were exercisable and no further stock options were available for grant under this plan.

0 and 37,500 Options were granted during the three and six months ended December 31, 2022.

338,000 Options were granted during the three and six months ended December 31, 2021.

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

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:

3 unchanged sentences

Expected dividend yields

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

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

Weighted average

10 unchanged sentences

Total intrinsic value of options exercisable

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:

2,000 and 7,200 stock options were exercised during the three and six months ended December 31, 2022, respectively.

The 2,000 options that were exercised during the three months ended December 31, 2022, were settled by exchanging 207 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

$ 0 and $ 45,000 cash was received from the option exercises during the three and six months ended December 31, 2022, respectively.

The actual tax benefit realized for the tax deductions from option exercises during the three and six months ended December 31, 2022 was $ 0 and $ 0 , respectively.

23,000 and 28,000 stock options were exercised during the three and six months ended December 31, 2021, respectively.

$ 139,000 and $ 155,000 cash was received from the option exercises during the three and six months ended December 31, 2021, respectively.

The actual tax benefit realized for the tax deductions from option exercises during the three and six months ended December 31, 2021 was $ 0 for both periods.

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

Options outstanding

8 unchanged sentences

$ 3.14 ‑ $ 26.94

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.

As of December 301, 2022, there was $ 2,445,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan.

0 and 37,500 Options were granted during the three and six months ended December 31, 2022.

80,400 and 92,700 options vested during the three and six months ended December 31, 2022, respectively.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2022 under this plan was $ 754,000 and $ 883,000 , respectively.

338,000 Options were granted during the three and six months ended December 31, 2021.

85,600 and 90,400 options vested during the three and six months ended December 31, 2021, respectively.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2021 under this plan was $ 913,000 and $ 942,000 , 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 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.

At December 31, 2022, 20,400 stock options were outstanding, 13,200 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three and six months ended December 31, 2022.

9,600 Options were granted during the three and six months ended December 31, 2021.

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

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:

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 Non-Employee Plan for the three months ended September 30:

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

Weighted average

10 unchanged sentences

Total intrinsic value of options exercisable

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:

No stock options were exercised during the three and six months ended December 31, 2022 and 2021, respectively.

No cash was received from option exercises during the three and six months ended December 31, 2022 and 2021, respectively, 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 December 31, 2022:

Options outstanding

6 unchanged sentences

$ 4.35 - $ 22.93

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.

As of December 31, 2022, there was $ 58,000 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 and six months ended December 31, 2022, respectively.

1,920 options vested during the three and six months ended December 31, 2022, respectively.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2022 under this plan was $ 19,000 for both periods.

9,600 Options were granted during the three and six months ended December 31, 2021.

5,520 options vested during the three and six months ended December 31, 2021 for both periods.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2021 under this plan was $ 34,000 for both periods.

2018 Non-Employee Stock Option Plan

In December 2018, the stockholders approved the 2018 Non-Employee Stock Option Plan (the “2018 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.

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.

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.

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

At December 31, 2022, 79,100 stock options were outstanding, 49,440 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three and six months ended December 31, 2022.

23,500 Options were granted during the three and six monthse ended December 31, 2021.

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

4 unchanged sentences

Expected dividend yields

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

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

Weighted average

10 unchanged sentences

Total intrinsic value of options exercisable

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:

3,600 and 9,900 options were exercised during the three and six months ended December 31, 2022, respectively.

The 3,600 options that were exercised during the three months ended December 31, 2022, were settled by exchanging 2,637 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

The 9,900 options that were exercised during the six months ended December 31, 2022 were settled by exchanging 5,657 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 the three and six months ended December 31, 2022.

and the actual tax benefit realized for the tax deductions from option exercises was $ 5,000 and $ 26,000 , respectively.

3,000 options were exercised during the three and six months ended December 31, 2021, respectively.

The 3,000 options that were exercised during the three months ended December 31, 2021, were settled by exchanging 1,412 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

For the three and six months ended December 31, 2021 the actual tax benefit realized for the tax deductions from option exercises was $ 8,000 each period.

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

Options outstanding

6 unchanged sentences

$ 8.10 - $ 22.93

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.

As of December 31, 2022, there was $ 197,000 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 and six months ended December 31, 2022, respectively.

14,300 options vested during the three and six months ended December 31, 2022, respectively.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2022 under this plan was $ 114,000 for both periods.

23,500 options were granted during the three and six months ended December 31, 2021.

14,300 options vested during the three and six months ended December 31, 2021.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2021 under this plan was $ 125,000 for both periods

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 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.

At December 31, 2022, 51,900 stock options were outstanding, 17,760 stock options were exercisable and 48,100 stock options were available for grant under this plan.

0 and 25,000 Options were granted during the three and six months ended December 31, 2022.

16,900 Options were granted during the three and six months ended December 31, 2021.

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

4 unchanged sentences

Expected dividend yields

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

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

Weighted average

10 unchanged sentences

Total intrinsic value of options exercisable

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:

No stock options were exercised during the three and six months ended December 31, 2022 and 2021.

No cash was received from option exercises during either of the three and six months ended December 31, 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 2020 Non-Employee Plan at December 31, 2022:

Options outstanding

8 unchanged sentences

$ 11.40 - $ 26.94

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.

As of December 31, 2022, there was $ 346,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan.

0 and 25,000 options were granted during the three and six months ended December 31, 2022, respectively.

3,380 and 10,380 options vested during the three and six months ended December 31, 2022.

3,380 and 5,380 options vested during the three and six months ended December 31, 2021.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2022 under this plan was $ 34,000 and $ 113,000 .

The total grant date fair value of the options vesting during the three and six months ended December 31, 2021 under this plan was $ 34,000 and $ 46,000 .

NOTE 10 – Stockholders’ Equity Transactions

2 unchanged sentences

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

During the three and six months ended December 31, 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.

4 unchanged sentences

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

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.

During the three months ended December 31, 2022, certain employees and Directors exercised stock options under the Company's 2012 Employee and 2018 Non-Employee Stock Option Plan totaling 5,600 shares.

All 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 2,844 and was based upon the per share price on the effective date of the option exercise.

During the six months ended December 31, 2022, certain employees and Directors exercised stock options under the Company's 2012 Employee and 2018 Non-Employee Stock Option Plan totaling 17,100 shares.

11,900 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 5,864 and was based upon the per share price on the effective date of the option exercise.

$ 45,000 cash was received from the other 5,200 shares exercised.

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.

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.

2 unchanged sentences

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.

Company contributions to this plan are discretionary and totaled $ 61,000 and $ 123,000 for the three and six months ended December 31, 2022.

Company contributions to this plan are discretionary and totaled $ 37,000 and $ 73,000 for the six months ended December 31, 2021.

NOTE 12 - Commitments and Contingencies

1 unchanged sentence

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.

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.

1 unchanged sentence

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

For the three months December 31, 2022 and 2021 cash payments against operating lease liabilities totaled $ 92,000 and $ 72,000 for each period.

For the six months December 31, 2022 and 2021, cash payments against operating lease liabilities totaled $ 164,000 and $ 144,000 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 September 30, 2022 (in thousands):

The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2022 (in thousands):

Year Ending June 30,

Operating lease expense totaled approximately $ 80,000 for each the three months ended September 30, 2022 and 2021, respectively.

Operating lease expense totaled approximately $ 131,000 and $ 79,000 for the three months ended December 31, 2022 and 2021, respectively.

Operating lease expense totaled approximately $ 211,000 and $ 160,000 for the six months ended December 31, 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 September 30, 2022, the Company was obligated under two employment agreements and one severance agreement.

As of December 31, 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”).

12 unchanged sentences

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

Three months ended September 30,

Three months ended December 31,

Six months ended December 31,

Sales to external customers (1):

Total Net Sales

September 30, 2022

December 31, 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 (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 ;

(2) Consists primarily of inventories (December 31, 2022 = $ 47,383 ;

June 30, 2022 = $ 38,755 ), operating lease assets (December 31, 2022 = $ 5,961 ;

June 30, 2022 = $ 7,350 ) and fixed assets (December 31, 2022 = $ 3,098 ;

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

1 unchanged sentence

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