What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2022-02-03 · 268 added, 250 removed, 379 unchanged (58% of the section changed)

6 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 4 and $ 2 at December 31, 2021 and at June 30, 2021, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 0 and $ 2 at March 31, 2022 and at June 30, 2021, respectively

Deferred costs

21 unchanged sentences

50,000,000 shares authorized;

3,641,983 and 3,645,660 shares issued and outstanding at December 31, 2021 and June 30, 2021, respectively

3,618,663 and 3,645,660 shares issued and outstanding at March 31, 2022 and June 30, 2021, respectively

Retained earnings

5 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CONDENSED CONSOLIDATED INCOME STATEMENTS

(In thousands, except per share amounts)

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of sales

2 unchanged sentences

General and administrative expenses

Loss on disposal of equipment

Research and development costs

5 unchanged sentences

Gain on sale of investments

Income from operations before income taxes

Income before income taxes

Income tax expense

7 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the Three and Six Months Ended December 31,

2021 and 2020

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'

(In thousands)

Three Months Ended

Six Months Ended

Common stock:

Nine Months Ended

Common shares:

Balance, beginning of period

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(In thousands)

Six Months Ended

Nine Months Ended

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 provided by (used in) operating activities:

Depreciation and amortization

Amortization of loan fees

Share-based compensation

1 unchanged sentence

Non-cash lease expense

Amortization of loan fees

Gain on sale of investments

8 unchanged sentences

Income taxes payable

Net cash provided by operating activities

Net cash provided by (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

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Proceeds from Minnesota Bank & Trust long-term debt, net of fees

Principal payments on notes payable

Principal payments on notes payable and finance lease

Net cash provided by (used in) financing activities

7 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

Supplemental disclosures of cash flow information:

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December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2019-12 Income Taxes (Topic

740)—Simplifying the Accounting for Income Taxes, to remove certain exceptions related to the approach for intraperiod tax allocation,

recognition of deferred tax liabilities for outside basis differences and requiring that an entity reflect the effect of an enacted change

in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.

The amendments

in this update are effective for us beginning with fiscal year 2022.

The adoption of the amendments have not had a material impact.

740) – Simplifying the Accounting for Income Taxes, to remove certain exceptions related

to the approach for intraperiod tax allocation, recognition of deferred tax liabilities for outside basis differences and requiring that

an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period

that includes the enactment date.

The amendments in this update are effective for us beginning with fiscal year 2022.

The adoption of

the amendments has not had a material impact on our consolidated financial statements.

DESCRIPTION OF BUSINESS

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air motors to a wide range of industries.

In August 2020, we formed a wholly

owned subsidiary, PDEX Franklin, LLC (“PDEX Franklin”), to hold title for an approximate 25,000 square foot industrial building

in Tustin, California (the “Franklin Property”) that we acquired on November 6, 2020, in order to allow for the continued

In August 2020, we formed a

wholly owned subsidiary, PDEX Franklin, LLC (“PDEX Franklin”), to hold title for an approximate 25,000 square foot industrial

building in Tustin, California (the “Franklin Property”) that we acquired on November 6, 2020, in order to allow for the continued

growth of our business.

The condensed consolidated financial statements include the accounts of the Company and PDEX Franklin and all

significant inter-company accounts and transactions have been eliminated.

The consolidated financial statements include the accounts of the Company and PDEX Franklin and all significant

inter-company accounts and transactions have been eliminated.

This subsidiary has no separate operations.

REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS FOR CORRECTION OF IMMATERIAL ERRORS

We failed to timely adopt ASU

2016-01 – Accounting for Financial Instruments – Classification and Measurement, which states in part that changes in fair

value of equity investments must be recognized in net income.

We have completed an evaluation of the quantitative and qualitative impact

of this error in our historical financial statements and concluded that our historical financial statements are not materially misstated.

We concluded that our historical financial statements are not materially misstated for several reasons including the fact that the cumulative

three-year error had a negative impact to historical net income in the amount of $ 61,000 , an amount we deem immaterial, as well as the

fact that the amounts did not contain a calculation error but rather amounts were presented on an incorrect line item within the financial

We also considered the fact that this error did not impact cash or operating income for any historical period, which we believe

is important to our investors.

Accordingly, the prior year financial statements have been revised to reflect the impact of ASU 2016-1.

The revised classification and reported values of our unrealized gains (losses) on marketable equity investments as accounted for under

ASU 2016-01 are included in the condensed consolidated financial statements herein.

The impact to net income for the three months ended

December 31, 2020, was an increase of $1.4 million with a corresponding decrease in unrealized gain on marketable equity securities of

$1.4 million, previously presented in other comprehensive income (loss).

The revision resulted in an increase to both basic and diluted

earnings per share for the three months ended December 31, 2020 of $0.36.

The impact to net income for the six months ended December 31,

2020, was an increase of $1.3 million with a corresponding decrease in unrealized gain on marketable equity securities of $1.3 million,

We failed to timely adopt

ASU 2016-01 – Accounting for Financial Instruments – Classification and Measurement, which states in part that changes in

fair value of equity investments must be recognized in net income.

We have completed an evaluation of the quantitative and qualitative

impact of this error in our historical financial statements and concluded that our historical financial statements are not materially

We concluded that our historical financial statements are not materially misstated for several reasons, including the fact

that the cumulative three-year error had a negative impact to historical net income in the amount of $ 61,000 , an amount we deem immaterial,

as well as the fact that the amounts did not contain a calculation error but rather amounts were presented on an incorrect line item within

the financial statements.

We also considered the fact that this error did not impact cash or operating income for any historical period,

which we believe is important to our investors.

Accordingly, the prior year financial statements have been revised to reflect the impact

of ASU 2016-1.

The revised classification and reported values of our unrealized gains (losses) on marketable equity investments as accounted

for under ASU 2016-01 are included in the condensed consolidated financial statements herein.

The impact to net income for the three months

ended March 31, 2021, was an increase of $136,000 with a corresponding decrease in unrealized gain on marketable equity securities of

$136,000, previously presented in other comprehensive income (loss).

The revision resulted in an increase to basic earnings per share of $0.33 and

diluted earnings per share of $0.32 for the six months ended December 31, 2020.

As of June 30, 2021, the revision reclassified the remaining

accumulated other comprehensive loss of $215,000 to retained earnings.

The revision resulted in an increase to both basic and diluted earnings

per share for the three months ended March 31, 2021, of $0.04.

The impact to net income for the nine months ended March 31, 2021, was

an increase of $1.4 million with a corresponding decrease in unrealized gain on marketable equity securities of $1.4 million, previously

presented in other comprehensive income (loss).

The revision resulted in an increase to basic earnings per share of $0.37 and diluted

earnings per share of $0.36 for the nine months ended March 31, 2021.

As of June 30, 2021, the revision reclassified the remaining accumulated

other comprehensive loss of $215,000 to retained earnings.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents

the disaggregation of net sales by revenue recognition model (in thousands):

Schedule of disaggregation of net sales

Three Months Ended

Nine Months Ended

Over-time revenue recognition

Point-in-time revenue recognition

Total net sales

The timing of revenue recognition,

billings, and cash collections results in billed accounts receivables, unbilled receivables (presented as deferred costs on our condensed

consolidated balance sheets) and customer advances and deposits (presented as deferred revenue on our condensed consolidated balance sheets),

where applicable.

Amounts are generally billed as work progresses in accordance with agreed upon milestones.

Our entire deferred revenue

balance of $ 896,000 at March 31, 2022, is currently expected to be recognized in the next 12-month period.

COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

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Total marketable equity securities

at December 31, 2021 and June 30, 2021, had an aggregate cost basis of $ 3,538,000 and $ 3,204,000 ,

at March 31, 2022 and June 30, 2021, had an aggregate cost basis of $ 3,538,000 and $ 3,204,000 ,

respectively.

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because if we decide to sell these securities we may not be able to sell our position within one year.

At December 31, 2021, the investments

At March 31, 2022, the investments

included net unrealized losses of $ 632,000 (gross unrealized losses of $ 646,000 offset by gross unrealized gains of $ 14,000 ).

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$ 386,000 offset by gross unrealized gains of $ 171,000 ).

the total marketable equity securities at December 31, 2021 and June 30, 2021, $ 1,170,000 and $ 1,224,000 , respectively, represent an investment

the total marketable equity securities at March 31, 2022 and June 30, 2021, $ 1,058,000 and $ 1,244,000 , respectively, represent an investment

in the common stock of Air T, Inc.

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Officer and Chairman of Air T, Inc.

Another of our Board members is employed by Air T, Inc.

as its Chief of Staff.

Another of our Board members is employed by Air T as its Chief of Staff.

The shares were purchased

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by our then three Board members that are not affiliated with Air T, Inc.

We invest surplus cash from time

to time through our Investment Committee, which is comprised of one management director, Richard Van Kirk, and two non-management directors,

Raymond Cabillot and Nicholas Swenson, who chairs the committee.

Cabillot and Mr.

Swenson are active investors with extensive

portfolio management expertise.

We leverage the experience of these committee members to make investment decisions for the investment

of our surplus operating capital or borrowed funds.

Additionally, many of our securities holdings include stocks of public companies that

either Messrs.

Swenson or Cabillot or both may own from time to time either individually or through the investment funds that they manage,

or other companies whose boards they sit on, such as Air T, Inc.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We invest surplus cash from

time to time through our Investment Committee, which is comprised of one management director, Mr.

Van Kirk, and two non-management directors,

Cabillot and Mr.

Swenson, who chairs the committee.

Cabillot and Mr.

Swenson are active investors with extensive portfolio

management expertise.

We leverage the experience of these committee members to make investment decisions for the investment of our surplus

operating capital or borrowed funds.

Additionally, many of our securities holdings include stocks of public companies that either Messrs.

Swenson or Cabillot or both may own from time to time either individually or through the investment funds that they manage, or other companies

whose boards they sit on, such as Air T, Inc.

Land and building

Land and building consist of the

following (in thousands):

Land and building consist of

the following (in thousands):

Schedule of Capital Leased Assets

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Currently, we are actively engaged in various verification and validation

activities so that we can move certain employees and operations into the new building.

We expect that we will begin certain operations

in the new facility this fiscal year.

The building is being amortized on a straight-line basis over a period of 30 years.

Intangibles consist

of the following (in thousands):

activities and we moved certain of our employees into the new building during the third quarter of this fiscal year.

The building is being

amortized on a straight-line basis over a period of 30 years.

consist of the following (in thousands):

Schedule of intangibles

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is not predictable.

During the three months ended December 31, 2021, we impaired $ 46,000 in previously capitalized legal fees because

although we were granted the underlying patent, in this case, we currently have no products either in development or sold that utilize

the intellectual property protected by the patent.

warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included

in accrued expenses in the accompanying balance sheets.

As of March 31, 2022 and June 30, 2021, the warranty reserve amounted to

and $ 221,000 ,

respectively.

Warranty expenses are included in cost of sales in the accompanying income statements.

estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs and

warranty return rates and are included in current period warranty expense.

Warranty expense relating to new product sales and

changes to estimates for the three months ended March 31, 2022 and 2021, was $ 102,000

and $ 77,000 ,

respectively, and for the nine months ended March 31, 2022 and 2021, was $ 170,000

and $ 330,000 ,

respectively.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

warranty accrual is based on historical costs of warranty repairs and expected future identifiable warranty expenses and is included in

accrued expenses in the accompanying balance sheets.

As of December 31, and June 30, 2021, the warranty reserve amounted to $ 255,000 and

$ 221,000 , respectively.

Warranty expenses are included in cost of sales in the accompanying condensed consolidated statements of income.

Changes in estimates to previously established warranty accruals result from current period updates to assumptions regarding repair costs

and warranty return rates and are included in current period warranty expense.

Warranty expense relating to new product sales and changes

to estimates for the three months ended December 31, 2021 and 2020, was $ 44,000 and $ 182,000 , respectively, and for the six months ended

December 31, 2021 and 2020, was $ 68,000 and $ 254,000 , respectively.

Information regarding the accrual

for warranty costs for the three and six months ended December 31, 2021 and 2020, are as follows (in thousands):

Information regarding

the accrual for warranty costs for the three and nine months ended March 31, 2022 and 2021, are as follows (in thousands):

Schedule of Product Warranty Liability

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Changes in estimates of prior period warranty accruals

Warranty amortization

Warranty amortization and utilization

Ending balance

As of and for the

Six Months Ended

Nine Months Ended

Beginning balance

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Changes in estimates of prior period warranty accruals

Warranty amortization

Warranty amortization and utilization

Ending balance

NET INCOME PER SHARE

We calculate basic net income per

share by dividing net income by the weighted-average number of common shares outstanding during the reporting period.

The weighted-average

number of common shares outstanding reflects the effects of potentially dilutive securities, in income generating periods, which consist

entirely of outstanding stock options and performance awards.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents reconciliations

of the numerators and denominators of the basic and diluted earnings per share computations for net income.

In the tables below, income

amounts represent the numerator, and share amounts represent the denominator (in thousands, except per share amounts):

The Company calculates basic

net income per share by dividing net income by the weighted-average number of common shares outstanding during the reporting period.

weighted-average number of common shares outstanding used in the calculation of diluted income per share reflects the effects of potentially

dilutive securities, in income generating periods, which consist entirely of outstanding stock options and performance awards.

The following table presents

reconciliations of the numerators and denominators of the basic and diluted earnings per share computations for net income.

In the tables

below, income amounts represent the numerator, and share amounts represent the denominator (in thousands, except per share amounts):

Schedule of reconciliations of the numerators and denominators of the basic and diluted earnings (loss) per share computations for net

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Three Months Ended

Six Months Ended

Nine Months Ended

Weighted average shares outstanding

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Diluted income per share

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

income taxes are provided on a liability method whereby deferred tax assets and liabilities

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and penalties related to unrecognized tax benefits when applicable.

As of December 31, 2021, we

recognized accrued interest of $ 61,000 related to unrecognized tax benefits.

No interest or penalties were recognized as of June 30, 2021,

since we had sufficient tax attributes available to fully offset any potential assessment of additional tax.

As of March 31, 2022, we recognized

accrued interest of $ 70,000 related to unrecognized tax benefits.

No interest or penalties were recognized as of June 30, 2021, since

we had sufficient tax attributes available to fully offset any potential assessment of additional tax.

We are subject to U.S.

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statute of limitations for the years ended June 30, 2017, and later.

We do not anticipate a significant change to the total amount of unrecognized

tax benefits within the next 12 months.

We do not anticipate a significant change to the total amount of

unrecognized tax benefits within the next 12 months.

SHARE-BASED COMPENSATION

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June 2014 and December 2014, respectively.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In September 2016, our Board approved

the establishment of the 2016 Equity Incentive Plan, which was approved by our shareholders at our 2016 Annual Meeting.

The 2016 Equity

Incentive Plan provides for the award of up to 1,500,000 shares of our common stock in the form of incentive stock options, nonstatutory

In September 2016, our Board

approved the establishment of the 2016 Equity Incentive Plan, which was approved by our shareholders at our 2016 Annual Meeting.

Equity Incentive Plan provides for the award of up to 1,500,000 shares of our common stock in the form of incentive stock options, nonstatutory

stock options, stock appreciation rights, restricted shares, restricted stock units, performance awards, and other stock-based awards.

As of December 31, 2021, 200,000 performance awards and 372,000 non-qualified stock options have been granted under the 2016 Equity Incentive

As of March 31, 2022, 200,000 performance awards and 372,000 non-qualified stock options have been granted under the 2016 Equity Incentive

Former Stock Option Plans

were granted under the Former Stock Option Plans during the three or six months ended December 31, 2021 and 2020.

As of December

were granted under the Former Stock Option Plans during the three or nine months ended March 31, 2022 and 2021.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

31, 2022, there was no unrecognized compensation cost under the Former Stock Option Plans, as all outstanding

stock options are fully vested.

As of December 31, 2021, the options outstanding had a weighted average remaining contractual life

of 0.79 years and an intrinsic value of $ 139,000 .

Following is a summary

of stock option activity under the Former Stock Option Plans for the six months ended December 31, 2021 and 2020:

As of March 31, 2022, the options outstanding under the Former Stock Option Plans had a weighted

average remaining contractual life of 0.54 years and an intrinsic value of $ 96,000 .

The following

is a summary of stock option activity for the nine months ended March 31, 2022 and 2021:

Share-based Payment Arrangement, Option, Activity

Six Months Ended December 31,

Number of Shares

Weighted-Average Exercise Price

Number of Shares

Weighted-Average Exercise Price

Nine Months Ended March 31,

Weighted-Average

Exercise Price

Weighted-Average

Exercise Price

Outstanding at July 1,

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Outstanding at end of period

Stock Options Exercisable at December 31,

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock Options Exercisable at March 31,

Performance Awards

In December 2017, the Compensation

Committee of our Board of Directors granted 200,000 performance awards to our employees, which upon vesting will generally be paid in

shares of our common stock.

Whether any performance awards vest, and the amount that does vest, is tied to the completion of service periods

that range from 7 months to 9.5 years from the date of grant and the achievement of our common stock trading at certain pre-determined

The weighted average fair value of the performance awards granted was $4.46, calculated using the weighted average fair market

value for each award, using a Monte Carlo simulation.

In February 2020, the Compensation Committee reallocated 48,000 previously forfeited

awards, having the same remaining terms and conditions, to certain other employees.

The weighted average fair value of the performance

awards reallocated in 2020 was $ 16.90 , calculated using the weighted average fair market value for each award, using a Monte Carlo simulation.

In December 2021, the Compensation Committee reallocated an additional 5,000 previously forfeited awards, having the same remaining terms

and conditions, to another employee.

During each of the three months ended December 31, 2021 and 2020, we recorded share-based compensation

expense of $ 21,000 related to outstanding performance awards.

During each of the six months ended December 31, 2021 and 2020, we recorded

share-based compensation expense of $ 42,000 related to outstanding performance awards.

On December 31, 2021, there was approximately $ 118,000

of unrecognized compensation cost related to non-vested performance awards expected to be expensed over the weighted-average period of

Committee of our Board of Directors granted 200,000 performance awards to our employees, which will generally be paid in shares of our

common stock.

Whether any performance awards vest, and the amount that does vest, is tied to the completion of service periods that range

from 7 months to 9.5 years at inception and the achievement of our common stock trading at certain pre-determined prices.

average fair value of the performance awards granted was $4.46, calculated using the weighted average fair market value for each award,

using a Monte Carlo simulation.

In February 2020, the Compensation Committee reallocated 48,000 previously forfeited awards, having the

same remaining terms and conditions, to certain other employees.

The weighted average fair value of the performance awards reallocated

in 2020 was $ 16.90 , calculated using the weighted average fair market value for each award, using a Monte Carlo simulation.

2021, the Compensation Committee reallocated an additional 17,500 previously forfeited awards, having the same remaining terms and conditions,

to other employees.

The weighted average fair value of the performance awards reallocated in 2021 was $ 20.34 , calculated using the weighted

average fair market value for each award, using a Monte Carlo simulation.

During the three months ended March 31, 2022 and 2021, we recorded

share-based compensation expense of $ 81,000 and $ 21,000 , respectively, related to outstanding performance awards.

During the nine months

ended March 31, 2022 and 2021, we recorded share-based compensation expense of $ 123,000 and $ 63,000 , respectively, related to outstanding

performance awards.

On March 31, 2022, there was approximately $ 393,000 of unrecognized compensation cost related to non-vested performance

awards expected to be expensed over the weighted-average period of 2.22 years.

On July 1, 2020, it was determined

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Each participant elected a net issuance to cover their individual withholding

therefore, we issued 25,629 shares and paid $ 259,000 of participant-related payroll tax liabilities.

taxes and, therefore, we issued 25,629 shares and paid $ 259,000 of participant-related payroll tax liabilities.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Non-Qualified Stock Options

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range from 18 months to 10.5 years from the date of grant and the achievement of our common stock trading at certain pre-determined prices.

In December 2021, the Compensation Committee reallocated 5,000 previously forfeited non-qualified stock options, having the same remaining

terms and conditions, to another employee.

During the three months ended December 31, 2021 and 2020, we recorded compensation expense

of $ 254,000 and $ 18,000 , respectively, related to these options.

During the six months ended December 31, 2021 and 2020, we recorded compensation

expense of $ 527,000 and $ 18,000 , respectively, related to these options.

The weighted average fair value of the stock option awards granted

was $16.72, calculated using a Monte Carlo simulation.

As of December 31, 2021, there was approximately $ 3.6 million of unrecognized compensation

cost related to these non-vested non-qualified stock options.

The weighted average fair value of the stock option awards granted was $16.72, calculated using a Monte Carlo simulation.

2021, the Compensation Committee reallocated 5,000 previously forfeited non-qualified stock options, having the same remaining terms and

conditions, to another employee at a weighted average fair value of $6.69 calculated using a Monte Carlo simulation.

During the three

months ended March 31, 2022 and 2021, we recorded compensation expense of $ 271,000 and $ 358,000 , respectively, related to these options.

During the nine months ended March 31, 2022 and 2021, we recorded compensation expense of $ 799,000 and $ 376,000 , respectively, related

to these options.

As of March 31, 2022, none of these non-qualified options have vested and there was approximately $ 3.4 million of unrecognized

compensation cost related to these non-vested non-qualified stock options.

In February 2021, the Compensation

Committee of our Board of Directors granted 62,000 stock options to our directors and certain employees under the 2016 Equity Incentive

Whether any stock options vest, and the amount that does vest, is tied to the completion of service periods that range from 4 months

to 1.3 years at inception and the achievement of our common stock trading at certain pre-determined prices.

Of these stock options, 4,250

were forfeited and the remaining 57,750 vested on July 1, 2021, as our common stock met the pre-determined prices set forth in the underlying

We recorded compensation expense of $59,000 for the three and nine months ended March 31, 2021, related to these options.

The weighted fair value of the stock option awards granted was $3.16, calculated using a Monte Carlo simulation.

Employee Stock Purchase Plan

In September 2014, our Board approved

the establishment of an Employee Stock Purchase Plan (the “ESPP”), which was approved by our shareholders at our 2014 Annual

The ESPP conforms to the provisions of Section 423 of the Internal Revenue Code, has coterminous offering and purchase periods

of six months, and bases the pricing to purchase shares of our common stock on a formula so as to result in a per share purchase price

that approximates a 15% discount from the market price of a share of our common stock at the end of the purchase period.

Directors also approved the provision that shares formerly reserved for issuance under the Former Stock Option Plans in excess of shares

In September 2014, our Board

approved the establishment of an Employee Stock Purchase Plan (the “ESPP”), which was approved by our shareholders at our

2014 Annual Meeting.

The ESPP conforms to the provisions of Section 423 of the Internal Revenue Code, has coterminous offering and purchase

periods of six months, and bases the pricing to purchase shares of our common stock on a formula so as to result in a per share purchase

price that approximates a 15% discount from the market price of a share of our common stock at the end of the purchase period.

of Directors also approved the provision that shares formerly reserved for issuance under the Former Stock Option Plans in excess of shares

issuable pursuant to outstanding options under those plans, aggregating 704,715 shares, be reserved for issuance pursuant to the ESPP.

During the three months ended December

31, 2021 and 2020, we did not record any share-based compensation expense relating to the ESPP, due to the fact that no six-month offering

period ended during either quarter.

During the six months ended December 31, 2021 and 2020, 1,130 and 1,485 shares of our common stock

were purchased under the ESPP, respectively, and allocated to employees based upon their contributions at prices of $ 26.17 and $ 16.94 ,

During the three months ended

March 31, 2022 and 2021, we recorded ESPP share-based compensation expense in the amount of $ 5,000 and $ 6,000 , respectively, and 1,446

and 1,192 shares were purchased, respectively, and allocated to employees based upon their contributions at prices of $ 21.11 and $ 27.12 ,

respectively, per share.

On a cumulative basis, since the inception of the ESPP, employees have purchased a total of 25,593 shares of

our common stock.

During the six months ended December 31, 2021 and 2020, we recorded share-based compensation expense in the amount of

$ 5,000 and $ 4,000 , respectively, relating to the ESPP.

During the nine months ended March 31, 2022 and 2021, we recorded ESPP share-based compensation expense in the

amount of $ 11,000 and $ 10,000 , respectively.

On a cumulative basis, since the inception of the ESPP, employees have purchased a total

of 27,039 shares of our common stock.

AND SUBSIDIARIES

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with respect to customers that accounted for sales in excess of 10% of our total sales in

either of the three-month and the six-month periods

ended December 31, 2021 and 2020, is as follows (in thousands, except percentages):

either of the three-month and the nine-month periods

ended March 31, 2022 and 2021, is as follows (in thousands, except percentages):

Schedule of sales by major customers

Three Months Ended December 31,

Percent of Total

Months Ended March 31,

Customer concentration:

Six Months Ended December 31,

Percent of Total

Months Ended March 31,

Customer concentration:

Information with respect to accounts

receivable from those customers who comprised more than 10% of our gross accounts receivable at either December 31, 2021 or June 30, 2021,

Information with respect to

accounts receivable from those customers who comprised more than 10% of our gross accounts receivable at either March 31, 2022 or June

30, 2021, is as follows (in thousands, except percentages):

Schedule of accounts receivable of major customers

December 31, 2021

June 30, 2021

Schedule of accounts receivable, inventory purchases and accounts payable of major customers and suppliers

Total gross accounts receivable

Customer concentration:

During the three and six months

ended December 31, 2021, we had two suppliers accounting for 10 % or more of total inventory purchases.

During the three months ended December

31, 2020, we had three suppliers accounting for 10 % or more of total inventory purchases, and during the six months ended December 31,

2020, we had two suppliers that accounted for more than 10% of our total inventory purchases.

Amounts owed to the fiscal 2022 two most

significant suppliers at December 31, 2021, totaled $365,000 and $71,000, respectively, and at June 30, 2021, totaled $206,000 and $184,000,

respectively.

NOTES PAYABLE AND FINANCING TRANSACTIONS

During the three and nine

months ended March 31, 2022, we had three and four suppliers, respectively, accounting for 10 % or more of total inventory purchases.

the three and nine months ended March 31, 2021, we had two suppliers that accounted for more than 10 % of our total inventory purchases.

Amounts owed to the significant suppliers who comprised more than 10 % of total account payable at March 31, 2022 and June 30, 2021, is

as follows (in thousands, except percentages).

Total accounts payable

Supplier concentration:

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES PAYABLE AND

FINANCING TRANSACTIONS

Minnesota Bank & Trust

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of default that are customary for a loan of this type.

The balance owed on the Property Loan at December 31, 2021 is $5,028,000.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The balance owed on the Property Loan at March 31, 2022, is $4,981,000.

the Closing Date, we also entered into an Amended and Restated Credit Agreement with MBT (the “Amended Credit Agreement”),

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The balance owed on Term Loan

A as of December 31, 2021, is $ 6,259,000 .

A as of March 31, 2022, is $ 6,026,000 .

Term Loan B matures on November 1, 2027 , and bears interest at a fixed rate of 3.84 % per annum.

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As of March 31, 2021, we had drawn fully against Term Note

B and the balance outstanding on Term Note B was $ 932,000 on December 31, 2021.

B and the balance outstanding on Term Note B was $ 897,000 on March 31, 2022.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revolving Loan may be borrowed against from time to time through its maturity date of November 5, 2023 , and bears interest at an annual

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Share Repurchase Program

In December 2019, our Board approved

a new share repurchase program authorizing us to repurchase up to 1 million shares of our common stock, as the prior repurchase plan authorized

by the Board in 2013 was nearing completion.

In accordance with, and as part of, these share repurchase programs, our Board approved the

adoption of several prearranged share repurchase plans intended to qualify for the safe harbor provided by Rule 10b5-1 under the Securities

Exchange Act of 1934, as amended (“10b5-1 Plan” or “Plan”).

During the three and six months ended December 31,

2021, we repurchased 24,336 and 27,952 shares, respectively, at an aggregate cost, inclusive of fees under the Plan, of $ 577,000 and $ 672,000 ,

respectively.

During the three and six months ended December 31, 2020, we did not repurchase any shares under the repurchase program.

On a cumulative basis, since implementation of the share repurchase program in 2013, we have repurchased a total of 1,063,448 shares under

the share repurchase program at an aggregate cost, inclusive of fees, of $ 14.7 million.

All repurchases under the 10b5-1 Plans were administered

through an independent broker.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 2019, our Board approved a new share repurchase program authorizing us to repurchase up to 1 million shares of our common stock,

as the prior repurchase plan authorized by our Board in 2013 was nearing completion.

In accordance with, and as part of, these share repurchase

programs, our Board approved the adoption of several prearranged share repurchase plans intended to qualify for the safe harbor provided

by Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (“10b5-1 Plan” or “Plan”).

During the three

and nine months ended March 31, 2022, we repurchased 24,766 and 52,718 shares, respectively, at an aggregate cost, inclusive of fees under

the Plan, of $ 584,000 and $ 1,255,000 , respectively.

During the three and nine months ended March 31, 2021, we repurchased 161,291 shares

at an aggregate cost, inclusive of fees under the Plan, of $ 4,039,000 .

On a cumulative basis, since implementation of the share

repurchase program in 2013, we have repurchased a total of 1,088,214 shares under the share repurchase program at an aggregate cost of

$ 15.3 million.

All repurchases under the 10b5-1 Plans were administered through an independent broker.

At The Market Offering Agreement

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10b5-1 Plan”).

No sales of common stock have been made under the ATM Agreement as of the date of this report, but future sales may

occur pursuant to the parameters of the ATM 10b5-1 Plan or otherwise at the direction of our Board in accordance with the terms of the

No sales of common stock have been made under the ATM Agreement as of the date of this report, and the ATM 10b5-1

Plan was terminated on February 11, 2021, but future sales may occur at the direction of our Board in accordance with the terms of the

ATM Agreement.

Effective July 1, 2019, we adopted

the new lease accounting standard ASU 2016-02 using the modified retrospective method of applying the new standard at the adoption date.

In addition, we elected the practical expedient that allowed us to carry forward the historical lease classification of our sole operating

lease for our corporate office, which includes our manufacturing and research and development facilities.

Adoption of this standard resulted

in the recording of net operating lease right-of-use (“ROU”) asset and corresponding operating lease liability of $ 3.3 million.

Our operating lease ROU asset and

long-term liability are presented separately on our condensed consolidated balance sheet.

The current portion of our operating lease liability

as of December 31, 2021, in the amount of $ 361,000 , is presented within accrued expenses on the condensed consolidated balance sheet.

As of December 31, 2021, the maturity

the new lease accounting standard using the modified retrospective method of applying the new standard at the adoption date.

we elected the practical expedient that allowed us to carry forward the historical lease classification of our sole operating lease for

our corporate office, which includes our manufacturing and research and development facilities.

Adoption of this standard resulted in

the recording of net operating lease right-of-use (“ROU”) asset and corresponding operating lease liability each in the amount

of $ 3.3 million.

Our operating lease ROU asset

and long-term liability are presented separately on our condensed consolidated balance sheet.

The current portion of our operating lease

liability as of March 31, 2022, in the amount of $ 370,000 , is presented within accrued expenses on the condensed consolidated balance

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2022, the maturity

of our lease liability is as follows:

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Less imputed interest:

As of December 31, 2021, our

operating lease has a remaining lease term of five 5 years and nine months and an imputed interest rate of 5.53 %.

Cash paid for amounts included in the lease liability for the three and six months ended December 31, 2021, totaled $ 123,000 and

$ 243,000 , respectively, and for December 31, 2020, totaled $ 120,000 and $ 236,000 , respectively.

As of March 31, 2022, our

operating lease has a remaining lease term of five 5 years and six months and an imputed interest rate of 5.53 %.

Cash paid for

amounts included in the lease liability for the three and nine months ended March 31, 2022, was $ 123,000 and $ 366,000 , respectively.

Cash paid for amounts included in the lease liability for the three and nine months ended March 31, 2021, was $ 120,000 and $ 355,000 ,

respectively.

COMMITMENTS AND CONTINGENCIES

On August 24, 2021, one of our customers,

through its counsel, sent notice that it is seeking indemnification from us regarding a pending complaint filed by a third-party claiming

patent infringement on one of the products that we manufacture for this customer.

As of the date of this filing, our position is that

there is no infringement and/or that the patent at issue is invalid.

We have not accrued any amounts related to this claim and we intend

to defend the claim, which we believe may take two years or more to resolve.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Legal Matters

On August 24, 2021, one of our

customers, through its counsel, sent notice that it is seeking indemnification from us regarding a pending complaint filed by a third-party

claiming patent infringement on one of the products that we manufacture for this customer.

As of the date of this filing, our position

is that there is no infringement and/or that the patent at issue is invalid.

We have not accrued any amounts related to this claim and

we intend to defend the claim, which we believe may take two years or more to resolve.

On October 12, 2021, we received

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and intentional infliction of emotional distress.

The parties are scheduled for a mediation hearing on February 23, 2022.

If the dispute

does not settle at mediation, we intend to contest all of the claims against us.

The parties settled this matter upon the conclusion of a mediation hearing held on February

In addition to the above matters,

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SUBSEQUENT EVENTS

We have evaluated subsequent events

through the date of this filing.

We have evaluated subsequent

events through the date of this filing.

There were no subsequent events that require disclosure.

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