NAPCO SECURITY TECHNOLOGIES, INC. 
Restatement of Previously Issued Financial Statements
This "Management's Discussion and Analysis of Financial Condition and Results of Operations" has been amended and restated to give effect to the restatement of our financial statements, as more fully described in Note 1A to our financial statements entitled "Restatement of Previously Issued Financial Statements". For further detail regarding the restatement, see "Explanatory Note" and "Item
9A. Controls and Procedures." OverviewNapco Security Technologies, Inc ("NAPCO", "the Company", "we") is one of the leading manufacturers and designers of high-tech electronic security devices, wireless communication services for intrusion and fire alarm systems as well as a leading provider of school safety solutions. We offer a diversified array of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products. These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold worldwide principally to independent distributors, dealers and installers of security equipment. We have experienced significant growth in recent years, primarily driven by fast growing recurring service revenues generated from wireless communication services for intrusion and fire alarm systems, as well as our school security products that are designed to meet the increasing needs to enhance school security as a result of on-campus shooting and violence in theU.S. While recurring service revenues have continued to increase during the COVID-19 pandemic, equipment sales were negatively impacted by the economic slowdown associated with this pandemic. Since 1969, NAPCO has established a heritage and proven record in the professional security community for reliably delivering both advanced technology and high-quality security solutions, building many of the industry's widely recognized brands, such asNAPCO Security Systems , Alarm Lock, Continental Access,Marks USA , and other popular product lines: including Gemini and F64-Series hardwire/wireless intrusion systems and iSee Video internet video solutions. We are also dedicated to developing innovative technology and producing the next generation of reliable security solutions that utilize remote communications and wireless networks, including our StarLink, iBridge, and more recently the iSecure product lines. Today, millions of businesses, institutions, homes, and people around the globe are protected by products from theNAPCO Group of Companies . Our net sales were$114.0 million ,$101.4 million and$102.9 million for the fiscal years endedJune 30, 2021 , 2020 and 2019, respectively. The change in our net sales from fiscal 2020 to 2021 was driven primarily by increased sales of our products in the recurring revenue business ($9.9 million ) and sales of equipment ($2.7 million ) as compared to the same period a year ago. This increase was due primarily to the recovery from the economic effects of the COVID-19 pandemic and the related closures mandated by federal and state governments. The change in our net sales from fiscal 2019 to 2020 was driven primarily by increased sales of our products in the recurring revenue business as offset by a 34% decrease in sales of equipment in the fourth quarter of fiscal 2020 as compared to the same period a year ago. This decrease was due primarily to the economic effects of the COVID-19 pandemic and the related closures mandated by federal and state governments. Our net income was$15.4 million ,$7.8 million and$12.5 million for the fiscal years endedJune 30, 2021 , 2020 and 2019, respectively. The changes in net income during this period was due primarily to the COVID-19 impact and subsequent recovery described above, as well as by the growth of our recurring revenue business.
Economic and Other Factors
We are subject to the effects of general economic and market conditions. If theU.S. or international economic conditions deteriorate, our revenue, profit and cash-flow levels could be materially adversely affected in future periods. In the event of such deterioration, many of our current or potential future customers may experience serious cash flow problems and as a result may, modify, delay or cancel purchases of our products. Additionally, customers may not be able to pay, or may delay payment of, accounts receivable that are owed to us. If such events do occur, they may result in our fixed and semi-variable expenses becoming too high in relation to our revenues and cash flows. 20 Table of Contents Seasonality The Company's fiscal year begins onJuly 1 and ends onJune 30 . Historically, the end users of the Company's products want to install its products prior to the summer; therefore, sales of its products historically peak in the periodApril 1 through June 30 , the Company's fiscal fourth quarter, and are reduced in the periodJuly 1 through September 30 , the Company's fiscal first quarter. In addition, demand for our products is affected by the housing and construction markets. Deterioration of the current economic conditions may also affect this trend. Our fourth quarter of fiscal 2020 and fiscal 2021 reflected the challenging business environment resulting from the COVID-19 pandemic. The COVID-19 pandemic had caused difficulties for security equipment professionals getting access to both commercial and residential installation sites. We sell our products primarily through distribution to dealers and we are now seeing strong sell-through statistics from several of our largest distributors. Increased sell-through of our products from our distributors to the alarm and locking dealers during the third and fourth quarters of fiscal 2021, as compared to the three quarters preceding them, indicates that security equipment professionals are getting increased access to both commercial and residential installation sites and using more and more of our products.
Critical Accounting Policies and Estimates
The Company's significant accounting policies are fully described in Note 1 to the Company's consolidated financial statements included in its 2021 Annual Report on Form 10-K. Management believes these critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. For product sales, the Company typically transfers control at a point in time upon shipment or delivery of the product. For monthly communication services the Company satisfies its performance obligation as the services are rendered and therefore recognizes revenue over the monthly period. Typically timing of revenue recognition coincides with the timing of invoicing to the customers, at which time the Company has an unconditional right to consideration. As such, the Company typically records a receivable when revenue is recognized. The contract with the customer states the final terms of the sale, including the description, quantity, and price of each product purchased. Payment for product sales is typically due within 30 and 180 days of the delivery date. Payment for monthly communication services is billed on a monthly basis and is typically due at the beginning of the month of service. The Company provides limited standard warranty for defective products, usually for a period of 24 to 36 months. The Company accepts returns for such defective products as well as for other limited circumstances. The Company also provides rebates to customers for meeting specified purchasing targets and other coupons or credits in limited circumstances. The Company establishes reserves for the estimated returns, rebates and credits and measures such variable consideration based on the expected value method using an analysis of historical data. Changes to the estimated variable consideration in subsequent periods are not material. The Company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the Company's past history. Estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers. Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns. Actual results could differ from those estimates.The Company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the Company's past history. Estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers. Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns. Actual results could differ from those estimates. As a percentage of gross sales, sales returns, rebates and allowances were 10% and 9% for the fiscal years endedJune 30, 2021 and 2020, respectively. 21 Table of Contents
Reserve for Doubtful Accounts
An entity is more vulnerable to concentrations of credit risk if it is exposed to risk of loss greater than it would have had if it mitigated its risk through diversification of customers. The Company had one customer with an accounts receivable balance that comprised 19%, 24% and 19% of the Company's accounts receivable atJune 30, 2021 , 2020 and 2019, respectively. Sales to this customer did not exceed 10% of net sales in either of the fiscal years endedJune 30, 2021 or 2020. Sales to this customer comprised 10% of net sales during fiscal year endedJune 30, 2019 . The Company had another customer with an accounts receivable balance that comprised 10% of the Company's accounts receivable atJune 30, 2021 . Sales to this customer did not exceed 10% of net sales in any of the fiscal years endedJune 30, 2021 , 2020 and 2019, respectively. The Company had another customer with an accounts receivable balance that comprised 10% of the Company's accounts receivable atJune 30, 2020 . Sales to this customer did not exceed 10% of net sales in any of the fiscal years endedJune 30, 2021 , 2020 and 2019, respectively. The Company had another customer with an accounts receivable balance that comprised 10% of the Company's accounts receivable atJune 30, 2021 and 2019. Sales to this customer did not exceed 10% of net sales in any of the fiscal years endedJune 30, 2021 , 2020 and 2019. In the ordinary course of business, we have established a reserve for doubtful accounts and customer deductions in the amount of$226,000 and$326,000 as ofJune 30, 2021 and 2020, respectively. Our reserve for doubtful accounts is a subjective critical estimate that has a direct impact on reported net earnings. This reserve is based upon the evaluation of accounts receivable agings, specific exposures and historical or anticipated events.
Inventories
Inventories are valued at the lower of cost or net realizable value, with cost being determined on the first-in, first-out (FIFO) method. The reported net value of inventory includes finished saleable products, work-in-process and raw materials that will be sold or used in future periods. Inventory costs include raw materials, direct labor and overhead. The Company's overhead expenses are applied based, in part, upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products. These proportions, the method of their application, and the resulting overhead included in ending inventory, are based in part on subjective estimates and actual results could differ from those estimates. In addition, the Company records an inventory obsolescence reserve, which represents the difference between the cost of the inventory and its estimated realizable value. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, requirements to support forecasted sales, and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand. There is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage. In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events. The Company also regularly reviews the period over which its inventories will be converted to sales. Any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current.
Long-Lived and Intangible Assets
Long-lived assets are amortized over their useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable. Impairment would be recorded in circumstances where undiscounted cash flows expected to be generated by an asset are less than the carrying value of that asset. Intangible assets determined to have indefinite lives were not amortized but were tested for impairment at least annually. The Company's acquisition of substantially all of the assets and certain liabilities ofG. Marks Hardware, Inc. ("Marks") inAugust 2008 included intangible assets recorded at fair value on the date of acquisition. The customer relationships are amortized over their estimated useful lives of twenty years. At the acquisition date, the Marks trade name was deemed to have an indefinite life. During the 4th quarter of fiscal 2020, the Company determined that the trade-name was impaired. Accordingly, the Company recorded an impairment charge of$1,852,000 and reclassified the remaining balance of the underlying asset from indefinite-lived to a long-lived asset with a remaining useful life of 20 years as ofJune 30, 2020 . 22 Table of Contents Income Taxes The Company has identifiedthe United States andNew York State as its major tax jurisdictions. Fiscal year 2018 and forward years are still open for examination. In addition, the Company has a wholly-owned subsidiary which operates in aFree Zone in theDominican Republic ("DR") and is exempt from DR income tax. For the year endedJune 30, 2021 , the Company recognized a net income tax expense of$2,514,000 . During the year endingJune 30, 2021 , the Company decreased its reserve for uncertain income tax positions by$208,000 . The Company's practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes. As ofJune 30, 2021 , the Company had accrued interest totaling$63,000 and$678,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company's effective income tax rate in any future period. The Company claims research and development ("R&D") tax credits on eligible research and development expenditures. The R&D tax credits are recognized as a reduction to income tax expense. 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis.
Leases
EffectiveJuly 1, 2019 , the Company adopted the new lease accounting standard using the modified retrospective transition option of applying the new standard at the adoption date. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. Adoption of the new standard resulted in the recording of an operating ROU asset and lease liabilities of approximately$7.7 million . Given the length of the lease term, the right-of-use asset and corresponding liability assume a weighted discount rate as disclosed below. A change in the rate utilized could have a material effect on the amounts reported. Financial positions for reporting periods beginning on or afterJuly 1, 2019 are presented under new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.
Liquidity and Capital Resources
During the year endedJune 30, 2021 the Company utilized a portion of its cash generated from operations ($6,429,000 of$22,987,000 ) to purchase property, plant and equipment ($1,007,000 ) and marketable securities ($5,422,000 ). The Company believes its current working capital, cash flows from operations and its revolving credit agreement will be sufficient to fund the Company's operations through the next twelve months. As ofJune 30, 2021 , the Company maintained a revolving credit facility of$11,000,000 which expires inJune 2024 and term loans from theU.S. Small Business Administration totaling$3,904,000 through its Payroll Protection Program ("PPP"). As ofJune 30, 2021 , the Company had no outstanding borrowings and$11,000,000 in availability under the revolving credit facility and$3,904,000 outstanding under the PPP term loans. Pursuant to the CARES Act, the loans may be forgiven by the SBA. The Company has applied to have the balance of the Loan forgiven. Following year-end,$2,850,000 of the PPP Loan was forgiven in accordance with guidelines set for in the PPP. The Company will recognize debt forgiveness in the first quarter of 2022 in the amount of$2,850,000 and will recognize further forgiveness income in the quarter that the remaing forgiveness application may be granted. While the Company believes that it meets to requirements for forgiveness, there can be no assurance that its remaining application will be granted. The revolving credit facility contains various restrictions and covenants including, among others, restrictions on borrowings and compliance with certain financial ratios, as defined in the agreement. The Company's long-term debt is described more fully in Note 8 to the condensed consolidated financial statements. The Company believes its current working capital, anticipated cash flows from operations and its Revolving Credit Agreement will be sufficient to fund the Company's operations through at least the next twelve months. 23
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The Company takes into consideration several factors in measuring its liquidity, including the ratios set forth below:
As of June 30,
2021 2020 2019
Current Ratio 4.7 to 1 4.5 to 1 4.5 to 1
Sales to Receivables 4.1 to 1 4.4 to 1 4.0 to 1
Total debt to equity 0.0 to 1 0.1 to 1 0.0 to 1
As of June 30, 2021 , the Company had no material commitments for capital
expenditures or inventory purchases other than purchase orders issued in the
normal course of business. On April 26, 1993 , the Company's foreign subsidiary
entered into a 99-year land lease of approximately 4 acres of land in the
Dominican Republic , on which the Company's principle manufacturing facility is
located, at an annual rent of approximately $288,000 .
Working Capital. Working capital increased by $14,939,000 to $75,391,000 at June
30, 2021 from $60,452,000 at June 30, 2020 . Working capital is calculated by
deducting Current Liabilities from Current Assets.
Accounts Receivable. Accounts Receivable increased by $5,149,000 to $28,081,000
at June 30, 2021 as compared to $22,932,000 at June 30, 2020 . The increase in
Accounts Receivable was due primarily to an increase in net sales for the
quarter ended June 30, 2021 as compared to the same quarter a year ago.
Inventories. Inventories, which include both current and non-current portions,
decreased by $8,715,000 to $31,700,000 at June 30, 2021 as compared to
$40,415,000 at June 30, 2020 . The decrease was due, in part, to the Company
completing the rollout of several new products that were introduced during
fiscal 2020. Inventories of these items were built up during fiscal 2020 in
anticipation of initial stocking orders from the Company's customers. The
decrease in inventory was also due to the Company's efforts to move closer to
"just in time" procurement and production cycles where component parts and
finished goods are scheduled for delivery closer to the expected requirement
date.
Accounts Payable and Accrued Expenses. Accounts payable and accrued expenses,
not including income taxes payable, increased by $1,684,000 to $16,155,000 as of
June 30, 2021 as compared to $14,471,000 at June 30, 2020 . This increase is
primarily due to an increase in the Company's accrued refund liability, which is
explained in Note 2 to the Notes to the Company's Consolidated Financial
Statements, as well as higher accrued incentive compensation as of June 30, 2021
as compared to June 30, 2020 .
Off-Balance Sheet Arrangements
The Company does not maintain any off-balance sheet arrangements.
Results of Operations
Fiscal 2021 Compared to Fiscal 2020 as Restated
Fiscal year
ended
% Increase/
2021 2020 (decrease)
Net sales $ 114,035 $ 101,359 12.5 %
Gross profit 50,748 42,844 18.4 %Gross profit as a % of net sales 44.5 % 42.3 % 5.3 % Research and development 7,620 7,257 5.0 % Selling, general and administrative 25,196 23,670 6.4 % Selling, general and administrative as a % of net sales 22.1 % 23.4 % (5.4) % Impairment of intangible asset -
1,852 (100.0) %
Income from operations 17,932 10,065 78.2 %
Interest expense, net 5 9 (44.4) %
Provision for income taxes 2,514 2,261 11.2 %
Net income 15,413 7,795 97.7 %
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Net sales in fiscal 2021 increased by $12,676,000 to $114,035,000 as compared to
$101,359,000 in fiscal 2020. The increase in net sales was primarily due to
increased sales of the Company's recurring alarm communication services
($9,859,000 ), Napco brand intrusion products ($5,972,000 ) and Marks brand
door-locking products ($2,051,000 ), as partially offset by decreased sales of
the Company's Alarm Lock brand door-locking products ($4,720,000 ) and
Continental brand access control products ($191,000 ). The Company's increase in
equipment sales was primarily due to customer demand returning after the decline
during the COVID-19 pandemic and the related closures throughout the United
States . This was partially offset by a decrease in the Company's Alarm Lock
products, which was due primarily to school districts and other institutions
postponing their capital projects in the latter portion of the Company's 2020
fiscal year and throughout fiscal 2021.
The Company's gross profit increased by $7,904,000 to $50,748,000 or 44.5% of
net sales in fiscal 2021 as compared to $42,844,000 or 42.3% of net sales in
fiscal 2020. Gross profit on equipment sales was $21,730,000 or 27.1% of net
equipment sales in fiscal 2021 and $23,132,000 or 29.9% of net equipment sales,
in fiscal 2020. Gross profit on service revenues was $29,018,000 or 85.6% of net
service revenues in fiscal 2021 and $19,712,000 or 82.0% of net service
revenues, in fiscal 2020. Gross profit on equipment sales was primarily affected
by the shift in sales to the Company's Starlink radio products, which typically
have lower margins but result in recurring service revenues, and from the
Company's Alarm Lock products as discussed above. The Alarm Lock products are
among the Company's highest margin equipment products. Gross profit on equipment
sales was also affected by the Company's reduction in it's production and
inventories which impacted it's overhead absorption rate as well as a decrease
in the Company's reserve for obsolete inventory.
Research and Development expenses increased by $363,000 to $7,620,000 in fiscal
2021 as compared to $7,257,000 in fiscal 2020. This increase was due primarily
to salary increases and additional staff.
Selling, general and administrative expenses for fiscal 2021 increased by
$1,526,000 to $25,196,000 as compared to $23,670,000 in fiscal 2020. Selling,
general and administrative expenses as a percentage of net sales decreased to
22.1% in fiscal 2021 from 23.4% in fiscal 2020. The increase in dollars resulted
primarily from increases in employee compensation. The decrease as a percentage
of sales was primarily the result of the increase in net sales as described
above, as partially offset by the aforementioned increase in employee
compensation expenses.
During the 4th quarter of fiscal 2020, the Company determined that its
indefinite-lived intangible asset relating to its Marks USA I subsidiary
trade-name was impaired. Accordingly, the Company recorded an impairment charge
of $1,852,000 and reclassified the remaining balance of the underlying asset
from indefinite-lived to a long-lived asset with a remaining useful life of 20
years as of June 30, 2020 . There was no impairment charge for the year ended
June 30, 2021 .
Interest and other expense, net for fiscal 2021 remained relatively constant at
The Company's provision for income taxes for fiscal 2021 increased by$253,000 to$2,514,000 as compared to$2,261,000 for the same period a year ago. The Company's effective tax rate decreased to 14% for fiscal 2021 as compared to 21% for fiscal 2020. The decrease in the Company's fiscal 2021 effective tax rate is a direct result of additional tax expense recorded in fiscal 2020 for theIRS audit of the Company's 2016 fiscal year.
Net income for fiscal 2021 increased by
25
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Results of Operations
Fiscal 2020 Compared to Fiscal 2019 as Restated
Fiscal year
ended
% Increase/
2020 2019 (decrease)
Net sales $ 101,359 $ 102,932 (1.5) %
Gross profit 42,844 44,200 (3.1) %Gross profit as a % of net sales 42.3 % 42.9 % (1.6) % Research and development 7,257 7,212 0.6 % Selling, general and administrative 23,670 23,212 2.0 % Selling, general and administrative as a % of net sales 23.4 % 22.6 % 3.6 % Impairment of intangible asset 1,852
- 100.0 %
Income from operations 10,065 13,776 (26.9) %
Interest expense, net 9 21 (57.1) %
Provision for income taxes 2,261 1,274 77.5 %
Net income 7,795 12,481 (37.5) %
Net sales in fiscal 2020 decreased by $1,573,000 to $101,359,000 as compared to
$102,932,000 in fiscal 2019. The decrease in net sales was primarily due to
decreased sales of the Company's Alarm Lock brand door-locking products
($2,565,000 ), Marks brand door-locking products ($5,258,000 ), and Continental
brand access control products ($542,000 ) as partially offset by increased sales
of the Company's recurring alarm communication services ($6,608,000 ) and Napco
brand intrusion products ($200,000 ). The Company's equipment sales were
negatively impacted by the COVID-19 pandemic, which has caused difficulties for
security equipment professionals getting access to both commercial and
residential installation sites. The Company believes this access issue is an
industry-wide issue related to COVID-19 and not reflective of the loss of any
market share unique to the Company or any long-term negative reflection of the
post-pandemic vibrancy of the security industry as a whole.
The Company's gross profit decreased by $1,356,000 to $42,844,000 or 42.3% of
net sales in fiscal 2020 as compared to $44,200,000 or 42.9% of net sales in
fiscal 2019. Gross profit on equipment sales was $23,132,000 or 29.9% of net
equipment sales in fiscal 2020 and $30,575,000 or 35.8% of net equipment sales,
in fiscal 2019. Gross profit on service revenues was $19,712,000 or 82.0% of net
service revenues in fiscal 2020 and $13,625,000 or 78.2% of net service
revenues, in fiscal 2019. Gross profit was primarily affected by the decrease in
equipment sales as discussed above and an increase to the Company's reserve for
obsolete inventory as partially offset by increased service revenues.
Research and Development expenses remained relatively constant at
Selling, general and administrative expenses for fiscal 2020 increased by$458,000 to$23,670,000 as compared to$23,212,000 in fiscal 2019. Selling, general and administrative expenses as a percentage of net sales increased to 23.4% in fiscal 2020 from 22.6% in fiscal 2019. The increase in dollars resulted primarily from increases in employee compensation. The increase as a percentage of sales was primarily the result of the decrease in net sales as described above and the increased employee compensation expenses. During the 4th quarter of fiscal 2020, the Company determined that its indefinite-lived intangible asset relating to its MarksUSA I subsidiary trade-name was impaired. Accordingly, the Company recorded an impairment charge of$1,852,000 and reclassified the remaining balance of the underlying asset from indefinite-lived to a long-lived asset with a remaining useful life of 20 years as ofJune 30, 2020 . There was no impairment charge for the year endedJune 30, 2019 .
Interest expense for fiscal 2020 remained relatively constant at
The Company's provision for income taxes for fiscal 2020 increased by$987,000 to$2,261,000 as compared to$1,274,000 for the same period a year ago. The Company's effective tax rate increased to 21% for fiscal 2020 as compared to 9% for fiscal 2019. The increase in the Company's effective tax rate resulted from the resolution of anIRS audit of the Company's 2016 fiscal year, resulting in an additional provision of$1,555,000 . 26
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Net income for fiscal 2020 decreased by$4,686,000 to$7,795,000 as compared to$12,481,000 in fiscal 2019. This resulted primarily from the items discussed above.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K and the documents we incorporate by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical fact, included or incorporated in this prospectus regarding our strategy, future operations, clinical trials, collaborations, intellectual property, cash resources, financial position, future revenues, projected costs, prospects, plans, and objectives of management are forward-looking statements. The words "believes," "anticipates," "estimates," "plans," "expects," "intends," "may," "could," "should," "potential," "likely," "projects," "continue," "will," "schedule," "would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause our actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. See "Risk Factors" in our Annual Report on Form 10-K for the year endedJune 30, 2021 for more information. These factors and the other cautionary statements made in this prospectus and the documents we incorporate by reference should be read as being applicable to all related forward-looking statements whenever they appear in this prospectus and the documents we incorporate by reference. In addition, any forward-looking statements represent our estimates only as of the date that this prospectus is filed with theSEC and should not be relied upon as representing our estimates as of any subsequent date. We do not assume any obligation to update any forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law. 27 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets ofNapco Security Technologies, Inc. and Subsidiaries (the "Company") as ofJune 30, 2021 and 2020, the related consolidated statements of income, stockholders' equity, and cash flows, for each of the three years in the period endedJune 30, 2021 , and the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as ofJune 30, 2021 , based on criteria established in Internal Control - Integrated Framework: (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission (COSO). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofJune 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period endedJune 30, 2021 , in conformity with accounting principles generally accepted inthe United States of America . Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as ofJune 30, 2021 , based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO because a material weakness in internal control over financial reporting existed as of that date related to a lack of an effectively designed control activity over the reserve for obsolete inventory. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management's Report on Internal Control Over Financial Reporting appearing on page FS-1 and under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and our opinion regarding the effectiveness of the Company's internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Restatement of Previously Issued Financial Statements and Management's Conclusion Regarding Internal Control over Financial Reporting
As discussed in Note 1A to the consolidated financial statements, the Company has restated its 2021, 2020 and 2019 financial statements to correct errors related to the reserve for obsolete inventory.
Management and we previously concluded that the Company maintained effective internal control over financial reporting as ofJune 30, 2021 . However, management has subsequently determined that a material weakness in internal control over financial reporting existed as of that date related to a lack of an effectively designed control activity over the reserve for obsolete inventory. Accordingly, management's report has been restated and our present opinion on internal control over financial reporting, as presented herein, is different from that expressed in our previous report.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) ("PCAOB") and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB. FS-1 Table of Contents
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Obsolete Inventory Reserve
Critical Audit Matter Description
As described in Notes 1 and 5 to the consolidated financial statements, the Company's consolidated net inventory and inventory reserves as ofJune 30, 2021 were approximately$31,700,000 and$2,834,000 , respectively. Management establishes its reserve for obsolete inventory equal to the difference between the cost of the inventory and the estimated net realizable value of the inventory. The estimated reserve percentages consider future inventory requirements to support forecasted sales based on historical usage, known trends, market conditions, and the ability to find alternate applications of its raw materials into finished goods to better match customer demand. We identified the reserve for inventory obsolescence as a critical audit matter because of the significant estimates and assumptions management makes to determine the reserve, FS-2 Table of Contents
specifically the future inventory requirements and related forecasted sales and usage. Performing audit procedures to evaluate the reasonableness of these estimates, including the estimated reserve percentages, and assumptions is subjective and requires a high degree of auditor judgment.
How We Addressed the Matter in Our Audit
The primary procedures we performed to address this critical audit matter included:
We tested management's process in developing the estimate for reserve for
? obsolete inventory; including performing a retrospective review of management's
estimates in order to determine management's ability to make such estimates.
We evaluated the appropriateness of management's approach and estimates and
? whether the assumptions were consistent with evidence obtained in other audit
areas.
We tested the completeness and accuracy of underlying data used in the
? approach, including historical usage, inventory age, and subsequent sales of
the Company's products.
We evaluated the reasonableness of the estimated reserve percentages used by
? management to determine the obsolete inventory reserve and tested the clerical
accuracy of the model.
We have served as the Company's auditor since 2008.
/s/
September 13, 2021 , except for the effects of the stock split as discussed in Note 15(b), as to which the date isJanuary 4, 2022 , and except for the effects of the restatement discussed in Note 1A to the consolidated financial statements and the matter discussed in the fifth paragraph of Management's Report on Internal Control, as to which the date isMay 17, 2022 FS-3 Table of Contents NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2021 (as restated) June 30, 2020 (as restated) (in thousands, except share data) CURRENT ASSETS Cash and cash equivalents $ 34,806 $ 18,248 Marketable securities 5,413 -
Accounts receivable, net of allowance for doubtful
accounts of
28,081 22,932
Inventories, net 24,933 34,727
Prepaid expenses and other current assets 2,408 2,049
Total Current Assets 95,641 77,956
Inventories - non-current, net 6,767 5,688
Property, plant and equipment, net 7,836 8,088 Intangible assets, net 4,691 5,116 Operating lease asset 7,373 7,395 Other assets 243 255 TOTAL ASSETS $ 122,551 $ 104,498 CURRENT LIABILITIES Accounts payable $ 6,095 $ 6,547 Accrued expenses 6,582 5,743 Accrued salaries and wages 3,478 2,181
Current portion of long-term debt
2,386 1,794 Accrued income taxes 1,709 1,239 Total Current Liabilities 20,250 17,504
Long term debt, net of current portion
1,518 2,110 Deferred income taxes 380 43 Accrued income taxes 925 1,188
Long term operating lease liabilities 7,090 7,113 Total Liabilities 30,163 27,958 COMMITMENTS AND CONTINGENCIES (Note 13) STOCKHOLDERS' EQUITY Common Stock, par value$0.01 per share; 80,000,000 shares authorized; 39,595,883 and 39,588,417 shares issued; and 36,702,168 and 36,694,702 shares outstanding, respectively 396 396 Additional paid-in capital 18,201 17,766 Retained earnings 93,312 77,899
Less: Treasury Stock, at cost (2,893,715 shares) (19,521) (19,521) TOTAL STOCKHOLDERS' EQUITY 92,388 76,540 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 122,551 $ 104,498
See accompanying notes to consolidated financial statements.
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NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended June 30,
2021 (as restated) 2020 (as restated) 2019 (as restated)
(in thousands, except for share and per share data)
Net sales:
Equipment revenues $ 80,131 $ 77,314 $ 85,505
Service revenues 33,904 24,045 17,427
114,035 101,359 102,932
Cost of sales:
Equipment related expenses 58,401 54,182 54,930
Service-related expenses 4,886 4,333 3,802
63,287 58,515 58,732
Gross Profit 50,748 42,844 44,200
Operating expenses:
Research and development 7,620 7,257 7,212Selling, general, and administrative expenses 25,196 23,670 23,212 Impairment of intangible asset -
1,852 -
32,816 32,779 30,424
Operating Income 17,932 10,065 13,776
Other expense:Interest and other expense, net 5 9 21 Income before Provision for Income Taxes 17,927
10,056 13,755
Provision for Income Taxes 2,514 2,261 1,274
Net Income $ 15,413 $ 7,795 $ 12,481
Income per share:
Basic $ 0.42 $ 0.21 $ 0.34
Diluted $ 0.42 $ 0.21 $ 0.34
Weighted average number of shares outstanding:
Basic 36,696,000 36,888,000 37,148,000
Diluted 36,808,000 36,986,000 37,248,000
See accompanying notes to consolidated financial statements.
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NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Fiscal Years ended
(in thousands except for share data)
Common Stock Treasury Stock
Number of Additional
Shares Paid-in Number of Retained
Issued Amount Capital
Shares Amount Earnings Total
Balance at
21,204,327 $ 212 $ 16,890 (2,475,245) $ (13,069) $ 59,420 $ 63,453
Retrospective effect of 2:1
stock split declared on
December 20, 2021 18,310,612 184 (184) -
Cumulative restratement
adjustments (Note 1A) (894) (894)
Balance at June 30, 2018 , as
restated 39,514,939 $ 396 $ 16,890 (2,475,245)
- - - - - (719) (719)
Repurchase of treasury shares - - - (274,065) (3,998) - (3,998) Stock options exercised 45,534 - 53 - - - 53 Stock-based compensation expense - - 160 - - - 160 Net income - - - - - 12,481 12,481 Balances at June 30, 2019 39,560,473$ 396 $ 17,103
(2,749,310)
- - - (144,405) (2,454) - (2,454)
Stock options exercised 27,944 - 80 - - - 80
Stock-based compensation
expense - - 583 - - - 583
Net income - - - - - 7,795 7,795
Balances at June 30, 2020 39,588,417 $ 396 $ 17,766 (2,893,715) $ (19,521) $ 77,899 $ 76,540
Stock options exercised 7,466 - - - - - -
Stock-based compensation
expense - - 435 - - - 435
Net income - - - - - 15,413 15,413
Balances at June 30, 2021 39,595,883 $ 396 $ 18,201 (2,893,715) $ (19,521) $ 93,312 $ 92,388 See accompanying notes to consolidated financial statements.
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NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year ended June 30,
2021 (as restated) 2020 (as restated) 2019 (as restated)
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 15,413 $ 7,795 $ 12,481
Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization
1,697 1,495 1,409
Impairment of intangible asset - 1,852 -
Loss on marketable securities 9 - -
(Recovery of) provision for doubtful accounts (100) 238 (26)
Change to inventory obsolescence reserve (79) 624 (582)
Deferred income taxes 337 (47) 755
Stock based compensation expense 435 583 160
Changes in operating assets and liabilities:
Accounts receivable (5,049) 2,800 (1,440)
Inventories 8,794 (6,793) (5,991)
Prepaid expenses and other current assets (359) (168) 318
Other assets - - (11)
Accounts payable, accrued expenses, accrued salaries and wages, accrued income taxes
1,889 1,926 1,580
Net Cash Provided by Operating Activities 22,987 10,305 8,653
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment (1,007) (1,615) (1,988)
Purchases of marketable securities (5,422) - -
Net Cash Used in Investing Activities (6,429) (1,615) (1,988)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt - 3,904 -
Proceeds from stock option exercises - 80 53
Cash paid for purchase of treasury stock - (2,454) (3,998)
Net Cash Provided by (Used in) Financing Activities - 1,530 (3,945)
Net increase in Cash and Cash Equivalents 16,558 10,220 2,720
CASH AND CASH EQUIVALENTS - Beginning 18,248 8,028 5,308
CASH AND CASH EQUIVALENTS - Ending $ 34,806 $ 18,248 $ 8,028
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 18 $ 29 $ 23
Income taxes paid $ 1,970 $ 749 $ 262
Surrender of Common Shares $ - $ - $ 8
See accompanying notes to consolidated financial statements.
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NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Nature of Business and Summary of Significant Accounting Policies
Nature of Business:
Napco Security Technologies, Inc ("NAPCO", "the Company", "we") is one of the leading manufacturers and designers of high-tech electronic security devices, as well as a leading provider of school safety solutions. We offer a diversified array of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products. These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold worldwide principally to independent distributors, dealers and installers of security equipment. We have experienced significant growth in recent years, primarily driven by fast growing recurring service revenues generated from wireless communication services for intrusion and fire alarm systems, as well as our school security products that are designed to meet the increasing needs to enhance school security as a result of on-campus shooting and violence in theU.S. The Company's fiscal year begins onJuly 1 and ends onJune 30 . Historically, the end users of the Company's products want to install its products prior to the summer; therefore sales of its products historically peak in the periodApril 1 through June 30 , the Company's fiscal fourth quarter, and are reduced in the periodJuly 1 through September 30 , the Company's fiscal first quarter. In addition, demand for our products is affected by the housing and construction markets. Deterioration of the current economic conditions may also affect this trend. Our results for fiscal 2021 reflects the increase in customer demand after the creation of the challenging business environment resulting from the COVID-19 pandemic. While the Company believes this recovery will continue, there can be no assurances in the event of a return to building and construction restrictions that might result from a return to last year's levels of COVID-19 cases.
Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements include the accounts ofNapco Security Technologies, Inc. and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.
Accounting Estimates
The preparation of financial statements in conformity with Generally Accepted
Accounting Principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent gains and losses at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Critical estimates include management's judgments associated
with reserves for sales returns and allowances, allowance for doubtful accounts,
inventory reserves, valuation of intangible assets and income taxes. Actual
results could differ from those estimates.
Fair Value of Financial Instruments
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 ofJune 30, 2021 and 2020 due to their short-term maturities. Long-term debt and lease liabilities reflect fair value based on prevailing market rates.
Cash and Cash Equivalents
Cash and cash equivalents include approximately$63,000 and$460,000 of short-term time deposits atJune 30, 2021 and 2020, respectively. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company has cash balances in banks in excess of the maximum amount insured by theFDIC and other international FS-8
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agencies as of
The Company's marketable securities include investments in mutual funds, which invest primarily in various government and corporate obligations, stocks and money market funds. The Company's marketable securities are reported at fair value with the related unrealized and realized gains and losses included in other expense (income). Realized gains or losses on mutual funds are determined on a specific identification basis. The Company evaluates its investments periodically for possible other-than-temporary impairment by reviewing factors such as the length of time and extent to which fair value had been below cost basis, the financial condition of the issuer and the Company's ability and intent to hold the investment for a period of time, which may be sufficient for anticipated recovery of market value. The Company records an impairment charge to the extent that the cost of the available-for-sale securities exceeds the estimated fair value of the securities and the decline in value is determined to be other-than-temporary. During the year endedJune 30, 2021 , the Company did not record an impairment charge regarding its investment in marketable securities because management believes, based on its evaluation of the circumstances, that the decline in fair value below the cost of certain of the Company's marketable securities is temporary.
Accounts Receivable
Accounts receivable is stated net of the reserves for doubtful accounts of$226,000 and$326,000 as ofJune 30, 2021 and 2020, respectively. Our reserves for doubtful accounts 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. Inventories Inventories are valued at the lower of cost or net realizable value, with cost being determined on the first-in, first-out (FIFO) method. The reported net value of inventory includes finished saleable products, work-in-process and raw materials that will be sold or used in future periods. Inventory costs include raw materials, direct labor and overhead. The Company's overhead expenses are applied based, in part, upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products. These proportions, the method of their application, and the resulting overhead included in ending inventory, are based in part on subjective estimates and actual results could differ from those estimates. In addition, the Company records an inventory obsolescence reserve, which represents any excess of the cost of the inventory over its estimated realizable value. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, product life cycles, requirements to support forecasted sales, and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand. In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events. There is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage.
The Company also regularly reviews the period over which its inventories will be converted to sales. Any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current.
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost less accumulated
depreciation. Expenditures for maintenance and repairs are charged to expense as
incurred; costs of major renewals and improvements are capitalized. At the time
property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are eliminated from the asset and accumulated
depreciation accounts and the profit or loss on such disposition is reflected in
income.
Depreciation is recorded over the estimated service lives of the related assets
using primarily the straight-line method. Amortization of leasehold improvements
is calculated by using the straight-line method over the estimated useful life
of the asset or lease term, whichever is shorter.
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Long-Lived and Intangible Assets
Long-lived assets are amortized over their useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable. Impairment would be recorded in circumstances where undiscounted cash flows expected to be generated by an asset are less than the carrying value of that asset. Intangible assets determined to have indefinite lives were not amortized but were tested for impairment at least annually. The Company's acquisition of substantially all of the assets and certain liabilities ofG. Marks Hardware, Inc. ("Marks") inAugust 2008 included intangible assets recorded at fair value on the date of acquisition. The customer relationships are amortized over their estimated useful lives of twenty years. At the acquisition date, the Marks trade name was deemed to have an indefinite life. During the 4th quarter of fiscal 2020, the Company determined that the trade-name was impaired. Accordingly, the Company recorded an impairment charge of$1,852,000 and reclassified the remaining balance of the underlying asset from indefinite-lived to a long-lived asset with a remaining useful life of 20 years as ofJune 30, 2020 .
Changes in intangible assets are as follows (in thousands):
June 30, 2021 June 30, 2020 June 30, 2019
Carrying Accumulated Net book Carrying Accumulated Net book Carrying Accumulated Net book
value amortization value value amortization value value amortization value
Customer relationships $ 9,800 $ (8,955) $ 845 $ 9,800 $ (8,732) $ 1,068 $ 9,800 $ (8,468) $ 1,332
Trade name 4,048 (202) 3,846 4,048 - 4,048 5,900 - 5,900
$ 13,848 $ (9,157) $ 4,691 $ 13,848 $ (8,732) $ 5,116 $ 15,700 $ (8,468) $ 7,232
Amortization expense for intangible assets subject to amortization was
approximately $425,000 , $264,000 and $313,000 for the fiscal years ended
June 30, 2021 , 2020 and 2019, respectively. Amortization expense for each of the
next five fiscal years is estimated to be as follows: 2022-$390,000; 2023 -
$361,000 ; 2024 - $336,000 ; 2025 - $315,000 ; and 2026-$297,000. The weighted
average remaining amortization period for intangible assets was 16.9 years and
17.5 years at June 30, 2021 and 2020, respectively.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services
to customers in an amount that reflects the consideration the Company expects to
receive in exchange for those products or services.
For product sales, the Company typically transfers control at a point in time
upon shipment or delivery of the product. For monthly communication services the
Company satisfies its performance obligation as the services are rendered and
therefore recognizes revenue over the monthly period.
Typically timing of revenue recognition coincides with the timing of invoicing
to the customers, at which time the Company has an unconditional right to
consideration. As such, the Company typically records a receivable when revenue
is recognized.
The contract with the customer states the final terms of the sale, including the
description, quantity, and price of each product purchased. Payment for product
sales is typically due within 30 and 180 days of the delivery date. Payment for
monthly communication services is billed on a monthly basis and is typically due
at the beginning of the month of service.
The Company provides limited standard warranty for defective products, usually
for a period of 24 to 36 months. The Company accepts returns for such defective
products as well as for other limited circumstances. The Company also provides
rebates to customers for meeting specified purchasing targets and other coupons
or credits in limited circumstances. The Company establishes reserves for the
estimated returns, rebates and credits and measures such variable consideration
based on the expected value method using an analysis of historical data. Changes
to the estimated variable consideration in subsequent periods are not material.
The Company analyzes sales returns and is able to make reasonable and reliable
estimates of product returns based on the Company's past history. Estimates for
sales returns are based on several factors including actual returns and based on
expected return data communicated to it by its customers. Accordingly, the
Company believes that its historical returns analysis is an accurate basis for
its allowance for sales returns. Actual results could differ from those
estimates.
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Advertising and Promotional Costs
Advertising and promotional costs are included in "Selling, General and
Administrative" expenses in the consolidated statements of income and are
expensed as incurred. Advertising expense for fiscal years ended
Research and Development Costs
Research and development 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 research and development expense for the fiscal years endedJune 30, 2021 , 2020 and 2019 was$7,620,000 ,$7,257,000
and$7,212,000 , respectively. Income Taxes 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis. The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Net Income per Share as Restated
Basic net income per common share (Basic EPS) is computed by dividing net income by the weighted average number of common shares outstanding. 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 fiscal years endedJune 30 (in thousands, except
per
share data):
Weighted Average Net Income per
Net Income Shares Share
2021 2020 2019 2021 2020 2019 2021 2020 2019
Basic EPS $ 15,413 $ 7,795 $ 12,481 36,696 36,888 37,148 $ 0.42 $ 0.21 $ 0.34
Effect of Dilutive
Securities:
Stock Options - - - 112 98 100 - - -
Diluted EPS $ 15,413 $ 7,795 $ 12,481 36,808 36,986 37,248 $ 0.42 $ 0.21 $ 0.34
Options to purchase 40,000, 77,638 and 5,914 shares of common stock were
excluded for the fiscal years ended June 30, 2021 , 2020 and 2019, 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
respective periods.Stock-Based Compensation
The Company has established four share incentive programs as discussed in Note 9.
Stock-based compensation cost is measured at the grant date based on the fair
value of the award and is recognized as expense on a straight-line basis over
the vesting period. 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.
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Stock-based compensation costs of
Foreign Currency
The Company has determined the functional currency of all foreign subsidiaries is theU.S. Dollar. All foreign operations are considered a direct and integral part or extension of the Company's operations. The day-to-day operations of all foreign subsidiaries are dependent on the economic environment of theU.S. Dollar. Therefore, no realized and unrealized gains and losses associated with foreign currency translation are recorded for the fiscal years endedJune 30, 2021 , 2020 or 2019. Comprehensive Income
For the fiscal years ended
Segment Reporting
The Company's reportable operating segments are determined based on the Company's management approach. The management approach is based on the way that the chief operating decision maker organizes the segments within an enterprise for making operating decisions and assessing performance. The Company's results of operations are reviewed by the chief operating decision maker on a consolidated basis and the Company operates in only one segment. The Company has presented required geographical data in Note 14.
Shipping and Handling Sales and Costs
The Company records the amount billed to customers for shipping and handling in net sales ($395,000 ,$452,000 and$430,000 in the fiscal years endedJune 30, 2021 , 2020 and 2019, respectively) and classifies the costs associated with these sales in cost of sales ($1,058,000 ,$1,034,000 and$1,115,000 in the fiscal years endedJune 30, 2021 , 2020 and 2019, respectively).
Leases
EffectiveJuly 1, 2019 , the Company adopted the new lease accounting standard using the modified retrospective transition option of applying the new standard at the adoption date. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. Adoption of the new standard resulted in the recording of an operating ROU asset and lease liabilities of approximately$7.7 million . Given the length of the lease term, the right-of-use asset and corresponding liability assume a weighted discount rate as disclosed below. A change in the rate utilized could have a material effect on the amounts reported. Financial positions for reporting periods beginning on or afterJuly 1, 2019 are presented under new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance. See Note 13 - Commitments and Contingencies; Leases for additional accounting policies and transition disclosures.
Recently Adopted Accounting Standards
OnJuly 1, 2019 , we adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. For information regarding the impact of Topic 842 adoption, see Significant Accounting Policies - Leases and Note 13- Leases. FS-12
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Recently Issued Accounting Standards
Reference Rate Reform (ASC Topic 848)
InMarch 2020 , the FASB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate ("LIBOR"), which is expected to be phased out at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate. InJanuary 2021 , the FASB issued authoritative guidance that makes amendments to the new rules on accounting for reference rate reform. The amendments clarify that for all derivative instruments affected by the changes to interest rates used for discounting, margining or contract price alignment, regardless of whether they reference LIBOR or another rate expected to be discontinued as a result of reference rate reform, an entity may apply certain practical expedients in ASC Topic 848.
Effective for the Company - This guidance can be applied for a limited time
through
Impact on consolidated financial statements - The Company is currently assessing the impact of applying this guidance on its existing derivative contracts, leases and other arrangements, as well as when to adopt this guidance.
NOTE 1A - Restatement of Previously Issued Financial Statements
Subsequent to the filing of the Original Form 10-K, management reviewed its methodology for calculating its reserves for obsolete inventory. During this review, management identified changes related to the Company's reserves for obsolete inventory that it deemed appropriate. The reserves reflected in the Company's Original Form 10-K relied primarily on estimates developed by management, which were based on historic and institutional knowledge and judgements as to the potential for obsolescence for items deemed at risk. Upon management's review, it was determined a systematic method of evaluation, which utilized historical data, including sales data and component parts usage, as well as product life cycles, trends and judgement, is more accurate. This resulted in changes to the Company's reserves for obsolescence for fiscal years 2021, 2020 and 2019. The effects of these changes on the financial statements for these periods are shown in the tables below.
Retained earning as of the beginning of fiscal 2019 has been adjusted by
The table below sets forth the consolidated balance sheets information, including the balances originally reported and the restated balances as ofJune 30 : June 30, 2021 June 30, 2020 (in thousands, except for share and per share data) As As previously As previously As reported restated reported restated Inventory - Current$ 25,278 $ 24,933 $ 35,231 $ 34,727 Inventory - Non-Current 7,164 6,767 6,524 5,688 Accrued income taxes 1,635 1,709 1,148 1,239 Deferred income taxes 347 380 112 43 Retained earnings 94,345 93,312 79,444 77,899 FS-13 Table of Contents The table below sets forth the consolidated statements of income information, including the balances originally reported and the restated balances for the fiscal years endedJune 30 : June 30, 2021 (in thousands,
except for share and per share data)
As
previously
reported Restated
Equipment Related Expenses $ 58,998 $ 58,401
Cost of Sales 63,884 63,287
Gross Profit 50,151 50,748
Operating Income 17,335 17,932
Income before provision for Income Taxes 17,330 17,927
Provision for Income Taxes 2,429 2,514
Net Income 14,901 15,413
Income per share:
Basic $ 0.41 $ 0.42
Diluted $ 0.41 $ 0.42
June 30, 2020
(in thousands,except for share and per share data)
As
previously
reported Restated
Equipment Related Expenses $ 53,434 $ 54,182
Cost of Sales 57,767 58,515
Gross Profit 43,592 42,844
Operating Income 10,813 10,065
Income before provision for Income Taxes 10,804 10,056
Provision for Income Taxes 2,284 2,261
Net Income 8,520 7,795
Income per share:
Basic $ 0.23 $ 0.21
Diluted $ 0.23 $ 0.21
June 30, 2019
(in thousands,except for share and per share data)
As
previously
reported Restated
Equipment Related Expenses $ 55,240 $ 54,930
Cost of Sales 59,042 58,732
Gross Profit 43,890 44,200
Operating Income 13,466 13,776
Income before provision for Income Taxes 13,445 13,755
Provision for Income Taxes 1,222 1,274
Net Income 12,223 12,481
Income per share:
Basic $ 0.33 $ 0.34
Diluted $ 0.33 $ 0.34
FS-14
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The table below sets forth the consolidated statements of cash flows
information, including the balances originally reported and the restated
balances for the fiscal years ended
(in thousands, except for share and per share data)
As
previously
reported Restated
Net income $ 14,901 $ 15,413
Change to inventory obsolescence reserve 519 (79)
Deferred income taxes 235 337
Changes in operating assets and liabilities:
Accounts payable, accrued expenses, accrued
salaries and wages, accrued income taxes 1,906 1,889
Net Cash Provided by Operating Activities 22,987 22,987
June 30, 2020
(in thousands, except for share and per share data)
As
previously
reported Restated
Net income $ 8,520 $ 7,795
Change to inventory obsolescence reserve (124) 624
Deferred income taxes 40 (47)
Changes in operating assets and liabilities:
Accounts payable, accrued expenses, accrued
salaries and wages, accrued income taxes 1,862 1,926
Net Cash Provided by Operating Activities 10,305 10,305
'June 30, 2019
(in thousands, except for share and per share data)
As
previously
reported Restated
Net income $ 12,223 $ 12,481
Change to inventory obsolescence reserve (272) (582)
Deferred income taxes 755 755
Changes in operating assets and liabilities:
Accounts payable, accrued expenses, accrued
salaries and wages, accrued income taxes 1,528 1,580
Net Cash Provided by Operating Activities 8,653 8,653
In addition to the restated consolidated financial statements, the information contained in notes 5, 7 and 14 have been restated.
NOTE 2 - Revenue Recognition and Contracts with Customers
Adoption
OnJuly 1, 2018 the Company adopted new guidance on revenue from contracts with customers using the modified retrospective method applied to contracts that were not completed as ofJuly 1, 2018 . Results for reporting periods beginning afterJuly 1, 2018 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance. The Company recorded a net decrease to opening retained earnings of approximately$719,000 (net of tax benefit of$191,000 ) as ofJuly 1, 2018 , for the cumulative impact of adopting the new guidance. The impact primarily related to the change in the recognition FS-15
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and measurement of certain types of variable considerations, which resulted in the increase in sales allowance reserves (i.e. refund liabilities) by a net of$1,627,000 and increased other assets (i.e. return related assets) by approximately$716,000 . The Company is engaged in one major line of business: the development, manufacture, and distribution of security products, encompassing access control systems, door security products, intrusion and fire alarm systems, alarm communication services, and video surveillance products for commercial and residential use. The Company also provides wireless communication service for intrusion and fire alarm systems on a monthly basis. These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold worldwide principally to independent distributors, dealers and installers of security equipment. Sales to unaffiliated customers are primarily shipped fromthe United States .
As of
As a percentage of gross sales, sales returns, rebates and allowances were 10%,
9% and 8% for the fiscal years ended
The Company disaggregates revenue from contracts with customers into major
product lines. The Company determines that disaggregating revenue into these
categories achieves the disclosure objective to depict how the nature, amount,
timing, and uncertainty of revenue and cash flows are affected by economic
factors. As noted in the accounting policy footnote, the Company's business
consists of one operating segment. Following is the disaggregation of revenues
based on major product lines (in thousands):
Year ended June 30,
2021 2020 2019
Major Product Lines:
Intrusion and access alarm products $ 36,794 $ 31,310 $ 31,557
Door locking devices 43,337 46,004 53,948
Services 33,904 24,045 17,427
Total Revenues $ 114,035 $ 101,359 $ 102,932 NOTE 3 - Reserve for Doubtful Accounts
An entity is more vulnerable to concentrations of credit risk if it is exposed to risk of loss greater than it would have had if it mitigated its risk through diversification of customers. The Company had one customer with an accounts receivable balance that comprised 19%, 24% and 19% of the Company's accounts receivable atJune 30, 2021 , 2020 and 2019, respectively. Sales to this customer did not exceed 10% of net sales during fiscal year endedJune 30, 2020 . Sales to this customer comprised 10% of net sales during fiscal year endedJune 30, 2021 and 2019. The Company had another customer with an accounts receivable balance that comprised 10% of the Company's accounts receivable atJune 30, 2021 . Sales to this customer did not exceed 10% of net sales in any of the fiscal years endedJune 30, 2021 , 2020 and 2019, respectively. The Company had another customer with an accounts receivable balance that comprised 10% of the Company's accounts receivable atJune 30, 2020 . Sales to this customer did not exceed 10% of net sales in any of the fiscal years endedJune 30, 2021 , 2020 and 2019, respectively. The Company had another customer with an accounts receivable balance that comprised 10% of the Company's accounts receivable atJune 30, 2021 and 2019. Sales to this customer did not exceed 10% of net sales in any of the fiscal years endedJune 30, 2021 , 2020 and 2019.
NOTE 4 -
Marketable securities include investments in fixed income mutual funds, which are reported at their fair values. The disaggregated net gains and losses on the marketable securities recognize in the income statement for the year ended
June 30, 2021 , are as follows: FS-16 Table of ContentsJune 30, 2021
Net gains recognized during the period on marketable securities $
-
Less: Net gains recognized during the year on marketable securities sold during the period
-
Unrealized (losses) gains recognized during the reporting year on marketable securities still held at the reporting date
(9)
$ (9)
The fair values of the Company's marketable securities are determined as being
the amount that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. As such, fair value is a market-based measurement that should
be determined based on assumptions that market participants would use in pricing
an asset or liability. As a basis for considering such assumptions, the Company
utilizes the three-tier value hierarchy, as prescribed by US GAAP, which
prioritizes the inputs used in measuring fair value as follows:
? Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
? Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
? Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The Company's marketable securities, which are considered available-for-sale securities, are re-measured to fair value on a recurring basis and are valued using Level 1 inputs using quoted prices (unadjusted) for identical assets in active markets.
The following tables summarize the Company's investments:
Unrealized
Cost Fair Value Gain (Loss)
Marketable Securities $ 5,422 $ 5,413 $ (9)
Investment income is recognized when earned and consists principally of interest
income from fixed income mutual funds. Realized gains and losses on sales of
investments are determined on a specific identification basis.
For the year ended
NOTE 5 - Inventories
Inventories, net of reserves are valued at lower of cost (first-in, first-out
method) or net realizable value. Inventories, net of reserves consist of the
following as of (in thousands):
June 30, June 30,
2021 2020
(as restated)
Component parts $ 17,245 $ 21,677
Work-in-process 6,158 7,276
Finished product 8,297 11,462
$ 31,700 $ 40,415
Classification of inventories, net of reserves:
Current $ 24,933 $ 34,727
Non-current 6,767 5,688
$ 31,700 $ 40,415
FS-17
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NOTE 6 - Property, Plant, and Equipment
Property, plant and equipment consist of the following (in thousands):
June 30, 2021 June 30, 2020 Useful Life in Years
Land $ 904 $ 904 N/A
Buildings 8,911 8,911 30 to 40
Molds and dies 7,416 7,337 3 to 5
Furniture and fixtures 2,813 2,792 5 to 10
Machinery and equipment 25,548 24,878 7 to 10
Building improvements Shorter of the lease
term or life of
2,409 2,173 asset
48,001 46,995
Less: accumulated depreciation and
amortization (40,165) (38,907)
$ 7,836 $ 8,088
Depreciation and amortization expense on property, plant, and equipment was
approximately
NOTE 7 - Income Taxes
The provision for income taxes is comprised of the following as restated (in
thousands):
For the Year ended June 30,
2021 2020 2019
Current income taxes:
Federal $ 1,912 $ 1,765 $ 334
State 265 418 151
2,177 2,183 485
Deferred income tax provision 337 78 789
Provision for income taxes
A reconciliation of theU.S. Federal statutory income tax rate to our actual effective tax rate on earnings before income taxes is as follows for the years ended June 30,as restated (dollars in thousands): 2021 2020 2019 % of % of % of Pre-tax Pre-tax Pre-tax Amount Income Amount Income Amount Income
Tax at Federal statutory rate$ 3,765 21.0 %$ 2,112
21.0 %
Increases (decreases) in taxes resulting from: Meals and entertainment 29 0.2 % 44 0.4 % 49 0.4 % State income taxes, net of Federal income tax benefit 135 0.8 % 122 1.2 % 111 0.8 % Foreign source income not subject to tax (1,647) (9.2) % (1,089) (10.8) % (1,241) (9.0) % R&D Credit (523) (2.9) % (523) (4.7) % (408) (3.0) % Foreign withholding tax 205 1.1 % - - % - - %
Release of accrued tax reserves - - % - - % (151) (1.1) % Uncertain Tax Positions 312 1.7 % 775 7.2 % - - % IRS examination settlements - - % 832 8.3 % 12 0.1 % Other, net 238 1.3 % (12) (0.1) % 14 0.1 % Effective tax rate$ 2,514 14.0 %$ 2,261 22.5 %$ 1,274 9.3 % FS-18 Table of Contents
Deferred tax assets and deferred tax liabilities at
Deferred Tax Assets (Liabilities)
2021 2020
Accounts receivable $ 43 $ 40
Inventories 314 443
Accrued liabilities 374 262Stock based compensation expense 102 96 Intangibles (454) (300) Property, plant and equipment (539) (484) Revenue reserves 393 308 Other deferred tax liabilities (613) (408)
(380) (43)
Valuation allowance - -
Net deferred tax liabilities $ (380) $ (43)
The Company has identified the United States and New York State as its major tax
jurisdictions. Fiscal year 2018 and forward years are still open for
examination. In addition, the Company has a wholly-owned subsidiary which
operates in a Free Zone in the Dominican Republic ("DR") and is exempt from DR
income tax.
The Company was audited by the IRS for the fiscal year 2016. In July 2019 , the
Company received Form 4549-A, Income Tax Examination Changes from the IRS
proposing an adjustment to income for the fiscal 2016 tax year regarding deemed
dividends based on its interpretation of Internal Revenue Code ("IRC") Section
956 arising from the intercompany balances on the books of the Company. In
August 2019 , the Company filed a formal protest with the IRS requesting an
opportunity to appeal the examination findings to the Appeals Office. During
fiscal year 2020, the Company settled the issue at Appeals. There was a
provision recorded for the federal and state impact of $762,000 and $70,000 ,
respectively.
The Company was audited by the IRS for the fiscal year 2017. The Company
received Form 4549-A, Income Tax Examination Changes from the IRS proposing an
adjustment to income for the fiscal 2017 tax year regarding deemed dividends
based on its interpretation under IRC Section 956 arising from the intercompany
balances on the books of the Company. During the third quarter of fiscal 2021,
the Company settled the issue and paid the IRS $399,000 . The Company reported
the results of the IRS exam to all the jurisdictions in which it files and paid
taxes and interest totaling $97,000 . Subsequent to the quarter end, the Company
paid the IRS $68,000 for interest. None of the payments were recorded to expense
since liabilities had previously been established.
The provision for income taxes represents Federal, foreign, and state and local
income taxes. The effective rate differs from statutory rates due to the effect
of tax rates in foreign jurisdictions, state and local income taxes, tax benefit
of R&D credits, certain nondeductible expenses, uncertain tax positions, audit
settlements and global intangible low-taxed income ("GILTI").
During the year ending June 30, 2021 the Company decreased its reserve for
uncertain income tax positions by $208,000 . 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 June 30, 2021 , the Company had accrued
interest totaling $63,000 and $678,000 of unrecognized net tax benefits that, if
recognized, would favorably affect the Company's effective income tax rate in
any future period. The Company does not expect that its unrecognized tax
benefits will significantly change within the next twelve months. The Company
claims R&D tax credits on eligible research and development expenditures. The
R&D tax credits are recognized as a reduction to income tax expense.
FS-19
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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows as restated (in thousands):
Tax
Interest Total
Balance of gross unrecognized tax benefits as of
$ 221 $
-
(151) - (151) Increases to unrecognized tax benefits resulting from the generation of additional R&D credits
55
- 55
Balance of gross unrecognized tax benefits as of
$ 125 $
-
682 83 765 Increases to unrecognized tax benefits resulting from the generation of additional R&D credits
59 - 59
Balance of gross unrecognized tax benefits as of
June 30, 2020 $ 866 $ 83 $ 949
Decrease to unrecognized tax benefits from deemed
dividends for investments in US property (3) (20) (23)
Decrease to unrecognized tax benefits resulting from
the release of R&D credits due to the settled IRS
audit (185) - (185)
Balance of gross unrecognized tax benefits as of
June 30, 2021 $ 678 $
63
The Company plans to permanently reinvest a substantial portion of its foreign earnings and as such has not provided withholding tax on the permanently reinvested earnings. The Company has accrued$613,000 for withholding taxes on undistributed earnings that are not permanently reinvested. As ofJune 30, 2021 the Company had approximately$60.4 million of undistributed earnings of foreign subsidiaries. NOTE 8 - Long-Term Debt
As ofJune 30, 2021 and 2020, long-term debt consisted of a revolving line of credit of$11,000,000 ("Revolver Agreement") which expires inJune 2024 and term loans from theU.S. Small Business Administration totaling$3,904,000 through its Payroll Protection Program.
Outstanding balances and interest rates as of
June 30, 2021
Outstanding Interest Rate Outstanding Interest Rate
Revolving line of credit $ - n/a
$ - n/a
Term loans 3,904 1 % 3,904 1 %
3,904 3,904Less: current maturities (2,386)
(1,794)
Long-term debt $ 1,518 $ 2,110 The Revolver Agreement also provides for a LIBOR-based interest rate option of LIBOR plus 1.15% to 2.00%, depending on the ratio of outstanding debt to EBITDA, which is to be measured and adjusted quarterly, a prime rate-based option of the prime rate plus 0.25% and other terms and conditions as more fully described in the Revolver Agreement. The Company's obligations under the Revolver Agreement continue to be secured by substantially all of its domestic assets, including but not limited to, deposit accounts, accounts receivable, inventory, equipment and fixtures and intangible assets. In addition, the Company's wholly owned subsidiaries, with the exception of the Company's foreign subsidiaries, have issued guarantees and pledges of all of their assets to secure the Company's obligations under the Revolver Agreement. All of the outstanding common stock of the Company's domestic subsidiaries and 65% of the common stock of the Company's foreign subsidiaries has been pledged to secure the Company's obligations under the Revolver Agreement. The Revolver Agreement contains various restrictions and covenants including, among others, restrictions on payment of dividends, restrictions on borrowings and compliance with certain financial ratios, as defined in the Revolver Agreement. InSeptember 2020 , the Company and its lender amended the Revolver Agreement, which had an expiration date ofJune 2021 , to expire inJune 2024 . The amended Revolver Agreement also removed certain requirements and restrictions on the Company as well as removing the mortgage on the Company'sAmityville facility. FS-20
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During the fourth quarter of fiscal 2020, the Company received the proceeds of promissory notes dated betweenApril 17, 2020 andMay 7, 2020 (the "PPP Loan Agreement"), entered into between the Company andHSBC Bank USA N.A. , as lender (the "Lender). Lender made the loans pursuant to the Paycheck Protection Program (the "PPP"), created by Section 1102 of the CARES Act and governed by the CARES Act, Section 7(a)(36) of the Small Business Act, any rules or guidance that has been issued by theSmall Business Association ("SBA") implementing the PPP and acting as guarantor, or any other applicable loan program requirements, as defined in 13 CFR § 120.10, as amended from time to time. Pursuant to the PPP Loan Agreement, the Lender made loans to the Company with an aggregate principal amount of$3,904,000 (the "PPP Loan"). Pursuant to the CARES Act, the loans may be forgiven by the SBA. The Company has applied to have the balance of the Loan forgiven. Following year-end,$2,850,000 of the PPP Loan was forgiven in accordance with guidelines set for in the PPP.The Company will recognize debt forgiveness in the first quarter of 2022 in the amount of$2,850,000 and will recognize further forgiveness income in the quarter that the remaing forgiveness application may be granted. While the Company believes that it meets to requirements for forgiveness, there can be no assurance that its remaining application will be granted.
NOTE 9 - Stock Options as Restated
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 fiscal years ended
June 30, 2021 , 2020 and 2019, the Company recorded non-cash compensation expense
of $435,000 ($0.01 per basic and diluted share), $583,000 ($0.02 per basic and
diluted share) and $160,000 ($0.00 per basic and diluted share), respectively,
relating to stock-based compensation.
2012 Employee Stock Option Plan
InDecember 2012 , the stockholders approved the 2012 Employee Stock Option Plan (the 2012 Employee Plan). The 2012 Employee Plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 1,900,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options, which are intended to qualify as incentive stock options (ISOs), to valued employees. Any plan participant who is granted ISOs and possesses more than 10% of the voting rights of the Company's outstanding common stock must be granted an option with a price of at least 110% of the fair market value on the date of grant. Under the 2012 Employee Plan, stock options may be granted to valued employees with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable, in whole or in part, at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a "change in control" as defined in the plan. AtJune 30, 2021 , 214,080 stock options were outstanding, 98,176 stock options were exercisable and 1,476,920 stock options were available for grant under this plan. No options were granted under this plan during the year endedJune 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: 2021 2020 2019 Risk-free interest rates n/a % .6% - 2.10 % 2.5% - 3.10 % Expected lives n/a 10 years 10 years Expected volatility n/a % 44% - 46 % 48% - 52 % Expected dividend yields n/a % 0 % 0 % The Company uses a weighted-average expected stock-price volatility assumption that is a combination of both current and historical implied volatilities of the underlying stock. The implied volatilities were obtained from publicly available data sources. For the weighted-average expected option life assumption, the Company considers the exercise behavior of past grants. The average risk-free interest rate is based on theU.S. Treasury Bond rate for the expected term of the options and the average dividend yield is based on historical experience. FS-21 Table of Contents The following table reflects activity under the 2012 Plan for the fiscal years endedJune 30 ,: 2021 2020 2019 Weighted average Weighted average Weighted average Options exercise price
Options exercise price Options exercise price Outstanding, beginning of year
235,680 $ 9.42 145,000 $ 5.51 114,400 $ 3.55
Granted - - 141,880 12.25 58,000 8.30
Forfeited (13,000) 6.91 (20,000) 9.92 - -
Exercised (8,600) 9.04 (31,200) 3.78 (27,400) 3.21Outstanding, end of period 214,080 $ 9.59 235,680 $ 9.42 145,000 $ 5.51 Exercisable, end of period 98,176 $ 8.07 70,000 $ 6.57 67,600 $ 4.03 Weighted average fair value at grant date of options granted n/a$ 6.72 $ 4.58 Total intrinsic value of options exercised$ 65,000 278,000 160,000 Total intrinsic value of options outstanding$ 1,840,000 $ 696,000 $ 1,353,000 Total intrinsic value of options exercisable$ 993,000 $ 389,000 $ 731,000
The following table summarizes information about stock options outstanding under
the 2012 Employee Plan at
Options outstanding Options exercisable
Weighted average
Number remaining Weighted average Number Weighted averageRange of exercise prices outstanding contractual life
exercise price exercisable exercise price
$2.19 $16.80 214,080 7.4 $ 9.59 98,176 $ 8.07 214,080 7.4 $ 9.59 98,176 $ 8.07 As ofJune 30, 2021 , there was$555,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan. 0 and 141,880 options were granted during the fiscal years endedJune 30, 2021 and 2020, respectively. 8,600 stock options exercised during the fiscal year endedJune 30, 2021 , were settled by exchanging 4,604 shares of the Company's common stock which were retired and returned to unissued status upon receipt. 7,200 of the 31,200 stock options exercised during the fiscal year endedJune 30, 2020 were settled by exchanging 3,256 shares of the Company's common stock which were retired and returned to unissued status upon receipt. 16,400 of the 27,400 stock options exercised during the fiscal year endedJune 30, 2019 were settled by exchanging 6,212 shares of the Company's common stock which were retired and returned to unissued status upon receipt. The total grant date fair value of the options vesting during the fiscal years endedJune 30, 2021 , 2020 and 2019 under this plan was$244,000 ,$197,000 and$95,000 , respectively.$0 ,$79,000 and$31,000 was received from option exercises for the fiscal years endedJune 30, 2021 , 2020 and 2019, respectively, and the actual tax benefit realized for the tax deductions from option exercises was$0 for each of these periods.
2012 Non-Employee Stock Option Plan
InDecember 2012 , the stockholders approved the 2012 Non-Employee Stock Option Plan (the 2012 Non-Employee Plan). This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 100,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options to non-employee directors and consultants to the Company and its subsidiaries. Under the 2012 Non-Employee Plan, stock options may be granted with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable in whole or in part at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a "change in control" as defined in the plan. AtJune 30, 2021 , 12,000 stock options were outstanding, 6,240 stock options were exercisable and 9,600 stock options were available for grant under this plan. No options were granted under this plan during the year endedJune 30, 2021 . FS-22
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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:
2021 2020 2019
Risk-free interest rates n/a % 1.6 % n/a %
Expected lives n/a 10 years n/a
Expected volatility n/a % 44 % n/a %
Expected dividend yields n/a % 0 % n/a %
The following table reflects activity under the 2012 Non-Employee Plan for the fiscal years ended June 30,:
2021 2020 2019
Weighted average Weighted average Weighted average
Options exercise price Options exercise price Options exercise price Outstanding, beginning of year
24,000 $ 5.15 20,400 $ 4.00 55,600 $ 3.43
Granted - - 3,600 11.68 - -
Forfeited (9,600) 3.59 - - (3,600) 4.35
Exercised (2,400) 4.35 - - (31,600) 2.96
Outstanding, end of period 12,000 $ 6.55 24,000 $ 5.15 20,400 $ 4.00
Exercisable, end of period 6,240 $ 6.04 11,520 $ 4.18 6,000 $ 3.14
Weighted average fair value at
grant date of options granted n/a $ 6.47 n/a
Total intrinsic value of options
exercised $ 31,000 n/a $ 192,000
Total intrinsic value of options
outstanding $ 140,000 $ 157,000 $ 221,000
Total intrinsic value of options
exercisable $ 76,000 $ 87,000 $ 70,000 The following table summarizes information about stock options outstanding under
the 2012 Non-Employee Plan at
Options outstanding Options exercisable
Weighted average
Number remaining Weighted average Number Weighted averageRange of exercise prices outstanding contractual life exercise price exercisable exercise price
$2.19 -$11.68 12,000 7.1 $ 6.55 6,240 $ 6.04 12,000 7.1 $ 6.55 6,240 $ 6.04
As ofJune 30, 2021 , there was$15,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan. 0 and 3,600 options were granted during the fiscal years endedJune 30, 2021 and 2020, respectively. 2,400 stock options exercised during the fiscal year endedJune 30, 2021 were settled by exchanging 612 shares of the Company's common stock which were retired and returned to unissued status upon receipt. 29,200 of the 31,600 stock options exercised during the fiscal year endedJune 30, 2019 were settled by exchanging 9,664 shares of the Company common stock which were retired and returned to unissued status upon receipt. No options were exercised during the fiscal year endedJune 30, 2020 . The actual tax benefit realized for the tax deductions from option exercises was$6,000 ,$0 and$35,000 in fiscal 2021, 2020 and 2019, respectively.The total grant date fair value of the options vesting during each of the fiscal years endedJune 30, 2021 , 2020 and 2019 under this plan was$18,000 ,$18,000 and$22,000 , respectively.
2018 Non-Employee Stock Option Plan
InDecember 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. 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. An option granted under this plan shall vest in full upon a "change in control" as defined in the plan. AtJune 30, 2021 , 70,100 FS-23 Table of Contents stock options were outstanding, 29,960 stock options were exercisable and 23,500 stock options were available for grant under this plan. No options were granted under this plan during the year endedJune 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: 2021 2020 2019 Risk-free interest rates n/a % 1.60 - 1.80 % 2.90 % Expected lives n/a 10 years 10 years Expected volatility n/a % 44 - 45 % 50 % Expected dividend yields n/a % - % - %
The following table reflects activity under the 2018 Non-Employee plan for the fiscal year ended June 30,:
2021 2020 2019
Weighted average Weighted average Weighted average
Options exercise price Options exercise price Options exercise price Outstanding, beginning of year
96,800 $ 11.74 30,400 $ 8.10 - $ -
Granted - - 66,400 13.41 40,000 8.10
Forfeited/Lapsed (23,500) 11.68 - - (6,400) 8.10
Exercised (3,200) 8.10 - - (3,200) 8.10
Outstanding, end of period 70,100 $ 11.93 96,800 $ 11.74 30,400 $ 8.10
Exercisable, end of period 29,960 $ 11.68 24,480 $ 10.98 4,800 $ 8.10
Weighted average fair value at grant
date of options granted n/a $ 7.55 $ 5.12
Total intrinsic value of options
exercised $ 29,000 n/a $ 24,000
Total intrinsic value of options
outstanding $ 439,000 $ 110,000 $ 205,000
Total intrinsic value of options
exercisable $ 195,000 $ 40,000 $ 32,000 The following table summarizes information about stock options outstanding under
the 2018 Non- Employee Plan at
Options outstanding Options exercisable
Weighted average
Number remaining Weighted average Number Weighted averageRange of exercise prices outstanding contractual life exercise price exercisable exercise price
$8.10 -$15.27 70,100 8.2 $ 11.93 29,960 $ 11.68 70,100 8.2 $ 11.93 29,960 $ 11.68 As ofJune 30, 2021 , there was$278,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan. 0, 66,400 and 40,000 options were granted during the fiscal years endedJune 30, 2021 , 2020 and 2019, respectively. 3,200 of the stock options exercised during the fiscal year endedJune 30, 2021 were settled by exchanging 1,518 shares of the Company's common stock which were retired and returned to unissued status upon receipt. 1,600 of the 3,200 stock options exercised during the fiscal year endedJune 30, 2019 were settled by exchanging 790 shares of the Company's common stock which were retired and returned to unissued status upon receipt. There were no options exercised during the fiscal year endedJune 30, 2020 . The actual tax benefit realized for the tax deductions from option exercises was$6,000 ,$0 $3,000 in fiscal 2021, 2020 and 2019, respectively. The total grant date fair value of the options vesting during the fiscal year endedJune 30, 2021 , 2020 and 2019 under this plan was$133,000 ,$133,000 and$41,000 , respectively.
2020 Non-Employee Stock Option Plan
InMay 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. Under this plan, the Company may grant stock options to non-employee directors and consultants to the Company and its subsidiaries. FS-24
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Under the 2020 Non-Employee Plan, stock options may be granted with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable in whole or in part at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a "change in control" as defined in the plan. AtJune 30, 2021 , 10,000 stock options were outstanding, 2,000 stock options were exercisable and 90,000 stock options were available for grant under this plan. The fair value of each option granted during the fiscal year endedJune 30, 2021 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: 2021 Risk-free interest rates 0.62 % Expected lives 10 Expected volatility 45 % Expected dividend yields 0 %
The following table reflects activity under the 2020 Non-Employee plan for the fiscal year ended June 30,:
2021
Weighted average
Options exercise priceOutstanding, beginning of year -
-
Granted 10,000 $ 11.40
Exercised - -
Outstanding, end of period 10,000 $ 11.40
Exercisable, end of period 2,000 $ 11.40
Weighted average fair value at grant date of options granted
n/a
Total intrinsic value of options outstanding $ 68,000
Total intrinsic value of options exercisable $ 14,000 The following table summarizes information about stock options outstanding under
the 2020 Non- Employee Plan at
Options outstanding Options exercisable
Weighted average
Number remaining Weighted average Number Weighted average
Range of exercise prices outstanding contractual life exercise price exercisable exercise price
$11.40 10,000 9.2 $ 11.40 2,000 $ 11.40
10,000 9.2 $ 11.40 2,000 $ 11.40
As ofJune 30, 2021 , there was$37,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan. 10,000 and 0 options were granted during the fiscal years endedJune 30, 2021 and 2020, respectively. The total grant date fair value of the options vesting during the fiscal year endedJune 30, 2021 and 2020 under this plan was$12,000 and$0 , respectively. There were no options exercised in either of the fiscal years endedJune 30, 2021 and 2020.
NOTE 10 - Stockholders' Equity Transactions
OnSeptember 16, 2014 the Company's board of directors authorized the repurchase of up to 2,000,000 of the approximately 38.8 million shares of the Company's common stock then outstanding. Such repurchases may be made from time to time in the open market or in privately negotiated transactions subject to market conditions and the market price of the common stock. Relative to the loan agreement described in Note 8, the Company's lender gave its consent to this stock repurchase plan. During the fiscal year endedJune 30, 2021 the Company did not repurchase any shares of its outstanding common stock. During the fiscal year endedJune 30, 2020 the Company repurchased 288,810 shares of its outstanding common stock at a weighted average price of$8.50 . Shares repurchased throughJune 30, 2021 are included in the Company's Treasury Stock as ofJune 30, 2021 and 2020. Pursuant to the PPP FS-25
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Loan Agreement described in Note 8, the Company may not repurchase any of its shares of common stock until 12 months after the termination of the term loans described therein. During fiscal 2021, certain employees and Directors exercised stock options under the Company's 2012 Employee and Non-Employee and 2018 Non-employee Stock Option Plans totaling 14,200 shares. All of these exercises were completed as cashless exercises as allowed for under the Plans, where the exercise shares are issued by the Company in exchange for shares of the Company's common stock that are owned by the optionees. The number of shares surrendered by the optionees was 6,734 and was based upon the per share price on the effective date of the option exercise. During fiscal 2020, certain employees and Directors exercised stock options under the Company's 2012 Employee and Non-Employee Stock Option Plans totaling 31,200 shares. 7,200 of these exercises were completed as cashless exercises as allowed for under the Plans, where the exercise shares are issued by the Company in exchange for shares of the Company's common stock that are owned by the optionees. The number of shares surrendered by the optionees was 3,256 and was based upon the per share price on the effective date of the option exercise. During fiscal 2019, certain employees and Directors exercised stock options under the Company's 2012 Employee and Non-Employee Stock Option Plans and the Company's 2002 Employee Stock Option Plan totaling 62,200 shares. 47,200 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 16,666 and was based upon the per share price on the effective date of the option exercise.
NOTE 11 - Related Party Transaction
OnDecember 15, 2020 , 4,666,142 shares of common stock were sold in a secondary offering by the Company's President and Chairman. OnDecember 21, 2020 , the underwriters of the secondary offering fully exercised the option granted at the time of the secondary offering to purchase an additional 669,922 shares of common stock at the secondary offering price of$13.00 per share ("Greenshoe"), less underwriting discounts and commissions, which consists solely of shares sold by the Company's President and Chairman. The Company received no proceeds from the secondary offering or the Greenshoe, but incurred$289,000 in offering expenses, which are recorded in selling, general, and administrative expenses in the accompanying condensed consolidated statements of income.
NOTE 12 - 401(k) Plan
The Company maintains a 401(k) plan ("the Plan") that covers all U.S. non-union
employees with one or more years of service and is qualified under Sections
401(a) and 401(k) of the Internal Revenue Code. Company contributions to this
plan are discretionary and totaled $138,000 , $133,000 and $133,000 for the years
ended June 30, 2021 , 2020 and 2019, respectively.
NOTE 13 - Commitments and Contingencies
Leases
EffectiveJuly 1, 2019 , the Company adopted the new lease accounting standard using the modified retrospective transition option of applying the new standard at the adoption date. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. Adoption of the new standard resulted in the recording of an operating ROU asset and lease liabilities of approximately$7.7 million . Given the length of the lease term, the right-of-use asset and corresponding liability assume a weighted discount rate as disclosed below. A change in the rate utilized could have a material effect on the amounts reported. Financial positions for reporting periods beginning on or afterJuly 1, 2019 are presented under new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance. Our lease obligation consists of a 99 year lease which commenced onApril 26, 1993 with one of the Company's foreign subsidiaries, expiring in 2092, for approximately four acres of land in theDominican Republic at an annual cost of$288,000 , on which the Company's principal production facility is located. FS-26
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Operating leases are included in operating lease right-of-use assets, accrued expenses and operating lease liabilities, non-current on our condensed consolidated balance sheets.
For the fiscal year ended
Supplemental balance sheet information related to operating leases was as follows:
Weighted-average remaining lease term 71 Years Weighted-average discount rate 3.55 %
The following is a schedule, by years, of maturities of lease liabilities as of
Year Ending June 30, Amount 2022$ 282 2023 272 2024 263 2025 254 2026 245 Thereafter 6,057 Total$ 7,373
Operating lease expense totaled approximately
Litigation
In the normal course of business, the Company is a party to claims and/or litigation. Management believes that the settlement of such claims and/or litigation, considered in the aggregate, will not have a material adverse effect on the Company's financial position and results of operations.
Employment Agreements
As ofJune 30, 2021 , the Company was obligated under two employment agreements and one severance agreement. The employment agreements are with the Company's CEO and the Senior Vice President of Engineering ("the SVP of Engineering"). The employment agreement with the CEO provides for an annual salary of$838,000 , as adjusted for inflation; incentive compensation as may be approved by the Board of Directors from time to time and a termination payment in an amount up to 299% of the average of the prior five calendar year's compensation, subject to certain limitations, as defined in the agreement. The employment agreement renews annually in August unless either party gives the other notice of non-renewal at least six months prior to the end of the applicable term. The employment agreement with the SVP of Engineering expires inAugust 2021 and provides for an annual salary of$347,000 , and, if terminated by the Company without cause, severance of nine month's salary and continued company-sponsored health insurance for six months from the date of termination. The severance agreement is with the Senior Vice President of Operations and Finance and provides for, if terminated by the Company without cause or within three months of a change in corporate control of the Company, severance of nine month's salary, continued company-sponsored health insurance for six months from the date of termination and certain non-compete and other restrictive provisions.
NOTE 14 - Geographical Data
The Company is engaged in one major line of business: the development, manufacture, and distribution of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products for commercial and residential use. The Company also provides wireless communication service for intrusion and fire alarm systems. These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold worldwide principally to independent distributors, dealers and installers of security equipment. Sales to unaffiliated customers are primarily shipped fromthe United States . The Company has customers worldwide with major concentrations inNorth America . FS-27
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Financial Information Relating to Domestic and Foreign Operations
Year ended June 30,
2021 2020 2019
Sales to external customers (1):
Domestic $ 112,618 $ 99,496 $ 100,716
Foreign 1,417 1,863 2,216
Total Net Sales $ 114,035 $ 101,359 $ 102,932
June 30, 2021 June 30, 2020
Identifiable assets, as restated:
United States $ 90,941 $ 68,520
Dominican Republic (2) 31,610 35,978
Total Identifiable Assets $ 122,551 $ 104,498 All of the Company's sales originate in
sales into any one foreign country in excess of 10% of total
Consists primarily of inventories (2021 =
2020 =
the Dominican Republic .
NOTE 15 - Subsequent Events
The Company has evaluated subsequent events occurring after the date of the consolidated financial statements for events requiring recording or disclosure in the consolidated financial statements.
During the fourth quarter of fiscal 2020, the Company received the proceeds
of promissory notes dated between
Loan Agreement"), entered into between the Company and
lender (the "Lender). Lender made the loans pursuant to the Paycheck
Protection Program (the "PPP"), created by Section 1102 of the CARES Act and
(a) governed by the CARES Act, Section 7(a)(36) of the Small Business Act, any
rules or guidance that has been issued by the
("SBA") implementing the PPP and acting as guarantor, or any other applicable
loan program requirements, as defined in 13 CFR § 120.10, as amended from
time to time. Pursuant to the PPP Loan Agreement, the Lender made loans to
the Company with an aggregate principal amount of
Loan").
Pursuant to the CARES Act, the loans may be forgiven by the SBA. Subsequent toJune 30, 2021 , the Company received notice from the SBA that its loans had been forgiven in full. Based on the guidance in FASB ASC 405-20-40-1, the proceeds from the loan will remain recorded as a liability until either (1) the loan is, in part or wholly, forgiven and the debtor has been "legally released" or (2) the debtor pays off the loan to the creditor. Accordingly, the Company will eliminate the liability and record a gain of$3,904,000 on the extinguishment of this debt in its fiscal quarter endedSeptember 30, 2021 .
In
stock split in the form of a 100% stock dividend of the Company's common
stock payable to stockholders of record on
(b) shares were distributed on
(except par value) have been retroactively adjusted to reflect the stock
split. There was no net effect on total stockholders' equity as a result of
the stock split.
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