NAPCO SECURITY TECHNOLOGIES, INC 10-K

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ​ a. Financial Statements: Financial statements required pursuant to this Item are presented on pages FS-1 through FS-27 of this report as follows: ​ NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES ​ Page Management Report on Internal Control FS-1 Report of Independent Registered Public Accounting Firm (PCAOB ID 23 ) FS-2 Consolidated Financial Statements: Consolidated Balance Sheets as of June 30, 2022 and 2021 FS-6 Consolidated Statements of Income for the Fiscal Years Ended June 30, 2022, 2021 and 2020 FS-7 Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended June 30, 2022, 2021 and 2020 FS-8 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2022, 2021 and 2020 FS-9 Notes to Consolidated Financial Statements FS-10 ​ Management Report on Internal Control Management has prepared and is responsible for our consolidated financial statements and related notes. Management is also responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Napco Technologies, Inc. (the “Company”) internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) 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 the authorizations of management and directors of the Company; and (iii) 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. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. 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 risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 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 company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management conducted an assessment of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) as issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that as of June 30, 2022, the Company identified two material weaknesses in internal control. One material weakness in internal control related to ineffective information technology general controls (ITGCs) in the area of user access and lack of effective program change-management over certain information technology (IT) systems that support the FS-1 Table of Contents Company’s financial reporting processes. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed ineffective because they could have been adversely impacted. We believe that these control deficiencies were a result of: IT control processes lacking sufficient documentation and risk-assessment procedures to assess changes in the IT environment and program change management of personnel that could impact internal controls over financial reporting. The material weakness did not result in any identified misstatements to the financial statements and there were no changes to the previously released financial results. Based on this material weaknesses, the Company’s management concluded that at June 30, 2022 the Company’s internal controls over financial reporting were not effective. The second material weakness in internal control related to the reserve for excess and slow-moving inventory. This control deficiency was a result of a lack of effective review and reconciliation controls over the forecasted sales and usage data. The material weakness did not result in a material misstatement to the financial statements. There were no changes to the previously released financial results. Based on these two material weaknesses, the Company’s management concluded that, at June 30, 2022, the Company’s internal controls over financial reporting were not effective. The effectiveness of our internal control over financial reporting as of June 30, 2022 has been audited by Baker Tilly US, LLP , an independent registered public accounting firm, as stated in their report included herein. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the board of directors of Napco Security Technologies, Inc. and Subsidiaries: Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Napco Security Technologies, Inc. and Subsidiaries (the "Company") as of June 30, 2022 and 2021, the related consolidated statements of income, stockholders’ equity, and cash flows, for each of the three years in the period ended June 30, 2022, 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 of June 30, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company did not maintain, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. 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 following material weaknesses have been identified and included in the accompanying Management’s Report on Internal Control Over Financial Reporting appearing on page FS-1 and under Item 9A: There were ineffective information technology general controls (ITGCs) in the areas of user access and program change-management over certain information technology (IT) systems that support the Company’s financial reporting processes. As a result, business process automated and manual controls that were dependent on the affected ITGCs were ineffective because they could have been adversely impacted. This control deficiency was a result of IT control processes that lacked sufficient documentation and risk-assessment processes inadequate to identify and assess changes in IT environments and personnel that could impact internal control over financial reporting. There were ineffectively designed control activities over the reserve for excess and slow-moving inventory, including the lack of effective review and reconciliation controls over forecasted sales and usage data. FS-2 Table of Contents The material weaknesses referred to above are described in Management's Report on Internal Control Over Financial Reporting. We considered the material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 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. 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 the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 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 matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate 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 matters or on the accounts or disclosures to which they relate. FS-3 Table of Contents Excess and Slow-Moving 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 of June 30, 2022 were approximately $49,786,000 and $4,021,000, respectively. Management establishes its reserve for excess and slow-moving 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 excess and slow-moving inventory as a critical audit matter because of the significant estimates and assumptions management makes to determine the reserve, 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. ● 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 sales and usage of the Company’s products and age of the inventory. ● We developed an independent expectation of the excess and slow-moving inventory reserve using historic inventory activity and compared our independent expectation to the amount recorded in the financial statements. ● 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. Impact on Financial Statements of Material Weakness in Internal Control Over Financial Reporting – Refer to Management’s Report on Internal Control Over Financial Reporting appearing on page FS-1 and under Item 9A. Critical Audit Matter Description As discussed above and in Management’s Report on Internal Control Over Financial Reporting , the Company identified a material weakness in their internal control over financial reporting associated with user access and program change-management over certain information technology (IT) systems that support the Company’s financial reporting processes, and related material weakness in the components of Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This material weakness impacts the Company’s controls over IT systems and business processes and affects substantially all financial statement account balances and disclosures. Due to the ineffective ITGCs, the information in system generated reports produced by those financial reporting systems could not be relied upon without further testing. We determined it necessary to perform incremental audit procedures over the completeness and accuracy of financial information utilizing the impacted IT systems as a critical audit matter. Significant auditor judgment was required to design and execute the incremental audit procedures and to assess the sufficiency of the procedures performed and evidence obtained due to ineffective controls and the complexity of the Company’s IT environment. FS-4 Table of Contents How We Addressed the Matter in Our Audit As a result of the material weakness, in performing our audit procedures we lowered the threshold for investigating differences between recorded amounts and independent expectations developed by us that we would have otherwise used, and increased the number of tested transactions we would have otherwise made if the Company’s controls were designed and operating effectively. In addition, we utilized original source documents for audit evidence, rather than system reports or other information generated by the Company’s IT systems. For any reports obtained from the IT system, the engagement team designed specific audit procedures to audit the completeness and accuracy of such reports. We have served as the Company's auditor since 2008. ​ /s/ BAKER TILLY US, LLP ​ Uniondale, New York August 29, 2022 ​ ​ ​ FS-5 Table of Contents NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ June 30, 2021 ​ ​ (in thousands, except share data) CURRENT ASSETS ​ ​ ​ Cash and cash equivalents ​ $ 41,730 ​ $ 34,806 Marketable securities ​ ​ 5,068 ​ ​ 5,413 Accounts receivable, net of allowance for doubtful accounts of $ 243 and $ 226 as of June 30, 2022 and June 30, 2021, respectively ​ 29,218 ​ 28,081 Inventories, net ​ 40,781 ​ 24,933 Prepaid expenses and other current assets ​ 2,838 ​ 2,408 Total Current Assets ​ 119,635 ​ 95,641 Inventories - non-current, net ​ 9,005 ​ 6,767 Property, plant and equipment, net ​ 7,939 ​ 7,836 Intangible assets, net ​ 4,300 ​ 4,691 Operating lease asset ​ ​ 7,350 ​ ​ 7,373 Other assets ​ 347 ​ 243 TOTAL ASSETS ​ $ 148,576 ​ $ 122,551 ​ ​ ​ ​ ​ ​ ​ CURRENT LIABILITIES ​ ​ ​ Accounts payable ​ $ 11,072 ​ $ 6,095 Accrued expenses ​ 9,489 ​ 6,582 Accrued salaries and wages ​ 4,064 ​ 3,478 Current portion of long-term debt ​ ​ — ​ ​ 2,386 Accrued income taxes ​ 1,868 ​ 1,709 Total Current Liabilities ​ 26,493 ​ 20,250 Long term debt, net of current portion ​ ​ — ​ ​ 1,518 Deferred income taxes ​ 166 ​ 380 Accrued income taxes ​ 1,058 ​ 925 Long term operating lease liabilities ​ ​ 7,068 ​ ​ 7,090 TOTAL LIABILITIES ​ 34,785 ​ 30,163 COMMITMENTS AND CONTINGENCIES (Note 13) ​ ​ STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ Common Stock, par value $ 0.01 per share; 100,000,000 shares authorized as of June 30, 2022 (Note 10) and 80,000,000 shares authorized as of June 30, 2021; 39,628,197 and 39,595,883 shares issued; and 36,734,482 and 36,702,168 shares outstanding, respectively ​ ​ 396 ​ ​ 396 Additional paid-in capital ​ 20,005 ​ 18,201 Retained earnings ​ 112,911 ​ 93,312 Less: Treasury Stock, at cost ( 2,893,715 shares) ​ ( 19,521 ) ​ ( 19,521 ) TOTAL STOCKHOLDERS’ EQUITY ​ 113,791 ​ 92,388 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY ​ $ 148,576 ​ $ 122,551 ​ See accompanying notes to consolidated financial statements. ​ FS-6 Table of Contents NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended June 30, ​ ​ 2022 2021 ​ 2020 ​ ​ (in thousands, except for share and per share data) Net sales: ​ ​ ​ ​ ​ ​ ​ ​ Equipment revenues ​ $ 97,612 $ 80,131 ​ $ 77,314 Service revenues ​ 45,981 ​ 33,904 ​ ​ 24,045 ​ ​ 143,593 ​ 114,035 ​ ​ 101,359 Cost of sales: ​ ​ ​ ​ Equipment related expenses ​ 78,471 ​ 58,401 ​ ​ 54,182 Service-related expenses ​ 5,966 ​ 4,886 ​ ​ 4,333 ​ ​ 84,437 ​ 63,287 ​ ​ 58,515 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Profit ​ 59,156 ​ 50,748 ​ ​ 42,844 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ 8,024 ​ 7,620 ​ ​ 7,257 Selling, general, and administrative expenses ​ 32,907 ​ 25,196 ​ ​ 23,670 Impairment of intangible asset ​ ​ — ​ ​ — ​ ​ 1,852 Total Operating Expenses ​ 40,931 ​ 32,816 ​ ​ 32,779 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Income ​ 18,225 ​ 17,932 ​ ​ 10,065 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other (expense) income: ​ ​ ​ ​ ​ ​ Interest and other (expense), net ​ ( 283 ) ​ ( 5 ) ​ ​ ( 9 ) Gain on extinguishment of debt ​ ​ 3,904 ​ ​ — ​ ​ — Income before Provision for Income Taxes ​ 21,846 ​ 17,927 ​ ​ 10,056 Provision for Income Taxes ​ 2,247 ​ 2,514 ​ ​ 2,261 Net Income ​ $ 19,599 ​ $ 15,413 ​ $ 7,795 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income per share: ​ ​ ​ Basic ​ $ 0.53 ​ $ 0.42 ​ $ 0.21 Diluted ​ $ 0.53 ​ $ 0.42 ​ $ 0.21 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of shares outstanding: ​ ​ ​ Basic ​ 36,725,000 ​ 36,696,000 ​ 36,888,000 Diluted ​ 36,867,000 ​ 36,808,000 ​ 36,986,000 ​ See accompanying notes to consolidated financial statements. ​ FS-7 Table of Contents NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Years ended June 30, 2021, 2020 and 2019 ​ ​ (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 June 30, 2019 ​ 21,227,094 ​ $ 212 ​ $ 17,103 ​ ( 2,749,310 ) ​ $ ( 17,067 ) ​ $ 70,288 ​ $ 70,536 Retrospective effect of 2 :1 stock split declared on December 20, 2021 ​ 18,333,379 ​ ​ 184 ​ ​ — ​ — ​ ​ — ​ ​ ( 184 ) ​ ​ — Balance at June 30, 2019, retrospectively stated ​ 39,560,473 ​ $ 396 ​ $ 17,103 ​ ( 2,749,310 ) ​ $ ( 17,067 ) ​ $ 70,104 ​ $ 70,536 Repurchase of treasury shares ​ — ​ ​ — ​ ​ — ​ ( 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 Stock options exercised ​ 32,314 ​ ​ — ​ ​ 155 ​ — ​ ​ — ​ ​ — ​ ​ 155 Stock-based compensation expense — ​ — ​ 1,649 — ​ — ​ — ​ 1,649 Net income — ​ — ​ — — ​ — ​ 19,599 ​ 19,599 Balances at June 30, 2022 39,628,197 ​ $ 396 ​ $ 20,005 ( 2,893,715 ) ​ $ ( 19,521 ) ​ $ 112,911 ​ $ 113,791 ​ See accompanying notes to consolidated financial statements. ​ FS-8 Table of Contents NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ended June 30, ​ 2022 2021 2020 ​ ​ (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ ​ Net income ​ $ 19,599 ​ $ 15,413 ​ $ 7,795 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Depreciation and amortization ​ 1,771 ​ 1,697 ​ 1,495 Impairment of intangible asset ​ ​ — ​ ​ — ​ ​ 1,852 Unrealized loss on marketable securities ​ ​ 426 ​ ​ 9 ​ ​ — Provision for (recovery of) doubtful accounts ​ 17 ​ ( 100 ) ​ 238 Change to inventory reserve ​ 1,187 ​ ( 79 ) ​ 624 Deferred income taxes ​ ( 214 ) ​ 337 ​ ( 47 ) Stock based compensation expense ​ 1,649 ​ 435 ​ 583 Gain on extinguishment of debt ​ ​ ( 3,904 ) ​ ​ — ​ ​ — Changes in operating assets and liabilities: ​ ​ ​ ​ Accounts receivable ​ ( 1,154 ) ​ ( 5,049 ) ​ 2,800 Inventories ​ ( 19,274 ) ​ 8,794 ​ ( 6,793 ) Prepaid expenses and other current assets ​ ( 430 ) ​ ( 359 ) ​ ( 168 ) Other assets ​ ( 103 ) ​ — ​ — Accounts payable, accrued expenses, accrued salaries and wages, accrued income taxes ​ 8,762 ​ 1,889 ​ 1,926 Net Cash Provided by Operating Activities ​ 8,332 ​ 22,987 ​ 10,305 CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ ​ Purchases of property, plant, and equipment ​ ( 1,482 ) ​ ( 1,007 ) ​ ( 1,615 ) Purchases of marketable securities ​ ​ ( 81 ) ​ ​ ( 5,422 ) ​ ​ — Net Cash Used in Investing Activities ​ ( 1,563 ) ​ ( 6,429 ) ​ ( 1,615 ) CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ ​ Proceeds from long-term debt ​ — ​ — ​ 3,904 Proceeds from stock option exercises ​ 155 ​ — ​ 80 Cash paid for purchase of treasury stock ​ — ​ — ​ ( 2,454 ) Net Cash Provided by Financing Activities ​ 155 ​ — ​ 1,530 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net increase in Cash and Cash Equivalents ​ 6,924 ​ 16,558 ​ 10,220 CASH AND CASH EQUIVALENTS - Beginning ​ 34,806 ​ 18,248 ​ 8,028 CASH AND CASH EQUIVALENTS - Ending ​ $ 41,730 ​ $ 34,806 ​ $ 18,248 SUPPLEMENTAL CASH FLOW INFORMATION ​ ​ ​ Interest paid ​ $ 16 ​ $ 18 ​ $ 29 Income taxes paid ​ $ 2,168 ​ $ 1,970 ​ $ 749 ​ See accompanying notes to consolidated financial statements. ​ FS-9 Table of Contents 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, cellular communication services for intrusion and fire alarm systems as well as a leading provider of school safety solutions. We offer a diversified array of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products. 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 the U.S. The Company's fiscal year begins on July 1 and ends on June 30. Historically, the end users of the Company’s hardware products want to install these products prior to the summer; therefore, sales of these products historically peak in the period April 1 through June 30, the Company's fiscal fourth quarter, and are reduced in the period July 1 through September 30, the Company's fiscal first quarter. In addition, demand for all of our products may be affected by the housing and construction markets. Deterioration of the current economic conditions may also affect this trend. The monthly recurring revenue, which is less susceptable to these fluctuations, allows us to generate a more consistent and predictable stream of income and mitigates the risk of fluctuation in market demand for our equipment products. Our results for fiscal 2021 and 2022 reflect the increase in customer demand after the decrease in demand in fiscal 2020 resulting from the economic slowdown associated with this 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 of Napco Security Technologies, Inc. and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation. Stock Split In December 2021, the Company's Board of Directors approved a two -for-one stock split in the form of a 100 % stock dividend of the Company's common stock, payable to stockholders of record on December 20, 2021. The additional shares were distributed on January 4, 2022. All share and per share amounts (except par value) have been retroactively adjusted to reflect the stock split. There was no net effect on stockholders’ equity as a result of the stock split. Upon distribution of the dividend, the total number of shares outstanding increased from 18,365,878 to 36,731,756 . 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, overhead expenses applied to inventory, inventory reserves, valuation of intangible assets, share based compensation and income taxes. Actual results could differ from those estimates. FS-10 Table of Contents 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 of June 30, 2022 and 2021 due to their short-term maturities. Long-term debt and lease liabilities reflect fair value based on prevailing market rates. Cash and Cash Equivalents Cash and cash equivalents include approximately $ 63,000 of short-term time deposits at both June 30, 2022 and 2021, respectively. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of June 30, 2022 and 2021. The Company has not historically experienced any credit losses with balances in excess of FDIC limits. Marketable Securities The Company’s marketable securities include investments in mutual funds, which invest primarily in various government and corporate obligations, stocks and money market funds . 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 years ended June 30, 2022 and 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 $ 243,000 and $ 226,000 as of June 30, 2022 and 2021, 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 cycle, requirements to support forecasted sales, and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand. In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events. There is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage. 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. FS-11 Table of Contents 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. Long-Lived and Intangible Assets Long-lived assets are amortized over their useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable. Impairment would be recorded in circumstances where undiscounted cash flows expected to be generated by an asset are less than the carrying value of that asset. Intangible assets determined to have indefinite lives were not amortized but were tested for impairment at least annually. The Company’s acquisition of substantially all of the assets and certain liabilities of G. Marks Hardware, Inc. (“Marks”) in August 2008 included intangible assets recorded at fair value on the date of acquisition. The customer relationships are amortized over their estimated useful lives of twenty years . At the acquisition date, the Marks trade name was deemed to have an indefinite life. During the 4th quarter of fiscal 2020, the Company determined that the trade-name was impaired. Accordingly, the Company recorded an impairment charge of $ 1,852,000 and reclassified the remaining balance of the underlying asset from indefinite-lived to a long-lived asset with a remaining useful life of 20 years as of June 30, 2020. Changes in intangible assets are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ June 30, 2021 ​ June 30, 2020 ​ 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 ​ ​ ( 9,143 ) ​ $ 657 ​ $ 9,800 ​ $ ( 8,955 ) ​ $ 845 ​ $ 9,800 ​ $ ( 8,732 ) ​ $ 1,068 Trade name ​ ​ 4,048 ​ ( 405 ) ​ 3,643 ​ 4,048 ​ ( 202 ) ​ 3,846 ​ 4,048 ​ — ​ 4,048 ​ ​ $ 13,848 ​ $ ( 9,548 ) ​ $ 4,300 ​ $ 13,848 ​ $ ( 9,157 ) ​ $ 4,691 ​ $ 13,848 ​ $ ( 8,732 ) ​ $ 5,116 ​ Amortization expense for intangible assets subject to amortization was approximately $ 391,000 , $ 425,000 and $ 264,000 for the fiscal years ended June 30, 2022, 2021 and 2020, respectively. Amortization expense for each of the next five fiscal years is estimated to be as follows: 2023 - $ 361,000 ; 2024 - $ 336,000 ; 2025 - $ 315,000 ; 2026 - $ 297,000 ; and 2027 - $ 283,000 . The weighted average remaining amortization period for intangible assets was 16.2 years and 16.9 years at June 30, 2022 and 2021, 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 over the course of the month 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 FS-12 Table of Contents communication services is billed on a monthly basis and is typically due at the beginning of the month of service or in 30 days for customers with an open account. The Company provides limited standard warranty for defective products, usually for a period of 24 to 36 months . 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 product sales returns and is able to make reasonable and reliable estimates of product returns based on the Company’s past history. Estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers. Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns. Actual results could differ from those estimates. Advertising and Promotional Costs 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 June 30, 2022, 2021 and 2020 was $ 2,889,000 , $ 1,306,000 and $ 1,722,000 , respectively. 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 ended June 30, 2022, 2021 and 2020 was $ 8,024,000 , $ 7,620,000 and $ 7,257,000 , 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 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. FS-13 Table of Contents The following provides a reconciliation of information used in calculating the per share amounts for the fiscal years ended June 30 (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted Average ​ Net Income per ​ ​ Net Income ​ Shares ​ Share ​ ​ 2022 2021 2020 2022 2021 2020 2022 2021 2020 Basic EPS ​ $ 19,599 ​ $ 15,413 ​ $ 7,795 ​ 36,725 ​ 36,696 ​ 36,888 ​ $ 0.53 ​ $ 0.42 ​ $ 0.21 Effect of Dilutive Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock Options ​ ​ — ​ — ​ — 142 112 98 ​ — ​ — ​ — Diluted EPS ​ $ 19,599 ​ $ 15,413 ​ $ 7,795 36,867 36,808 36,986 ​ $ 0.53 ​ $ 0.42 ​ $ 0.21 ​ Options to purchase 214,109 , 40,000 and 77,638 shares of common stock for the fiscal years ended June 30, 2022, 2021 and 2020, respectively, 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. Stock-based compensation costs of $ 1,649,000 , $ 435,000 and $ 583,000 were recognized for the fiscal years ended June 30, 2022, 2021 and 2020, respectively. Foreign Currency The Company has determined the functional currency of all foreign subsidiaries is the U.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 the U.S. Dollar. Therefore, no realized and unrealized gains and losses associated with foreign currency translation are recorded for the fiscal years ended June 30, 2022, 2021 or 2020. Comprehensive Income For the fiscal years ended June 30, 2022, 2021 and 2020, the Company’s operations did not give rise to material items includable in comprehensive income, which were not already included in net income. Accordingly, the Company’s comprehensive income approximates its net income for all periods presented. 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 ($ 428,000 , $ 395,000 and $ 452,000 in the fiscal years ended June 30, 2022, 2021 and 2020, respectively) and classifies the costs associated with these sales in cost of sales ($ 1,425,000 , $ 1,058,000 and $ 1,034,000 in the fiscal years ended June 30, 2022, 2021 and 2020, respectively). FS-14 Table of Contents Leases Effective July 1, 2019, the Company adopted the new lease accounting standard using the modified retrospective transition option of applying the new standard at the adoption date. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. Adoption of the new standard resulted in the recording of an operating ROU asset and lease liabilities of approximately $ 7.7 million . Given the length of the lease term, the right-of-use asset and corresponding liability assume a weighted discount rate as disclosed below. A change in the rate utilized could have a material effect on the amounts reported. See Note 13 – Commitments and Contingencies; Leases for additional accounting policies and transition disclosures. Recently Adopted Accounting Standards On July 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. Recently Issued Accounting Standards Reference Rate Reform (ASC Topic 848) In March 2020, the FASB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”), which was 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. In January 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 December 31, 2022. The guidance will no longer be available to apply after December 31, 2022. Impact on consolidated financial statements – The Company is currently assessing the impact of applying this guidance on its existing leases and other arrangements, as well as when to adopt this guidance. NOTE 2 – Revenue Recognition and Contracts with Customers 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 from the United States. As of June 30, 2022 and 2021, the Company included refund liabilities of approximately $ 5,863,000 and $ 4,277,000 , respectively, in current liabilities. As of June 30, 2022 and 2021, the Company included return-related assets of approximately $ 974,000 and $ 890,000 , respectively, in other current assets. FS-15 Table of Contents As a percentage of gross sales, sales returns, rebates and allowances were 10 %, 10 % and 9 % for the fiscal years ended June 30, 2022, 2021 and 2020, respectively. 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal year ended June 30, ​ ​ 2022 2021 2020 Major Product Lines: ​ ​ ​ ​ Intrusion and access alarm products ​ $ 49,606 ​ $ 36,794 ​ $ 31,310 Door locking devices ​ 48,006 ​ 43,337 ​ 46,004 Services ​ 45,981 ​ 33,904 ​ 24,045 Total Revenues ​ $ 143,593 ​ $ 114,035 ​ $ 101,359 ​ The following table represents the allowance for doubtful accounts as of the respective years ending June 30: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at beginning of period Charged to costs and expenses Deductions/ (recoveries) Balance at end of period For the Year Ended June 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for doubtful accounts ​ $ 88 ​ $ 238 ​ $ — ​ $ 326 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended June 30, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for doubtful accounts ​ $ 326 ​ $ 30 ​ $ ( 130 ) ​ $ 226 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for doubtful accounts ​ $ 226 ​ $ 17 ​ $ — ​ $ 243 ​ ​ NOTE 3 – Business and Credit Concentrations An entity may be 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 22 %, 19 % and 24 % of the Company’s accounts receivable at June 30, 2022, 2021 and 2020, respectively. Sales to this customer did not exceed 10% of net sales during fiscal years ended June 30, 2022, 2021 and 2020. The Company had another customer with an accounts receivable balance that comprised 11 % of the Company’s accounts receivable at June 30, 2021. Sales to this customer did not exceed 10% of net sales in any of the fiscal years ended June 30, 2022, 2021 and 2020, respectively. The Company had another customer with an accounts receivable balance that comprised 10 % of the Company’s accounts receivable at June 30, 2020. Sales to this customer did not exceed 10% of net sales in any of the fiscal years ended June 30, 2022, 2021 and 2020, respectively. The Company had another customer with an accounts receivable balance that comprised 16 % and 12 % of the Company’s accounts receivable at June 30, 2022 and 2021. Sales to this customer did not exceed 10% of net sales in any of the fiscal years ended June 30, 2022, 2021 and 2020. FS-16 Table of Contents NOTE 4 – Marketable Securities Marketable securities include investments in fixed income mutual funds, which are reported at their fair values. The disaggregated net gains and losses on the marketable securities recognize in the income statement for the year ended June 30, 2022 and 2021, are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended June 30, ​ 2022 2021 ​ ​ ​ ​ ​ ​ ​ Net gains recognized during the period on marketable securities ​ $ 81 ​ $ — Less: Net gains recognized during the year on marketable securities sold during the period ​ — ​ — Unrealized (losses) recognized during the reporting year on marketable securities still held at the reporting date ​ ( 426 ) ​ ( 9 ) ​ ​ $ ( 345 ) ​ $ ( 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 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ June 30, 2021 ​ ​ ​ ​ ​ ​ ​ Unrealized ​ ​ ​ ​ ​ ​ ​ Unrealized ​ Cost Fair Value Gain (Loss) Cost Fair Value Gain (Loss) Marketable Securities $ 5,504 ​ ​ 5,068 ​ $ ( 436 ) ​ $ 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 years ended June 30, 2022 and 2021, there were no transfers between Levels 1 and 2 investments and no transfers in or out of Level 3. ​ FS-17 Table of Contents 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 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, June 30, ​ ​ 2022 ​ 2021 Component parts ​ $ 32,656 ​ $ 17,245 Work-in-process ​ 10,085 ​ 6,158 Finished product ​ 7,045 ​ 8,297 ​ ​ $ 49,786 ​ $ 31,700 ​ ​ ​ ​ ​ ​ ​ Classification of inventories, net of reserves: ​ ​ Current ​ $ 40,781 ​ $ 24,933 Non-current ​ 9,005 ​ 6,767 ​ ​ $ 49,786 ​ $ 31,700 ​ The following table represents the Inventory obsolescence and net realizable value inventory reserves as of the respective years ending June 30: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at beginning of period Charged to costs and expenses Deductions/ (recoveries) Balance at end of period For the Year Ended June 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Inventory obsolescence and net realizable value reserve ​ $ 2,289 ​ $ 624 ​ $ — ​ $ 2,913 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended June 30, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Inventory obsolescence and net realizable value reserve ​ $ 2,913 ​ $ — ​ $ ( 79 ) ​ $ 2,834 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Inventory obsolescence and net realizable value reserve ​ $ 2,834 ​ $ 1,187 ​ $ — ​ $ 4,021 ​ ​ ​ NOTE 6 - Property, Plant, and Equipment Property, plant and equipment consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 June 30, 2021 Useful Life in Years ​ ​ ​ ​ ​ ​ ​ ​ ​ Land ​ $ 904 ​ $ 904 ​ N/A Buildings ​ 8,911 ​ 8,911 ​ 30 to 40 Molds and dies ​ 7,480 ​ 7,416 ​ 3 to 5 Furniture and fixtures ​ 3,030 ​ 2,813 ​ 5 to 10 Machinery and equipment ​ 26,696 ​ 25,548 ​ 7 to 10 Building improvements ​ 2,464 ​ 2,409 ​ Shorter of the lease term or life of asset ​ ​ 49,485 ​ 48,001 ​ Less: accumulated depreciation and amortization ​ ( 41,546 ) ​ ( 40,165 ) ​ ​ ​ $ 7,939 ​ $ 7,836 ​ ​ Depreciation and amortization expense on property, plant, and equipment was approximately $ 1,380,000 , $ 1,260,000 and $ 1,221,000 in fiscal 2022, 2021 and 2020, respectively. FS-18 Table of Contents NOTE 7 - Income Taxes The provision for income taxes is comprised of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year ended June 30, ​ 2022 2021 2020 Current income taxes: ​ ​ ​ Federal ​ $ 2,161 ​ $ 1,912 ​ $ 1,765 State ​ 300 ​ 265 ​ 418 ​ ​ 2,461 ​ 2,177 ​ 2,183 Deferred income tax provision ​ ( 214 ) ​ 337 ​ 78 Provision for income taxes ​ $ 2,247 ​ $ 2,514 ​ $ 2,261 ​ A reconciliation of the U.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, (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ ​ 2021 ​ 2020 ​ ​ ​ ​ ​ % of ​ ​ ​ ​ ​ % of ​ ​ ​ ​ ​ % of ​ ​ ​ ​ ​ ​ Pre-tax ​ ​ ​ ​ ​ Pre-tax ​ ​ ​ ​ ​ Pre-tax ​ ​ Amount Income ​ Amount Income ​ Amount Income Tax at Federal statutory rate ​ $ 4,588 ​ 21.0 % ​ $ 3,765 ​ 21.0 % ​ $ 2,112 ​ 21.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Increases (decreases) in taxes resulting from: ​ ​ ​ ​ ​ ​ ​ Meals and entertainment ​ 29 0.1 % ​ ​ 29 0.2 % ​ ​ 44 0.4 % State income taxes, net of Federal income tax benefit ​ 238 1.1 % ​ ​ 135 0.8 % ​ ​ 122 1.2 % Foreign source income not subject to tax ​ ( 1,534 ) ( 7.0 ) % ​ ​ ( 1,647 ) ( 9.2 ) % ​ ​ ( 1,089 ) ( 10.8 ) % R&D Credit ​ ( 554 ) ( 2.5 ) % ​ ​ ( 523 ) ( 2.9 ) % ​ ​ ( 523 ) ( 5.2 ) % Foreign withholding tax ​ — — % ​ ​ 205 1.1 % ​ ​ — — % Non-taxable debt extinguishment ​ ( 820 ) ( 3.8 ) % ​ ​ — — % ​ ​ — — % Uncertain Tax Positions ​ 20 0.1 % ​ ​ 312 1.7 % ​ ​ 775 7.7 % IRS examination settlements ​ — — % ​ ​ — — % ​ ​ 832 8.3 % Other, net ​ 280 1.3 % ​ ​ 238 1.3 % ​ ​ ( 12 ) ( 0.1 ) % Effective tax rate ​ $ 2,247 10.3 % ​ $ 2,514 14.0 % ​ $ 2,261 22.5 % ​ Deferred tax assets and deferred tax liabilities at June 30, 2022 and 2021 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deferred Tax Assets (Liabilities) ​ 2022 2021 Accounts receivable ​ $ 42 ​ $ 43 Inventories ​ 413 ​ 314 Accrued liabilities ​ 454 ​ 374 Stock based compensation expense ​ 179 ​ 102 Intangibles ​ ( 615 ) ​ ( 454 ) Property, plant and equipment ​ ( 582 ) ​ ( 539 ) Revenue reserves ​ 466 ​ 393 Unrealized loss (gain) on marketable securities ​ ​ 90 ​ ​ ​ Other deferred tax liabilities ​ ( 613 ) ​ ( 613 ) ​ ​ ( 166 ) ​ ( 380 ) Valuation allowance ​ — ​ — Net deferred tax liabilities ​ $ ( 166 ) ​ $ ( 380 ) ​ 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. FS-19 Table of Contents 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. 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 in 2021, since liabilities had previously been established. The IRS is currently auditing the Company’s Federal income tax return for the tax year ended June 30, 2020. As of June 30, 2022, the IRS has not communicated any material changes to the Company’s previously reported income tax returns and the Company has not established any reserves to uncertain matters as a result of the audit. 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, 2022, the Company increased its reserve for uncertain income tax positions by $ 25,000 . 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, 2022, the Company had accrued interest totaling $ 88,000 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. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax Interest Total Balance of gross unrecognized tax benefits as of June 30, 2019 ​ $ 125 ​ $ — ​ $ 125 Increase to unrecognized tax benefits resulting from deemed dividends for investments in US property ​ ​ 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 ​ $ 741 Increase to unrecognized tax benefits from deemed dividends for investments in US property ​ — ​ 25 ​ 25 Balance of gross unrecognized tax benefits as of June 30, 2022 ​ $ 678 ​ $ 88 ​ $ 766 ​ 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 of June 30, 2022, the Company had approximately $ 71.6 million of undistributed earnings of foreign subsidiaries. FS-20 Table of Contents NOTE 8 - Long-Term Debt As of June 30, 2022 and 2021, long-term debt consisted of a revolving line of credit of $ 11,000,000 (“Revolver Agreement”) which expires in June 2024. Additionally, as of June 30, 2021,the Company had term loans from the U.S. Small Business Administration totaling $ 3,904,000 through its Payroll Protection Program. The Payroll Protection Program Loans were entirely forgiven during first quarter of the fiscal year ending June 30, 2022. Outstanding balances and interest rates as of June 30, 2022 and June 30, 2021 are as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ June 30, 2021 ​ Outstanding Interest Rate ​ Outstanding Interest Rate Revolving line of credit ​ $ — n/a ​ $ — n/a ​ Term loans ​ ​ — ​ n/a % ​ 3,904 ​ 1 % ​ ​ ​ — ​ ​ ​ ​ 3,904 ​ ​ ​ Less: current maturities ​ ​ — ​ ​ ​ ​ ( 2,386 ) ​ ​ ​ Long-term debt ​ $ — ​ ​ ​ $ 1,518 ​ ​ ​ ​ 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. In September 2020, the Company and its lender amended the Revolver Agreement, which had an expiration date of June 2021, to expire in June 2024. The amended Revolver Agreement also removed certain requirements and restrictions on the Company as well as removing the mortgage on the Company’s Amityville facility. During the fourth quarter of fiscal 2020, the Company received the proceeds of promissory notes dated between April 17, 2020 and May 7, 2020 (the "PPP Loan Agreement"), entered into between the Company and HSBC Bank USA N.A., as lender (the "Lender). Lender made the loans pursuant to the Paycheck Protection Program (the "PPP"), created by Section 1102 of the CARES Act and governed by the CARES Act, Section 7(a)(36) of the Small Business Act, any rules or guidance that has been issued by the Small Business Association (“SBA”) implementing the PPP and acting as guarantor, or any other applicable loan program requirements, as defined in 13 CFR § 120.10, as amended from time to time. Pursuant to the PPP Loan Agreement, the Lender made loans to the Company with an aggregate principal amount of $ 3,904,000 (the "PPP Loan"). The PPP Loan and related extinguishement was accounted for in accordance with ASC 470 “Debt”. Pursuant to the CARES Act, the loans may be forgiven by the SBA. During the year ended June 30, 2022, the PPP Loans were forgiven, in their entirety, in accordance with guidelines set forth in the PPP loan documents. The Company recognized a gain on the extinguishment of debt during the fiscal year ended June 30, 2022 in the amount of $ 3,904,000 within the other (expense) income section in the accompanying condensed consolidated statements of income. The SBA reserves the right to audit PPP forgiveness applications for a period of six years from the date of forgiveness. It has indicated that it will audit all of those that are in excess of $2 million. NOTE 9 - Stock Options 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, 2022, 2021 and 2020, the Company recorded non-cash compensation expense of $ 1,649,000 , $ 435,000 and $ 583,000 , respectively, relating to stock-based compensation. FS-21 Table of Contents 2012 Employee Stock Option Plan In December 2012, the stockholders approved the 2012 Employee Stock Option Plan (the 2012 Employee Plan). The 2012 Employee Plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 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. At June 30, 2022, 523,080 stock options were outstanding, 176,752 stock options were exercisable and 1,138,920 stock options were available for grant under this plan. 338,000 options were granted under this plan during the year ended June 30, 2022. The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 2020 Risk-free interest rates ​ 1.64 % n/a % .6 % - 2.10 % Expected lives ​ 6.18 Years ​ n/a ​ 10 years ​ Expected volatility ​ 43 % n/a % 44 % - 46 % Expected dividend yields ​ 0 % n/a % 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 the U.S. Treasury Bond rate for the expected term of the options and the average dividend yield is based on historical experience. The following table reflects activity under the 2012 Plan for the fiscal years ended June 30,: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ ​ ​ ​ ​ Weighted average ​ ​ ​ ​ Weighted average ​ ​ ​ ​ Weighted average ​ Options exercise price Options exercise price Options exercise price Outstanding, beginning of year ​ ​ 214,080 ​ $ 9.59 ​ ​ 235,680 ​ $ 9.42 ​ ​ 145,000 ​ $ 5.51 Granted ​ ​ 338,000 ​ $ 23.17 ​ ​ — ​ ​ — ​ ​ 141,880 ​ ​ 12.25 Forfeited/Lapsed ​ ​ — ​ ​ — ​ ​ ( 13,000 ) ​ $ 6.91 ​ ​ ( 20,000 ) ​ ​ 9.92 Exercised ​ ​ ( 29,000 ) $ 5.45 ​ ( 8,600 ) $ 9.04 ​ ( 31,200 ) ​ 3.78 Outstanding, end of period ​ ​ 523,080 ​ $ 18.59 ​ 214,080 ​ $ 9.59 ​ 235,680 ​ $ 9.42 Exercisable, end of period ​ ​ 176,752 ​ $ 14.68 ​ 98,176 ​ $ 8.07 ​ 70,000 ​ $ 6.57 Weighted average fair value at grant date of options granted ​ $ 12.16 ​ ​ ​ ​ n/a ​ ​ ​ $ 6.72 ​ ​ Total intrinsic value of options exercised ​ $ 502,000 ​ ​ ​ ​ $ 65,000 ​ ​ ​ $ 278,000 ​ ​ Total intrinsic value of options outstanding ​ $ 1,916,000 ​ ​ ​ ​ $ 1,840,000 ​ ​ ​ $ 696,000 ​ ​ Total intrinsic value of options exercisable ​ $ 1,218,000 ​ ​ ​ ​ $ 993,000 ​ ​ ​ $ 389,000 ​ ​ ​ FS-22 Table of Contents The following table summarizes information about stock options outstanding under the 2012 Employee Plan at June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 $ 2.19 ‑ $ 24.75 ​ 523,080 ​ 8.42 ​ $ 18.59 ​ 176,752 ​ $ 14.68 ​ ​ 523,080 ​ 8.42 ​ $ 18.59 ​ 176,752 ​ $ 14.68 ​ As of June 30, 2022, there was $ 2,489,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan. 338,000 , 0 and 141,880 options were granted during the fiscal years ended June 30, 2022, 2021 and 2020, respectively. 1,000 of the 29,000 stock options exercised during the fiscal year ended June 30, 2022, were settled by exchanging 153 shares of the Company’s common stock which were retired and returned to unissued status upon receipt. 8,600 stock options exercised during the fiscal year ended June 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 ended June 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. $ 155,000 , $ 0 and $ 79,000 was received from the remaining option exercises for the fiscal years ended June 30, 2022, 2021 and 2020, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $ 0 for each of these periods. The total grant date fair value of the options vesting during the fiscal years ended June 30, 2022, 2021 and 2020 under this plan was $ 1,040,000 , $ 244,000 and $ 197,000 , respectively. 2012 Non-Employee Stock Option Plan In December 2012, the stockholders approved the 2012 Non-Employee Stock Option Plan (the 2012 Non-Employee Plan). This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 100,000 shares of the Company’s common stock to be acquired by the holders of such awards. 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. At June 30, 2022, 20,400 stock options were outstanding, 11,280 stock options were exercisable and 0 stock options were available for grant under this plan. 9,600 options were granted under this plan during the year ended June 30, 2022. The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 2020 Risk-free interest rates 1.68 % n/a % 1.6 % Expected lives 6.18 Years ​ n/a ​ 10 years ​ Expected volatility 43 % n/a % 44 % Expected dividend yields 0 % n/a % 0 % ​ FS-23 Table of Contents The following table reflects activity under the 2012 Non-Employee Plan for the fiscal years ended June 30,: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ ​ ​ Weighted average ​ ​ Weighted average ​ ​ Weighted average ​ ​ Options ​ exercise price ​ Options ​ exercise price ​ Options ​ exercise price Outstanding, beginning of year ​ ​ 12,000 ​ $ 6.55 ​ ​ 24,000 ​ $ 5.15 ​ ​ 20,400 ​ $ 4.00 Granted ​ ​ 9,600 ​ $ 22.93 ​ ​ — ​ ​ — ​ ​ 3,600 ​ ​ 11.68 Forfeited/Lapsed ​ ​ — ​ ​ — ​ ​ ( 9,600 ) ​ $ 3.59 ​ ​ — ​ ​ — Exercised ​ ​ ( 1,200 ) ​ $ 4.35 ​ ( 2,400 ) $ 4.35 ​ — ​ — Outstanding, end of period ​ ​ 20,400 ​ $ 14.39 ​ 12,000 ​ $ 6.55 ​ 24,000 ​ $ 5.15 Exercisable, end of period ​ ​ 11,280 ​ $ 8.92 ​ 6,240 ​ $ 6.04 ​ 11,520 ​ $ 4.18 Weighted average fair value at grant date of options granted ​ $ 12.58 ​ ​ ​ ​ ​ n/a ​ ​ $ 6.47 ​ Total intrinsic value of options exercised ​ $ 19,000 ​ ​ ​ ​ $ 31,000 ​ ​ ​ n/a ​ Total intrinsic value of options outstanding ​ $ 149,000 ​ ​ ​ ​ $ 140,000 ​ ​ $ 157,000 ​ Total intrinsic value of options exercisable ​ $ 136,000 ​ ​ ​ ​ $ 76,000 ​ ​ $ 87,000 ​ ​ The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options outstanding ​ Options exercisable ​ ​ ​ ​ Weighted average ​ Weighted ​ ​ ​ Weighted ​ ​ Number ​ remaining ​ average exercise ​ Number ​ average exercise Range of exercise prices ​ outstanding contractual life ​ price exercisable ​ price $ 4.35 - $ 22.93 ​ 20,400 ​ 7.65 ​ $ 14.39 ​ 11,280 ​ $ 8.92 ​ ​ 20,400 ​ 7.65 ​ $ 14.39 ​ 11,280 ​ $ 8.92 ​ As of June 30, 2022, there was $ 70,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan. 9,600 , 0 and 3,600 options were granted during the fiscal years ended June 30, 2022, 2021 and 2020, respectively. 1,200 stock options exercised during the fiscal year ended June 30, 2022 were settled by exchanging 258 shares of the Company’s common stock which were retired and returned to unissued status upon receipt. 2,400 options exercised during the fiscal year ended June 30, 2021 were settled by exchanging 612 shares of the Company common stock which were retired and returned to unissued status upon receipt. No options were exercised during the fiscal year ended June 30, 2020. The actual tax benefit realized for the tax deductions from option exercises was $ 4,000 , $ 6,000 and $ 0 in fiscal 2022, 2021 and 2020 respectively. The total grant date fair value of the options vesting during each of the fiscal years ended June 30, 2022, 2021 and 2020 under this plan was $ 39,000 , $ 18,000 and $ 18,000 , respectively. 2018 Non-Employee Stock Option Plan In December 2018, the stockholders approved the 2018 Non-Employee Stock Option Plan (the “2018 Non-Employee Plan”). This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 100,000 shares of the Company's common stock to be acquired by the holders of such awards. 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. At June 30, 2022, 89,000 stock options were outstanding, 45,040 stock options were exercisable and 0 stock options were available for grant under this plan. 23,500 options were granted under this plan during the year ended June 30, 2022. FS-24 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 2020 Risk-free interest rates ​ 1.68 % n/a % 1.60 - 1.80 % Expected lives ​ 6.18 Years ​ n/a ​ 10 years ​ Expected volatility ​ 43 % n/a % 44 - 45 % Expected dividend yields ​ 0 % n/a % — % ​ The following table reflects activity under the 2018 Non-Employee plan for the fiscal year ended June 30,: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ ​ ​ Weighted average ​ ​ Weighted average ​ ​ Weighted average ​ ​ Options exercise price ​ Options exercise price ​ Options exercise price Outstanding, beginning of year ​ ​ 70,100 ​ $ 11.93 ​ ​ 96,800 ​ $ 11.74 ​ ​ 30,400 ​ $ 8.10 Granted ​ ​ 23,500 $ 22.93 ​ — ​ — ​ 66,400 ​ 13.41 Forfeited/Lapsed ​ ​ — ​ — ​ ( 23,500 ) $ 11.68 ​ — ​ — Exercised ​ ​ ( 4,600 ) $ 10.43 ​ ( 3,200 ) $ 8.10 ​ — ​ — Outstanding, end of period ​ ​ 89,000 ​ $ 14.91 ​ 70,100 ​ $ 11.93 ​ 96,800 ​ $ 11.74 Exercisable, end of period ​ ​ 45,040 ​ $ 12.98 ​ 29,960 ​ $ 11.68 ​ 24,480 ​ $ 10.98 Weighted average fair value at grant date of options granted ​ $ 12.58 ​ ​ ​ ​ ​ n/a ​ ​ ​ ​ $ 7.55 ​ ​ ​ Total intrinsic value of options exercised ​ $ 58,000 ​ ​ ​ ​ $ 29,000 ​ ​ ​ ​ ​ n/a ​ ​ ​ Total intrinsic value of options outstanding ​ $ 561,000 ​ ​ ​ ​ $ 439,000 ​ ​ ​ ​ $ 110,000 ​ ​ ​ Total intrinsic value of options exercisable ​ $ 354,000 ​ ​ ​ ​ $ 195,000 ​ ​ ​ ​ $ 40,000 ​ ​ ​ ​ The following table summarizes information about stock options outstanding under the 2018 Non- Employee Plan at June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options outstanding ​ Options exercisable ​ ​ Weighted average Weighted ​ Weighted ​ ​ Number ​ remaining ​ average exercise ​ Number ​ average exercise Range of exercise prices ​ outstanding ​ contractual life ​ price ​ exercisable ​ price $ 8.10 - $ 22.93 ​ 89,000 7.75 ​ $ 14.91 45,040 ​ $ 12.98 ​ ​ 89,000 7.75 ​ $ 14.91 45,040 ​ $ 12.98 ​ As of June 30, 2022, there was $ 265,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan. 23,500 , 0 and 66,400 options were granted during the fiscal years ended June 30, 2022, 2021 and 2020, respectively. 4,600 stock options exercised during the fiscal year ended June 30, 2022 were settled by exchanging 2,075 shares of the Company’s common stock which were retired and returned to unissued status upon receipt. 3,200 stock options exercised during the fiscal year ended June 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. There were no options exercised during the fiscal year ended June 30, 2020. The actual tax benefit realized for the tax deductions from option exercises was $ 12,000 , $ 6,000 and $ 0 in fiscal 2022, 2021 and 2020, respectively. The total grant date fair value of the options vesting during the fiscal year ended June 30, 2022, 2021 and 2020 under this plan was $ 160,000 , $ 133,000 and $ 133,000 , respectively. 2020 Non-Employee Stock Option Plan In May 2020, the stockholders approved the 2020 Non-Employee Stock Option Plan (the “2020 Non-Employee Plan”). This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 100,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options to non-employee directors and consultants to the Company and its subsidiaries. FS-25 Table of Contents 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. At June 30, 2022, 26,900 stock options were outstanding, 7,380 stock options were exercisable and 73,100 stock options were available for grant under this plan. 16,900 options were granted under this plan during the year ended June 30, 2022. The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 Risk-free interest rates 1.68 % 0.62 % Expected lives 6.18 Years ​ 10 ​ Expected volatility 43 % 45 % Expected dividend yields 0 % 0 % ​ The following table reflects activity under the 2020 Non-Employee plan for the fiscal year ended June 30,: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ Weighted average ​ ​ ​ ​ Weighted average ​ ​ Options exercise price ​ Options exercise price ​ Outstanding, beginning of year ​ 10,000 $ 11.40 ​ ​ — ​ — ​ Granted ​ 16,900 ​ $ 22.93 ​ ​ 10,000 ​ $ 11.40 ​ Forfeited/Lapsed ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Exercised ​ — ​ — ​ ​ — ​ — ​ Outstanding, end of period ​ 26,900 ​ $ 18.64 ​ ​ 10,000 ​ $ 11.40 ​ Exercisable, end of period ​ 7,380 ​ $ 16.68 ​ ​ 2,000 ​ $ 11.40 ​ Weighted average fair value at grant date of options granted ​ $ 12.58 ​ ​ $ 6.10 ​ ​ ​ Total intrinsic value of options exercised ​ n/a ​ ​ n/a ​ ​ ​ Total intrinsic value of options outstanding ​ $ 92,000 ​ ​ $ 68,000 ​ ​ ​ Total intrinsic value of options exercisable ​ $ 37,000 ​ ​ $ 14,000 ​ ​ ​ ​ The following table summarizes information about stock options outstanding under the 2020 Non- Employee Plan at June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 - $ 22.93 26,900 8.89 ​ $ 18.64 7,380 ​ $ 16.68 ​ 26,900 8.89 ​ $ 18.64 7,380 ​ $ 16.68 ​ As of June 30, 2022, there was $ 135,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan. 16,900 , 10,000 and 0 options were granted during the fiscal years ended June 30, 2022, 2021 and 2020, respectively. No options were exercised during the fiscal years ended June 30, 2022, 2021 and 2020. The total grant date fair value of the options vesting during the fiscal year ended June 30, 2022, 2021 and 2020 under this plan was $ 55,000 , $ 12,000 and $ 0 , respectively. NOTE 10 – Stockholders’ Equity Transactions On September 16, 2014 the Company’s board of directors authorized the repurchase of up to 2 million 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 FS-26 Table of Contents loan agreement described in Note 8, the Company’s lender gave its consent to this stock repurchase plan. During the fiscal year ended June 30, 2022 and 2021, the Company did no t repurchase any shares of its outstanding common stock. During the fiscal years ended June 30, 2020, the Company repurchased 144,405 shares of its outstanding common stock at a weighted average price of $ 17.00 . Shares repurchased through June 30, 2022 are included in the Company’s Treasury Stock as of June 30, 2022, 2021 and 2020. Pursuant to the PPP Loan Agreement described in Note 8, the Company may not repurchase any of its shares of common stock until 12 months after the termination of the term loans described therein. On December 6, 2021, the Stockholders of the Company approved an amendment of the Company’s Certificate of Incorporation increasing the number of authorized shares the Company may issue to 100,000,000 shares of common stock at a $ .01 par value per share. In December 2021, the Company’s Board of Directors approved a two -for-one stock split in the form of a 100 % dividend of the Company’s common stock, payable to stockholder of record on December 20, 2021. The additional shares were distributed on January 4, 2022. All share and per share amounts (except par value) have been retroactively adjusted to reflect the stock split. There was no net effect on total stockholders’ equity as a result of the stock split. During fiscal 2022, certain employees and Directors exercised stock options under the Company's 2012 Employee and Non-Employee and 2018 Non-employee Stock Option Plans totaling 34,800 shares. 6,800 of these exercises were completed as cashless exercises as allowed for under the Plans, where the exercise shares are issued by the Company in exchange for shares of the Company's common stock that are owned by the optionees. The number of shares surrendered by the optionees was 2,486 and was based upon the per share price on the effective date of the option exercise. 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. NOTE 11 – Related Party Transaction In December 2020, 5,333,064 shares of common stock were sold by the Company's President and Chairman in an underwritten secondary offering at the offering price of $ 13.00 per share, less underwriting discounts and commissions. The Company received no proceeds from the offering, 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 $ 191,000 , $ 138,000 and $ 133,000 for the years ended June 30, 2022, 2021 and 2020, respectively. FS-27 Table of Contents NOTE 13 - Commitments and Contingencies Leases Effective July 1, 2019, the Company adopted the new lease accounting standard using the modified retrospective transition option of applying the new standard at the adoption date. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to not reassess (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. Adoption of the new standard resulted in the recording of an operating ROU asset and lease liabilities of approximately $ 7.7 million. Given the length of the lease term, the right-of-use asset and corresponding liability assume a weighted discount rate as disclosed below. A change in the rate utilized could have a material effect on the amounts reported. Financial positions for reporting periods beginning on or after July 1, 2019 are presented under new guidance. Our lease obligation consists of a 99 year lease which commenced on April 26, 1993 with one of the Company’s foreign subsidiaries, expiring in 2092, for approximately four acres of land in the Dominican Republic at an annual cost of $ 288,000 , on which the Company’s principal production facility is located. 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 June 30, 2022 and 2021, cash payments against operating lease liabilities totaled $ 288,000 each year. Supplemental balance sheet information related to operating leases was as follows: ​ ​ ​ ​ ​ Weighted-average remaining lease term 70 Years ​ Weighted-average discount rate ​ 3.55 % ​ The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2022 (in thousands): ​ ​ ​ ​ ​ Year Ending June 30, Amount 2023 ​ $ 282 2024 ​ 272 2025 ​ 263 2026 ​ 254 2027 ​ 245 Thereafter ​ ​ 6,034 Total ​ $ 7,350 ​ Operating lease expense totaled approximately $ 319,000 , $ 316,000 and $ 315,000 , for the fiscal years ended June 30, 2022, 2021 and 2020, respectively. 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. FS-28 Table of Contents Employment Agreements As of June 30, 2022, 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 $ 872,000 , 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 in August 2024 and provides for an annual salary of $ 361,000 , 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 Executive Vice President of Operations and Chief Financial Officer 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 from the United States. The Company has customers worldwide with major concentrations in North America. Financial Information Relating to Domestic and Foreign Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ended June 30, ​ ​ 2022 2021 2020 Sales to external customers (1): ​ ​ ​ ​ Domestic ​ $ 142,059 ​ $ 112,618 ​ $ 99,496 Foreign ​ 1,534 ​ 1,417 ​ 1,863 Total Net Sales ​ $ 143,593 ​ $ 114,035 ​ $ 101,359 ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 Identifiable assets: ​ ​ ​ United States ​ $ 98,791 ​ $ 90,941 Dominican Republic (2) ​ 49,785 ​ 31,610 Total Identifiable Assets ​ $ 148,576 ​ $ 122,551 ​ (1) All of the Company’s sales originate in the United States and are shipped primarily from the Company’s facilities in the United States. There were no sales into any one foreign country in excess of 10% of total Net Sales. (2) Consists primarily of inventories (2022 = $ 38,755 ; 2021 = $ 20,712 ), operating lease assets (2022 = $ 7,350 ; 2021 = $ 7,393 ) and fixed assets (2022 = $ 3,253 ; 2021 = $ 3,208 ) located at the Company’s principal manufacturing facility in 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. ​ FS-29 Table of Contents ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None ​ ITEM 9A: CONTROL AND PROCEDURES Evaluation of Disclosure Controls and Procedures. At the conclusion of the period ended June 30, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2022. Management’s Annual Report on Internal Control over Financial Reporting. Management’s Report on Internal Control over Financial Reporting is set forth on page FS-1. Audit Opinion on Internal Control over Financial Reporting. The effectiveness of the Company’s internal control over financial reporting has been audited by Baker Tilly US , LLP an independent registered public accounting firm, as stated in their report, which is included herein on page FS-2. Limitations on Internal Control . All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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. The Board of Directors of the Company has an Audit Committee comprised of three non-management directors. The Committee meets periodically with financial management and the independent auditors to review accounting, control, audit and financial reporting matters. Baker Tilly US, LLP has full and free access to the Audit Committee, with and without the presence of management. Changes in Internal Control over Financial Reporting . There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2022 that has materially affected or is likely to materially affect our internal controls over financial reporting. ITEM 9B: OTHER INFORMATION None PART III ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The Board of Directors is divided into three classes, the terms of which expire at the Annual Meetings of Stockholders after the fiscal years 2022, 2023 and 2024. ​ Table of Contents ​ The names of, and certain information concerning, the Company’s directors are set forth below. Also set forth below is a description of the experience, qualifications, attributes or skills that caused the Nominating Committee and Board of Directors to determine that the person should serve as one of our directors. ​ ​ ​ ​ ​ ​ Name and Age Principal Occupation Director Since ​ ​ ​ ​ ​ Directors to serve until Annual Meeting of Stockholders following Fiscal Year 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ Richard L. Soloway (76) ​ Chairman of the Board of Directors, CEO, President and Secretary of the Company. ​ 1972 ​ ​ ​ ​ ​ Kevin S. Buchel (69) ​ Executive Vice President of Operations, CFO, and Treasurer of the Company. ​ 1998 ​ ​ ​ ​ ​ Directors to serve until Annual Meeting of Stockholders following Fiscal Year 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ Andrew J. Wilder (70) ​ Certified Public Accountant. Partner of GR Reid Associates LLP, independent certified public accountants. ​ 1995 ​ ​ ​ ​ ​ Robert A. Ungar (66) ​ President of Robert A. Ungar Associates, Inc., lobbying, media and public relations services in public-sector areas including fire service, EMS and Public Safety ​ 2020 ​ ​ ​ ​ ​ ​ Directors to serve until Annual Meeting of Stockholders following Fiscal Year 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ Paul Stephen Beeber (77) ​ Licensed Attorney in New York State. ​ 2004 ​ ​ ​ ​ ​ Rick Lazio (64) ​ Licensed Attorney. Senior Vice President of alliantgroup, LP since 2011, an international provider of specialty tax consulting services. Since 2019, Senior Vice President of Alliant Cybersecurity, a subsidiary of alliantgroup LP, that provides advisory services to businesses to protect against cyberattacks. Since 2012, Special Counsel to Jones Walker, LLP, a law firm of nearly 400 attorneys with offices throughout the United States. Former member of the United States House of Representatives from New York. ​ 2020 ​ ​ ​ ​ ​ Donna A. Soloway (73) ​ Ms. Soloway has been a columnist for several security industry publications since 1992 including Security Dealer and Security Distribution and Marketing (SDM). She also has served on the Board of Directors for the Security Industry Association (SIA) and several of its committees including the Show Planning Committee, the Awards Committee and the SAINTS Committee (Safety, Awareness and Independence through Security). She is also a Board member of the Alliance of the Guardian Angels, an international organization of crime prevention. Ms. Soloway is the wife of Richard L. Soloway, the Chairman and President of the Company. ​ 2001 ​ ​ Table of Contents ​ ​ Mr. Beeber has been a Licensed Attorney in New York State since 1970, focusing on elder law, estate planning and real estate. The Company believes Mr. Beeber provides practical and legal guidance, insight and perspective with regard to the operations and strategies of the Company and has a deep understanding of the Company as well as of its customer and supplier agreements. Mr. Lazio is a licensed attorney. From 2011 to the present, Mr. Lazio has been a senior Vice President of alliantgroup, LP, an international provider of specialty tax consulting services. He has also served since January 2019 as Senior Vice President of Alliant Cybersecurity, a subsidiary of alliantgroup LP, which provides advisory services to protect businesses from the risks associated with cyberattacks. Mr. Lazio has also been Special Counsel to Jones Walker, LLP, a law firm with nearly 400 attorneys in 20 offices throughout the United States. The Company believes that Mr. Lazio’s qualifications to serve as a director include his diverse background including his eight years in the US House of Representatives, where he served on the Budget, Banking and Commerce Committees and had joint jurisdiction over all financial services issues. In addition, Mr. Lazio, as the Senior VP of alliantgroup LLP, provides expertise in specialty tax consulting as well as consulting with regard to Cybersecurity. Ms. Soloway has been a columnist for several security industry publications since 1992 including Security Dealer and Security Distribution and Marketing (SDM). She also has served on the Board of Directors for the Security Industry Association (SIA) and several of its committees including the Show Planning Committee, the Awards Committee and the SAINTS Committee (Safety, Awareness and Independent through Security). She is currently a board member of Lifeline as well as the Alliance of the Guardian Angels. The Company believes Ms. Soloway brings significant experience and knowledge of the security industry, specifically in the areas of customer relations, marketing and sales management. Mr. Soloway has been the Company’s Chairman of the Board of Directors since October 1981, President and CEO since 1998, and Secretary since 1975. The Company believes Mr. Soloway’s qualifications to serve as a director include his over forty years’ experience in the security industry and his broad knowledge and understanding of the Company and its operations derived from his forty-year service as its Chairman and twenty-two year service as its President and CEO. Mr. Buchel has been Executive Vice President of Operations since October 2021, Senior Vice President of Operations and Finance from April 1995 to October 2021, CFO since April 1995 and Treasurer since May 1998. The Company believes Mr. Buchel’s qualifications to serve as a director include his understanding of the Company and its operations derived from twenty-six years as our CFO and Senior Vice President of Operations and Finance and twenty-three years as Treasurer. Mr. Wilder has been a partner of GR Reid Associates, LLP and its predecessor firm, independent certified public accountants, since 1990. The Company believes Mr. Wilder’s qualifications to serve as a director include extensive experience in finance and financial reporting and his corporate governance experience. Our Board of Directors has determined that Mr. Wilder is an audit committee financial expert. Mr. Ungar is the President of Robert A. Ungar Associates, Inc., Lobbying, Media and Public Relations Services. ​ Table of Contents The Company believes that Mr. Ungar’s qualifications to serve as a director include his diverse experience as an entrepreneur, his experience with various government departments, his experience as a lawyer, as well as his experience with the fire service industry. Other Directorships During the past five years, none of the directors has been a director of any company (other than the Company) which is subject to the reporting requirements of the Securities Exchange Act of 1934 or which is a registered investment company under the Investment Company Act of 1940. DELINQUENT SECTION 16(a) REPORTS Based solely on a review of the Forms 3, 4 and 5 furnished to the Company with respect to the most recent fiscal year and written representations of the reporting person (as defined below), no person, who at any time during such fiscal year, was an officer, director, beneficial owner of more than ten (10%) percent of any class of equity securities of the Company or any other person subject to Section 16 of the Securities Exchange Act of 1934 (“reporting person”), failed to file on a timely basis one or more reports during such fiscal year except as follows : Kevin Buchel, an officer, filed one late Form 4 reporting the award of options to purchase 100,000 shares of Common Stock of the Company. Richard Soloway, an officer, filed one late Form 4 reporting the award of options to purchase 100,000 shares of Common Stock of the Company. Michael Carrieri, an officer, filed one late Form 4 reporting the award of options to purchase 50,000 shares of Common Stock of the Company. Andrew Wilder, a director, filed one late Form 4 reporting the award of options to purchase 10,000 shares of Common Stock of the Company. Rick Lazio, a director, filed one late Form 4 reporting the award of options to purchase 10,000 shares of Common Stock of the Company. Robert Ungar, a director, filed one late Form 4 reporting the award of options to purchase 10,000 shares of Common Stock of the Company. Pauil Beeber, a director, filed three late Form 4’s. One reporting the award of options to purchase 10,000 shares of Common Stock of the Company, a second reporting an exercise of 3,000 shares of common stock of the Company and a third reporting an exercise of 1,600 shares of Common Stock of the Company. ​ INFORMATION CONCERNING EXECUTIVE OFFICERS Each executive officer of the Company holds office until the annual meeting of the Board of Directors and his successor is elected and qualified, or until his earlier death, resignation, or removal by the Board. The Company has adopted a Code of Ethics for directors and employees, including its executive officers. There are no family relationships between any director or officer of the Company, except Richard L. Soloway and Donna A. Soloway, his wife. The following table sets forth as of the date hereof the names and ages of all executive officers of the Company, all positions and offices with the Company held by them, and the period during which they have served in these positions. ​ ​ ​ Name and Age Position and Office with the Company, Term of Office and Five-Year Employment History Richard L. Soloway (76) ​ Chairman of the Board of Directors since October 1981; President and CEO since 1998; and Secretary since 1975. ​ ​ ​ Kevin S. Buchel (69) ​ Executive Vice President of Operations since October 2021; Senior Vice President of Operations and Finance from April 1995 to October 2021; CFO since April 1995; Treasurer since May 1998. ​ ​ ​ Michael Carrieri (64) ​ Senior Vice President of Engineering Development since May 2000; Vice President of Engineering Development from September 1999 to May 2000. ​ ​ ​ Stephen M. Spinelli (52) ​ Senior Vice President of Sales since April 2020; from January 2015 to April 2020, a director of sales for Nortek Security and Control, LLC (formerly Linear, LLC). ​ COMPENSATION DISCUSSION & ANALYSIS This Compensation Discussion and Analysis explains the objectives, strategy and features of our executive compensation program and it describes how the compensation of our executive officers aligns with our corporate objectives and shareholder interests. ​ Table of Contents Compensation Program Objective The objective of our executive compensation program is to allow us to successfully retain and motivate executives who enable us to achieve short-term and long-term growth and operational excellence. Oversight of Our Executive Compensation Program The Compensation Committee of the Board of Directors (the “Committee”) assists the Board in discharging its responsibilities relating to compensation of the Chief Executive Officer and other executive officers and oversees the executive compensation program. All of the members of the Compensation Committee have been determined to be independent under applicable NASDAQ and SEC rules. The Committee’s responsibilities are detailed in its charter, which can be found at www.napcosecurity.com The Company’s CEO participates in the Compensation Committee’s meetings and provides input into compensation decisions at the Compensation Committee’s request. In particular, the Company’s CEO participates by making recommendations on NEO compensation and input on objectives (other than for himself). The CEO’s compensation is determined solely by the Compensation Committee. The Committee’s process includes executive sessions where the Committee meets alone, without the presence of management. The Use of Compensation Survey Data and Peer Companies During fiscal year 2022, the Compensation Committee did not conduct any formal competitive pay benchmarking. Instead, the competitiveness of the pay offered to the executive officer was based on existing employment agreements and compensation packages, the recommendations of the Chief Executive Officer, and the business experience of members of the Compensation Committee. Components of the Executive Compensation Program-Description of Elements and Evaluation Process The named executive officers, including our Chief Executive Officer, have a compensation program that includes the following components: ◾ Base salary ◾ Annual incentives ◾ Long-term incentives in the form of stock options awards ◾ Employee benefits ◾ Perquisites Compensation Mix. We do not have policies that define specific percentage allocations for fixed and variable compensation, or cash and non-cash compensation. We do, however, intend to deliver a portion of total compensation in the form of performance-based cash incentives and in awards of stock options, to achieve our objective of offering rewards for successful business results and shareholder value creation. The following describes the general purpose of each element of compensation and how the Committee made fiscal year 2022 pay decisions from such element. Base Salaries . Base salaries are used to compensate each of our executives for their positions and levels of responsibility. Each of Messrs. Soloway and Carrieri have employment agreements, which provide for a minimum base salary and, in the case of Mr. Soloway, a minimum annual cost-of-living adjustment. For fiscal year 2022, Messrs. Soloway and Carrieri’s salaries were determined pursuant to such Employment Agreements. Mr. Soloway recommended to the Committee the base salary for Mr. Carrieri. Each of Mr. Buchel’s and Mr. Spinelli’s salary for the 2022 fiscal year was in an amount recommended by the CEO. The considerations entering into the determination by the CEO of the salary recommendation for each of Mr. Buchel and Mr. Spinelli were ​ Table of Contents the CEO’s subjective evaluations of the ability and past performance of Mr. Buchel and the CEO’s judgment of their potential for enhancing the Company’s profitability. With respect to Mr. Buchel, his base salary was increased to reflect the increase in executive duties he assumed. Annual Cash Incentives . The Committee’s policy is that named executive officers, other than the CEO, should receive short term incentive compensation in the form of bonuses based on recommendations by the CEO who may base such determinations on targets established for the named executive officers. For fiscal year 2022, based on the CEO’s recommendation, each named executive officer (including the CEO) received a cash bonus that was not based on attaining any targets but was based, in part, on the Company’s increase in revenues and profitability. Long-term Incentive Awards . The purpose of the granting of stock options is to retain the services of the named executive officers and our key employees and encourage them to improve our operating results and to become shareholders of the Company, all of which is intended to result in increased shareholder value. The Committee’s policy is generally to grant options to the named executive officers other than the CEO under the Company’s Stock Option Plans after consideration of the amounts recommended periodically by the CEO. The recommendations of the CEO for option grants reflect the subjective judgment of the CEO of the performance of such executives and the potential benefit to the Company from the grant of this form of incentive compensation. 388,000 stock options were granted during fiscal year 2022. Employee Benefits, Perquisites and Other Personal Benefits. As a general rule, we do not provide special benefits to senior executives and the named executive officers participate in the same plans – including term life insurance, health and disability insurance – available to all salaried employees. We do, however, pay the premiums on life insurance policies for the benefit of each of the named executive officers and on health insurance policies for the benefit of Mr. Soloway. See footnote to the Summary Compensation Table. We offer one retirement plan, a qualified profit sharing 401(k) plan to all employees, including the named executive officers that matches 50% of an employee’s contribution up to the first 3% of the employee’s salary subject to an overall dollar cap. We have provided certain perquisites to the named executive officers, as summarized in footnotes 2 and 3 to the “Summary Compensation Table.” IRC Section 162(m) . Under Section 162(m) of the Internal Revenue Code ("Section 162(m)"), compensation paid to each of the Company’s "covered employees" that exceeds $1 million per taxable year is generally non-deductible unless the compensation qualifies for certain exceptions that are not applicable to the Company. Although the Compensation Committee will continue to consider tax implications as one factor in determining executive compensation, the Compensation Committee also looks at other factors in making its decisions and retains the flexibility to provide compensation for our named executive officers in a manner consistent with the goals of our executive compensation program and the best interests of our Company and our stockholders, which may include providing for compensation that is not deductible by us due to the deduction limit under Section 162(m). Employment Agreements Change in Control, Severance Agreements. Under Mr. Soloway’s Employment Agreement, if during its term there should be a change in control, then Mr. Soloway is entitled to terminate his employment and is entitled to receive a termination payment equal to 299% of the average of the prior five calendar years’ compensation, subject to certain limitations. If the Company terminates Mr. Soloway’s employment other than for Cause, as defined, or if Mr. Soloway terminates his employment with the Company for Good Reason, as defined, the Company shall pay a lump sum payment equal to (i) Mr. Soloway’s annual base salary plus the bonus paid for the prior fiscal year multiplied by (ii) the greater of the number of years or portion thereof remaining in the term of the Agreement or three years. The agreement with Mr. Carrieri provides for payment equal to nine months of salary and six months of health insurance in the event of a non-voluntary termination of employment of the officer without cause. In addition, the Company has a severance agreement with Kevin S. Buchel providing for payments equal to nine months of salary and six months of health insurance in the event of a non-voluntary termination of employment without cause. ​ Table of Contents We believe these changes in control and severance arrangements help to retain these executive talents by providing them with a sense of commitment by the Company to them. Code of Ethics We have adopted a Code of Ethics which applies to our senior executive and financial officers, among others. The Code is posted on our website, www.napcosecurity.com , under the “Investors – Corporate Governance” caption. We intend to make all required disclosures regarding any amendment to, or waiver of, a provision of the Code of Ethics for senior executive and financial officers by posting such information on our website. Audit Committee The Company has a standing Audit Committee. It is responsible for retaining, evaluating and, if appropriate, recommending the termination of the Company’s independent auditors. The Audit Committee assists the Board in oversight of (1) the integrity of the Company’s financial statements, (2) the Company’s independent auditor’s qualifications and independence, and (3) the performance of the Company’s internal audit function and independent auditors. In addition, the Committee renders its report for inclusion in the Company’s annual proxy statement. The Audit Committee has the authority to obtain advice and assistance from outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties. The Audit Committee held six meetings in fiscal year 2022. The Audit Committee is vested with authority to approve any related party transaction. The current members of the Audit Committee are Andrew J. Wilder (Chairman), Paul Stephen Beeber and Robert A. Ungar, each of whom meets the NASDAQ Listing Standards for the independence of audit committee members. The Board has determined that Andrew Wilder is an audit committee financial expert. The committee charter of the Audit Committee is set forth in the “Investors” section of the Company’s website, www.napcosecurity.com. ITEM 11: EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS The total fiscal year 2022 compensation of non-employee Directors is shown in the following table. Director Compensation ​ Name Fees Earned or Paid in Cash ($) (1) Option Awards ($) (2) All Other Compensation ($) (3) Total ($) Paul Stephen Beeber ​ $ 50,000 ​ $ 68,060 ​ — ​ $ 118,060 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Donna A. Soloway ​ $ 45,000 ​ $ 68,060 ​ — ​ $ 113,060 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Andrew J. Wilder ​ $ 55,000 ​ $ 68,060 ​ — ​ $ 123,060 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Robert A. Ungar ​ $ 50,000 ​ $ 45,764 ​ — ​ $ 95,764 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Rick Lazio ​ $ 50,000 ​ $ 47,611 ​ — ​ $ 97,611 (1) Each director who is not an employee receives a fee for each Board of Directors meeting. Mr. Wilder, as Chairman of the Audit Committee, receives $11,000 for each meeting. Ms. Soloway is not a member of any committee and receives $9,000 for each meeting. All other directors, as members of the various committees, receive $10,000 for each meeting. (2) Amounts reflect the share-based compensation expense recognized by the Company in the year ended June 30, 2022, in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in footnote 8 to the Notes to Consolidated Financial Statements contained in the Company’s Form 10-K for the year ended June 30, 2022. ​ Table of Contents (3) At June 30, 2022, each of Ms. Soloway and Mr. Wilder held outstanding options to purchase 37,100 shares of Common Stock of the Company, of which 21,300 were vested at June 30, 2022; Mr. Beeber held outstanding options to purchase 24,100 shares of Common Stock of the Company, of which 8,300 were vested at June 30, 2022; Mr. Ungar held outstanding options to purchase 18,000 shares of common stock of which 6,800 were vested; and Mr. Lazio held outstanding options to purchase 20,000 shares of common stock of which 6,000 were vested. EXECUTIVE COMPENSATION Compensation Committee The Compensation Committee assists the Board in discharging its responsibilities relating to compensation of the Company’s executive officers. The Compensation Committee determines the compensation of the Company’s Chief Executive Officer and the other named executive officers. The Chief Executive Officer makes recommendations on our executive compensation program and the compensation of our named executive officers. In addition, the Committee determines individuals to be granted options under the 2012 Employee Stock Option Plan, the number of options awarded and the term of the options and interprets provisions of such plan. The current members of the Compensation Committee are Paul Beeber (Chairman), Andrew J. Wilder, and Rick Lazio, each of whom meets the NASDAQ Listing Standards for independence for Compensation Committee members The Compensation Committee held 2 meetings in fiscal year 2022. The Chief Executive Officer typically attends meetings of the Committee. The Committee’s process includes executive sessions where the Committee meets without the presence of the Chief Executive Officer. Neither the Committee nor the Company has engaged a compensation consultant. Compensation Committee Interlocks and Insider Participation During fiscal year 2022, Messrs. Beeber (since August 2020), Wilder and, Lazio (since 2020) served as members of our Compensation Committee. No member of the Compensation Committee was an employee or officer of the Company during fiscal year 2022, a former officer of the Company, or had any other relationship with us requiring disclosure herein. During the fiscal year 2022, none of our executive officers served as a member of the Board of Directors or committee thereof of any other entity. COMPENSATION COMMITTEE REPORT The Compensation Committee of the Board of Directors hereby reports as follows: 1. The Compensation Committee has reviewed, and discussed with management, the Company’s Compensation Discussion & Analysis (“CD&A”) appearing above. 2. Based on the review and discussions referred to in paragraph 1 above, the Compensation Committee recommended to the Board of Directors that the CD&A be included in this Annual Report on Form 10-K for the fiscal year ended June 30, 2022 to be filed with the Securities and Exchange Commission. ​ The Compensation Committee: ​ ​ ​ Paul Beeber (Chairman) ​ Andrew J. Wilder ​ Rick Lazio ​ The foregoing report of the Compensation Committee shall not be deemed to be soliciting material, to be filed with the SEC or to be incorporated by reference into any of our previous or future filings with the SEC, except as otherwise explicitly specified by us in any such filing. ​ ​ Table of Contents The Summary Compensation Table below sets forth compensation information for our Chief Executive Officer and our three most highly compensated executive officers during fiscal years 2022, 2021 and 2020 of the Company. ​ Summary Compensation Table ​ Name and Principal Position Fiscal Year Salary ($) Bonus (1) ($) Option Awards (2) ($) All Other Compensation ($) Total ($) Richard L. Soloway, (3) Chairman of the Board of ​ 2022 ​ 853,223 ​ 453,390 ​ 367,468 ​ 62,378 ​ 1,736,460 Directors, CEO, President and Secretary ​ 2021 ​ 821,646 ​ 357,000 ​ 46,922 ​ 64,379 ​ 1,289,947 ​ ​ 2020 ​ 790,045 ​ 199,500 ​ 82,155 ​ 63,672 ​ 1,135,372 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Kevin S. Buchel, (4) Executive Vice President ​ 2022 ​ 461,410 ​ 158,750 ​ 395,626 ​ 15,460 ​ 1,031,246 of Operations , CFO and Treasurer ​ 2021 ​ 448,237 ​ 125,000 ​ 52,978 ​ 14,945 ​ 641,160 ​ ​ 2020 ​ 369,198 ​ 70,000 ​ 86,242 ​ 14,386 ​ 539,826 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Michael Carrieri, Senior Vice President of ​ 2022 ​ 356,230 ​ 158,750 ​ 196,329 ​ 13,101 ​ 724,410 Engineering Development ​ 2021 ​ 341,502 ​ 125,000 ​ 27,098 ​ 11,145 ​ 504,745 ​ ​ 2020 ​ 329,568 ​ 70,000 ​ 47,422 ​ 12,991 ​ 459,981 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stephen Spinelli, Senior Vice President of Sales ​ 2022 ​ 260,001 ​ 125,000 ​ 62,509 ​ 3,613 ​ 453,823 ​ ​ 2021 ​ 250,962 ​ 25,000 ​ 81,512 ​ 590 ​ 358,064 (1) Amounts reflect compensation granted under discretionary bonus arrangements with each officer based on year over year increases in net sales for each of the fiscal years shown. (2) Amounts reflect the share-based compensation expense recognized by the Company in the fiscal years ended June 30, 2022, June 30, 2021, and June 30, 2020, in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in footnote 8 to the Notes to Consolidated Financial Statements contained in the Company’s Form 10-K for the year ended June 30, 2022. (3) All other compensation for Mr. Soloway for fiscal 2022 included payment of health and life insurance premiums of $36,146 and automobile expenses of $21,644. All other compensation for Mr. Soloway for fiscal 2021 included payment of health and life insurance premiums of $35,148 and automobile expenses of $25,569. All other compensation for Mr. Soloway for fiscal 2020 includes payment of health and life insurance premiums of $33,626 and automobile expenses of $29,897. (4) All other compensation for Messrs. Buchel, Carrieri and Spinelli includes payment of life insurance premiums and automobile expenses. ​ Table of Contents Outstanding Equity Awards at Fiscal Year-End Option Awards ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ ​ Number of ​ Securities ​ ​ ​ ​ ​ ​ Securities Underlying ​ Underlying ​ Option ​ ​ ​ ​ Unexercised Options ​ Unexercised Options ​ Exercise ​ Option ​ ​ (#) ​ (#) ​ Price ​ Expiration Name ​ Exercisable ​ Un-exercisable ​ ($) ​ Date Richard L. Soloway ​ 6,000 ​ — 4.813 ​ 12/14/2027 ​ ​ 12,800 ​ 3,200 (1) ​ 8.080 ​ 10/1/2028 ​ ​ 9,600 ​ 6,400 (3) ​ 16.795 ​ 10/27/2029 ​ ​ 20,000 ​ 80,000 (6) ​ 24.745 ​ 10/18/2031 ​ ​ ​ ​ ​ ​ ​ ​ ​ Kevin S. Buchel ​ 2,000 ​ — 4.375 ​ 12/14/2027 ​ ​ 1,600 ​ 1,600 (2) ​ 7.345 ​ 10/1/2028 ​ ​ 4,800 ​ 3,200 (4) ​ 15.270 ​ 10/27/2029 ​ ​ 12,000 ​ 8,000 (5) ​ 11.675 ​ 2/11/2030 ​ ​ 20,000 ​ 80,000 (6) ​ 22.495 ​ 10/18/2031 ​ ​ ​ ​ ​ ​ ​ ​ ​ Michael Carrieri ​ 2,000 ​ — ​ 4.375 ​ 12/14/2027 ​ ​ 1,600 ​ 1,600 (2) ​ 7.345 ​ 10/1/2028 ​ ​ 1,600 ​ 3,200 (4) ​ 15.270 ​ 10/27/2029 ​ ​ 10,000 ​ 40,000 (7) ​ 22.495 ​ 10/18/2031 ​ ​ ​ ​ ​ ​ ​ ​ ​ Stephen Spinelli ​ 23,952 ​ 35,928 (8) ​ 10.020 ​ 4/29/30 (1) Options as to 3,200 shares vest on December 15, 2022. (2) Options as to 1,600 shares vest on October 2, 2022. (3) Options as to 3,200 shares vest on October 28 in each of 2022 and 2023. (4) Options as to 1,600 shares vest on October 28 in each of 2022 and 2023. (5) Options as to 4,000 shares vest on February 12 in each of 2023 and 2024. (6) Options as to 20,000 shares vest on October 19 in each of 2022, 2023, 2024 and 2025. (7) Options as to 10,000 shares vest on October 19 in each of 2022, 2023, 2024 and 2025. (8) Options as to 11,976 shares vest on April 30 in each of 2023, 2024 and 2025. Employment Agreements and Potential Payments Upon Termination or Change in Control The Company has an employment agreement with each of Richard L. Soloway and Michael Carrieri. The agreement with Mr. Soloway, entered into on June 26, 2003, is for a five-year period, and then year to year unless notice of termination is given at least six months prior to the end of the then applicable term. The Agreement provides for a minimum annual salary to be adjusted for inflation and discretionary annual incentive compensation. Mr. Soloway’s agreement contains non-compete restrictions during his employment and for one year after termination for any reason. The agreement also provides for termination payments to Mr. Soloway upon death, disability, termination by the Company other than for Cause, as defined, termination by Mr. Soloway for Good Reason, as defined, and termination by Mr. Soloway within twelve months of a change in control. In the event of death, the termination payment equals one year’s salary payable over one year plus a bonus calculated on a pro rata basis through the end of the fiscal quarter immediately preceding death. In the event of disability, the Company must pay Mr. Soloway an amount equal to 60% of his annual salary through the term of the agreement plus his bonus on a pro rata basis through the end of the fiscal quarter preceding the sixth month of his disability. In the event the Company terminates Mr. Soloway other than for Cause or if Mr. Soloway terminates for ​ Table of Contents Good Reason, the Company must pay Mr. Soloway, in a lump sum, an amount equal to three times his annual salary plus the bonus paid to him for the year prior to his termination. If during the term there should be a change in control, then Mr. Soloway is entitled to terminate his employment, and the Company is required to pay him, an amount equal to 299% of the average of the prior five calendar years’ total compensation, subject to certain limitations. The Company’s option plans provide for the accelerated vesting of unvested options upon a change in control. Under such agreement, had Mr. Soloway’s employment terminated on June 30, 2022 on account of (i) death, (ii) disability or (iii) by the Company other than for Cause, or by Mr. Soloway for Good Reason, the Company would have been required to pay him $1,306,613, $511,934 and $3,919,840, respectively. Had Mr. Soloway’s employment terminated on June 30, 2021 after a change of control, the Company would have been required to pay him $3,777,112 pursuant to his employment agreement. In addition, assuming a change of control on June 30, 2022, vesting of options to purchase 89,600 shares of Common Stock of the Company would have been accelerated. The value of such accelerated options would have been $64,320 based upon the closing price per share of $20.59 of the Company’s Common Stock on the NASDAQ Global Market on June 30, 2022. Mr. Carrieri’s agreement, as amended, terminates in August 2024 and provides for an annual salary of $361,000. Mr. Carrieri’s agreement, as amended, provides for payment equal to nine months of salary and six months of health insurance in the event of a non-voluntary termination of employment without cause or for any reason within three months of a change in control of the Company. Had either of such events occurred on June 30, 2022, the Company would have been required to pay him $267,173. In addition, the Company has a severance agreement with Kevin S. Buchel providing for payments equal to nine months of salary and six months of health insurance in the event of a non-voluntary termination of employment without cause or for any reason upon a change of control of the Company. Had Mr. Buchel’s employment been terminated on June 30, 2022 non-voluntarily without cause, the Company would have been required to pay him $349,666 pursuant to such severance agreement. In the event of a change of control on June 30, 2022, vesting of options to purchase 92,800 and 44,800 shares of Common Stock of the Company would have accelerated for Messrs. Buchel and Carrieri, respectively. The value of such accelerated options would have been $109,536 and $38,216 for Messrs. Buchel and Carrieri, respectively, based on a closing price of $20.59 per share of the Company’s Common Stock on the NASDAQ Global Market on June 30, 2022. Each of the agreements with Mr. Carrieri and Mr. Buchel contains non-compete restrictions for three years after the employee’s termination of employment. CEO Pay Ratio - 2022 The 2022 annual total compensation of our CEO was $1,736,460, the 2022 annual total compensation of our median compensated employee was $2,566 and the ratio of these amounts is 639 to 1. We determined our median compensated employee by using base salary, bonuses, commissions, and grant date fair value of equity awards granted to employees in fiscal 2022. We applied this measure to our global employee population as of June 30, 2022, the last day of our 2022 fiscal year, and annualized base salaries for permanent full-time and part-time employees that did not work the full year. The global employee population utilized to identify the median employee used in the calculation includes the Company’s employees in the Dominican Republic, which make up a majority of employees of the Company and typically have lower compensation than those employees located in the United States. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information regarding Equity Compensation Plan Information as of June 30, 2022 is included in Item 5. BENEFICIAL OWNERSHIP OF COMMON STOCK The following table, together with the accompanying footnotes, sets forth information as of August 22, 2022, regarding the beneficial ownership (as defined by the Securities and Exchange Commission) of Common Stock of the Company of (a) each person known by ​ Table of Contents the Company to own more than five percent of the Company’s outstanding Common Stock, (b) each director of the Company (c) each executive officer named in the Summary Compensation Table, and (d) all executive officers and directors of the Company as a group. ​ ​ ​ Amount and Nature of Percent of Beneficial Owner ​ Beneficial Ownership (1) ​ Common Stock (2) ​ Richard L. Soloway c/o the Company 333 Bayview Avenue Amityville, NY 11701 ​ 7,341,052 ​ 19.98 % Kevin S. Buchel ​ 315,846 ​ * ​ Andrew J. Wilder ​ 88,736 ​ * ​ Michael Carrieri ​ 45,840 ​ * ​ Donna A. Soloway ​ 31,162 ​ * ​ Stephen Spinelli ​ 24,952 ​ * ​ Paul Stephen Beeber ​ 13,767 ​ * ​ Rick Lazio ​ 10,000 ​ * ​ Robert A. Ungar ​ 8,800 ​ * ​ All named executive officers and directors as a group (10 in number) (3) ​ 7,880,155 ​ 21.45 % * Less than 1% (1) This number includes the number of shares that a person has a right to acquire within sixty (60) days (R. Soloway – 73,600, Buchel – 63,040, Wilder – 23,300 Carrieri – 27,840, D. Soloway – 23,300, Spinelli – 24,952, Beeber – 10,300, Lazio – 10,000 and Ungar – 8,800). (2) Percentages for each person or the group are computed on the basis of 36,734,482 shares of Common Stock outstanding on June 30, 2022, plus the number of shares that such person or group has the right to acquire within sixty (60) days. Except as otherwise noted, persons named in the table and footnotes have sole voting and investment power with respect to all shares of Common Stock reported as beneficially owned by them. (3) This number of shares includes (i) 7,615,023 shares as to which officers and directors have sole voting and investment power, and (ii) 265,132 shares that officers and directors have the right to acquire within sixty (60) days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Independence of Directors The Board currently consists of seven directors, four of whom the Board has affirmatively determined have no relationship with the Company or its subsidiaries which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and are independent as defined by the applicable NASDAQ Listing Standards. The four independent directors are Paul Stephen Beeber, Rick Lazio, Robert A. Ungar and Andrew J. Wilder. Board Leadership Structure The Board does not have a policy as to whether or not the roles of Chief Executive Officer and Chairman of the Board should be separate. The Board believes that it should be free to make a choice on the leadership structure of the Board from time to time in any manner that is in the best interests of the Company and its stockholders. Currently, and since 1998, Mr. Soloway has served as the Chairman of the Board, CEO and President. The Board of Directors has not elected a Lead Independent Director. Board Oversight of Risk The Company faces a variety of risks including strategic and operational risks, financial and liquidity risks, compliance risks and financial reporting risks. The Board exercises its oversight of the Company’s risks through regular reports to the Board from the Chief ​ Table of Contents Executive Officer, and other members of management on areas of material risk, actions and strategies to mitigate those risks and the effectiveness of those actions and strategies. In addition, the Board oversees risk through oversight by the Audit Committee. The Audit Committee discusses with management the Company’s policies with respect to risk assessment and risk management, including the Company’s financial risk exposures and the steps management has taken to monitor and control its risks. Board Structure and Committee Composition The Board maintains three standing committees: Audit, Compensation, and Nominating. Each Committee is composed entirely of independent directors as defined in the applicable NASDAQ Listing Standards. Members of the Audit and Compensation Committees were identified earlier. The Nominating Committee consists of Robert Ungar, Rick Lazio and Andrew Wilder. During fiscal 2022, the Board held 8 meetings. Each director attended at least 75% of all Board meetings and meetings of committees of which such director was a member. NAPCO maintains an “Investors” section on its website, www.napcosecurity.com , setting forth the Company’s committee charters for the Audit, Compensation and Nominating Committees. Policy With Respect to Related Person Transactions It is the Company’s policy, set forth in writing, not to permit any transaction in which the Company is a party and in which executive officers or directors, their immediate family members, or 5% shareholders have or will have a direct or indirect material interest unless approved by the Audit Committee of the Board of Directors, other than 1. transactions available to all employees; 2. transactions involving compensation or business expense reimbursement approved by the Compensation Committee or by disinterested members of the Board of Directors; or 3. transactions involving less than $120,000 when aggregated with all similar transactions. Any issues as to the application of this policy shall be resolved by the Audit Committee of the Board of Directors. A copy of our Statement of Policy with Respect to Related Person Transactions is available at the Company’s website, www.napcosecurity.com , under the “Investors” caption. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Principal Accountant Fees The fees billed for professional services for fiscal years 2022, 2021 and 2020 by Baker Tilly, the Company’s independent registered public accountants, for professional services were as follows: ​ ​ ​ ​ ​ ​ Fiscal Year 2022 Fiscal Year 2021 Fiscal Year 2020 Audit Fees (1) ​ $ 351,500 ​ $ 342,000 ​ $ 322,500 Audit Related Fees ​ ​ — ​ ​ — ​ ​ — Tax Fees ​ ​ — ​ ​ — ​ ​ — All Other Fees (2) ​ $ 22,000 ​ $ 19,000 ​ $ 18,500 (1) Includes audit of financial statements, SAS 100 reviews and consultations for 2022, 2021 and 2020, respectively and audit of internal controls for 2021, 2020 and 2019. (2) Includes services related to the audit of the Company’s employee benefit plan for the plan years ended December 31, 2022, 2021 and 2020, respectively. The Audit Committee has considered whether the provision of the services described above under the headings “All Other Fees” is compatible with maintaining the auditor’s independence and determined that it is. In fiscal years 2022, 2021 and 2020, 100% of “All Other Fees” were approved by the Audit Committee. ​ Table of Contents Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors The Audit Committee specifically pre-approves all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval may be provided for up to one year. Each pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. PART IV ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) 1. Financial Statements The following consolidated financial statements of NAPCO Security Technologies, Inc. and its subsidiaries are included in Part II, Item 8: ​ Page Management Report on Internal Control FS-1 Report of Independent Registered Public Accounting Firm (PCAOB ID 23) FS-2 Consolidated Financial Statements: ​ ​ Consolidated Balance Sheets as of June 30, 2022 and 2021 FS-6 Consolidated Statements of Income for the Fiscal Years Ended June 30, 2022, 2021 and 2020 FS-7 Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended June 30, 2022, 2021 and 2020 FS-8 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2022 2021 and 2020 FS-9 Notes to Consolidated Financial Statements FS-10 ​ (a) 2. Financial Statement Schedules The following consolidated financial statement schedules of NAPCO Security Technologies, Inc. and its subsidiaries are included in Part II, Item 8: B. Supplementary Financial Data (a) 3. and (b). Exhibits ​ Management Contracts designated by asterisk. Exhibit No. Title Ex-3.(i) Certificate of Amendment of Certificate of Incorporation Exhibit-3.(i) to Report on Form 10-K (Commission file No. 0-10004) for the fiscal year ended June 30, 2011 Ex-3.(ii) Certificate of Incorporation as amended Exhibit-3.(ii) to Report on Form 10-K (Commission file No. 0-10004) for the fiscal year ended June, 30 2011 ​ Table of Contents Ex-3.(iii) Second Amended and Restated By-Laws Exhibit 10.3 to Report on Form 8-K (Commission file No. 0-10004) filed on September 8, 2020 Ex-3.(iv) Amendment to the Amended and Restated Certificate of Incorporation Exhibit 3.(iv) to Report on Form 8-K (Commission file No. 0-10004) filed on December 7, 2021 ​ Ex 4.01 Third Amended and Restated Credit Agreement dated June 29, 2012. Exhibit 4.01 to Report on Form 8-K (Commission file No. 0-10004) dated June 29, 2012 Ex 4.02 Second Amended and Restated Term A Loan Note Exhibit 4.02 to Report on Form 8-K (Commission file No. 0-10004) dated June 29, 2012 Ex 4.03 Second Amended and Restated Term B Loan Note Exhibit 4.03 to Report on Form 8-K (Commission file No. 0-10004) dated June 29, 2012 Ex 4.04 Second Amended and Restated Revolving Credit Note Exhibit 4.04 to Report on Form 8-K (Commission file No. 0-10004) dated June 29, 2012 Ex 4.05 Second Amended and Restated Swing Line Note Exhibit 4.05 to Report on Form 8-K (Commission file No. 0-10004) dated June 29, 2012 Ex 4.06 Continuing General Security Agreement Exhibit 4.06 to Report on Form 8-K (Commission file No. 0-10004) dated June 29, 2012 Ex 4.07 Reaffirmation of Collateral Documents Exhibit 4.07 to Report on Form 8-K (Commission file No. 0-10004) dated June 29, 2012 Ex 4.08 Reaffirmation of Negative Pledge Exhibit 4.08 to Report on Form 8-K (Commission file No. 0-10004) dated June 29, 2012 Ex 4.09 Amendment No. 3 to Third Amended and Restated Credit Agreement Item 1.01 (e) contained in Report on Form 8-K (Commission file No. 0-10004) dated June 28, 2016 Ex 4.10 Description of the Company’s Securities E-17 *Ex-10.A (ii) 2002 Employee Stock Option Plan Exhibit 10.A(II) to Report on Form 10-K (Commission file No. 0-10004) for the fiscal year ended June 30, 2008 *Ex-10.B 2012 Employee Stock Option Plan Appendix A to Proxy Statement dated October 29, 2012 for Annual Meeting of Stockholders to be held on December 11, 2012 *Ex-10.C 2012 Non-Employee Stock Option Plan Appendix B to Proxy Statement dated October 29, 2012 for Annual Meeting of Stockholders to be held on December 11, 2012 *Ex-10.D 2018 Non-Employee Stock Option Plan Appendix A to Proxy Statement dated October 29, 2018 for Annual Meeting of Stockholders to be held on December 11, 2018 ​ Table of Contents *Ex-10.E 2020 Non-Employee Stock Option Plan Appendix A to Proxy Statement dated April 13, 2020 for Annual Meeting of Stockholders to be held on May 21, 2020 *Ex-10.I Amended and Restated Employment Agreement with Richard Soloway Exhibit 10.I to Report on Form 10-K (Commission file No. 0-10004) for fiscal year ended June 30, 2010 *Ex-10.M Two (2) Year Extension, dated October 24, 2019, of Employment Agreement between the Registrant and Michael Carrieri Exhibit 10.M to Report on Form 10-K (Commission file No. 0-10004) for fiscal year ended June 30, 2020 *Ex-10.N Form of Indemnification Agreement adopted September 3, 2020 Exhibit 10.N to Report on Form 10-K (Commission file No. 0-10004) for fiscal year ended June 30, 2020 *Ex-10.O Severance Agreement between the Registrant and Kevin S Buchel dated December 30, 2015 Exhibit 10.O to Report on Form 10-Q (Commission file No. 0-10004) dated February 1, 2016 *Ex-10.P Compensation Agreement between the Registrant and Stephen Spinelli dated April 6, 2020 E-24 Ex-14.0 Code of Ethics Exhibit 14.0 to Report on Form 10-K (Commission file No. 0-10004) for the fiscal year ended June 30, 2010 Ex-21.0 Subsidiaries of the Registrant E-18 Ex-23.1 Consent of Independent Auditors E-19 Ex-31.1 Section 302 Certification of Chief Executive Officer E-20 Ex-31.2 Section 302 Certification of Chief Financial Officer E-21 Ex-32.1 Certification of Chief Executive Officer Pursuant to 18 USC Section 1350 and Section 906 of Sarbanes - Oxley Act of 2002 E-22 Ex-32.2 Certification of Chief Financial Officer Pursuant to 18 USC Section 1350 and Section 906 of Sarbanes - Oxley Act of 2002 E-23 Ex-101.INS Inline XBRL Instance Document ** Ex-101.SCH Inline XBRL Taxonomy Extension Schema Document** Ex-101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document** Ex-101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document** ​ Table of Contents Ex-101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document** Ex-101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document** Ex-104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) ​ ​ ​ SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. August 29, 2022 NAPCO SECURITY TECHNOLOGIES, INC. (Registrant) ​ By: /s/ RICHARD SOLOWAY Richard Soloway Chairman of the Board of Directors, President and Secretary (Principal Executive Officer) ​ Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and the dates indicated. ​ Signature Title Date /s/ RICHARD SOLOWAY Chairman of the Board of Directors, August 29, 2022 Richard Soloway President and Secretary and Director (Principal Executive Officer) /s/ KEVIN S. BUCHEL Executive Vice President August 29, 2022 Kevin S. Buchel and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ PAUL STEPHEN BEEBER Director August 29, 2022 Paul Stephen Beeber /s/ RICK LAZIO Director August 29, 2022 Rick Lazio /s/ DONNA SOLOWAY Director August 29, 2022 Donna Soloway /s/ ROBERT UNGAR Director August 29, 2022 Robert Ungar /s/ ANDREW J. WILDER Director August 29, 2022 Andrew J. Wilder ​ ​ ​ ​ Table of Contents ​ ​ ​ ​ ​