What changed in this filing

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Item 1. Financial Statements

2024-02-05 compared with 2023-11-09 · 221 added, 154 removed, 540 unchanged (41% of the section changed)

2 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2023

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

December 31, 2023

June 30, 2023

4 unchanged sentences

Marketable securities

Accounts receivable, net of allowance for credit losses of $ 107 and $ 131 as of September 30, 2023 and June 30, 2023, respectively

Accounts receivable, net of allowance for credit losses of $ 96 and $ 131 as of December 31, 2023 and June 30, 2023, respectively

Inventories, net

6 unchanged sentences

Deferred income taxes

Operating lease asset

Right-of-use asset

CURRENT LIABILITIES

4 unchanged sentences

Accrued income taxes

Long term operating lease liabilities

Long term right-of-use liability

TOTAL LIABILITIES

2 unchanged sentences

Common Stock, par value $ 0.01 per share;

100,000,000 shares authorized as of September 30, 2023 and June 30, 2023;

39,663,812 shares issued ;

and 36,770,097 shares outstanding as of each date.

100,000,000 shares authorized as of December 31, 2023 and June 30, 2023;

39,675,704 and 39,663,812 shares issued;

and 36,781,989 and 36,770,097 shares outstanding, respectively.

Additional paid-in capital

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Three Months ended September 30,

Three Months ended December 31,

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

18 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Six Months Ended December 31,

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

Equipment revenues

Service revenues

Cost of sales:

Equipment-related expenses

Service-related expenses

Operating expenses:

Research and development

Selling, general, and administrative expenses

Total Operating Expenses

Operating Income

Other income (expense):

Interest and other income (expense), net

Income before Provision for Income Taxes

Provision for Income Taxes

Income per share:

Weighted average number of shares outstanding:

NAPCO SECURITY TECHNOLOGIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (unaudited)

Three months ended September 30, 2023 (in thousands, except for share data)

Six months ended December 31, 2023 (in thousands, except for share data)

Treasury Stock

2 unchanged sentences

Stock-based compensation expense

Cash dividend

Cash dividend ($ .08 per share)

Balances at September 30, 2023

( 2,893,715 )

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

Stock-based compensation expense

Stock options exercised

Cash dividend ($ .08 per share)

Balances at December 31, 2023

( 2,893,715 )

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

Treasury Stock

5 unchanged sentences

( 2,893,715 )

Stock-based compensation expense

Stock options exercised

Balances at December 31, 2022

( 2,893,715 )

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Three Months ended September 30,

Six Months ended December 31,

(in thousands)

4 unchanged sentences

Interest income on other investments

Unrealized loss on marketable securities

Unrealized (gain) loss on marketable securities

(Recovery) of credit losses

28 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

September 30, 2023

December 31, 2023

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

22 unchanged sentences

The methods and assumptions used to estimate the fair value of the following classes of financial instruments were:

Current Assets and Current Liabilities - The carrying amount of cash and cash equivalents, certificates of deposits, current receivables and payables and certain other short-term financial instruments approximate their fair value as of September 30, 2023 and June 30, 2023 due to their short-term maturities.

Long-term debt and lease liabilities reflect fair value based on prevailing market rates.

Current Assets and Current Liabilities - The carrying amount of cash and cash equivalents, certificates of deposits, marketable securities, current receivables and payables and certain other short-term financial instruments approximate their fair value as of December 31, 2023 and June 30, 2023 due to their short-term maturities.

Lease liabilities reflect fair value based on prevailing market rates.

Cash and Cash Equivalents and Investments – other

Cash and cash equivalents include approximately $ 15,630,000 of short-term time deposits, consisting of several certificates of deposit totaling $ 15,366,000 and $ 264,000 in money market funds as of September 30, 2023.

Cash and cash equivalents include approximately $ 25,838,000 of short-term time deposits, consisting of several certificates of deposit totaling $ 5,275,000 and $ 20,562,000 in money market funds as of December 31, 2023.

Cash and cash equivalents include approximately $ 15,242,000 of short-term time deposits, consisting of several certificates of deposit totaling $ 15,179,000 and $ 63,000 in a money

3 unchanged sentences

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

September 30, 2023

December 31, 2023

June 30, 2023

2 unchanged sentences

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

September 30, 2023

December 31, 2023

June 30, 2023

2 unchanged sentences

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

September 30, 2023

December 31, 2023

Balance Sheet Classification

3 unchanged sentences

Cash and Cash Equivalents

4.77 % - 5.25 %

11/22/2023 - 11/27/2023

Investments - other

1 unchanged sentence

2/23/2024 - 4/24/2024

The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of September 30, 2023 and June 30, 2023.

The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of December 31, 2023 and June 30, 2023.

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

4 unchanged sentences

The Company would record an impairment charge if the cost of the available-for-sale securities exceeds the estimated fair value of the securities and the decline in value is determined to be other-than-temporary.

During the three months ended September 30, 2023, the Company did not record an impairment charge regarding its investment in marketable securities because

During the three and six months ended December 31, 2023, 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 credit losses of $ 107,000 and $ 131,000 as of September 30, 2023 and June 30, 2023, respectively.

Accounts receivable is stated net of the reserves for credit losses of $ 96,000 and $ 131,000 as of December 31, 2023 and June 30, 2023, respectively.

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

20 unchanged sentences

Long-lived assets are amortized over their useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable.

Impairment would be recorded in circumstances

where undiscounted cash flows expected to be generated by an asset are less than the carrying value of that asset.

Intangible assets determined to have indefinite lives were not amortized but were tested for impairment at least annually.

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 consisted of the follows (in thousands):

September 30, 2023

December 31, 2023

June 30, 2023

Customer relationships

Amortization expense for intangible assets subject to amortization was approximately $ 84,000 and $ 90,000 for the three months ended September 30, 2023 and 2022, respectively.

Amortization expense for intangible assets subject to amortization was approximately $ 84,000 and $ 90,000 for the three months ended December 31, 2023 and 2022, respectively.

Amortization expense for intangible assets subject to amortization was approximately $ 168,000 and $ 181,000 for the six months ended December 31, 2023 and 2022, respectively.

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

4 unchanged sentences

and 2028 - $ 269,000 .

The weighted average remaining amortization period for intangible assets was 15.3 years and 15.5 years at September 30, 2023 and June 30, 2023, respectively.

The weighted average remaining amortization period for intangible assets was 15.1 years and 15.5 years at December 31, 2023 and June 30, 2023, respectively.

Revenue Recognition

7 unchanged sentences

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

In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account the related elements of variable consideration.

Such elements of variable consideration include product returns and sales incentives, such as volume rebates and discounts, and early-payment discounts.

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

3 unchanged sentences

Changes to the estimated variable consideration in subsequent periods are not material.

The Company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the Company’s past history.

Estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers.

Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns.

The Company analyzes sales returns, rebates and credits and is able to make reasonable and reliable estimates of product returns based on the Company’s past history.

Estimates for sales returns, rebates and credits are based on several factors including actual returns, rebates and credits and based on expected return data communicated to it by its customers.

Accordingly, the Company believes that its historical returns, rebates and credits 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 the three months ended September 30, 2023 and 2022 was $ 761,000 and $ 754,000 , respectively.

Advertising and promotional costs are included in "Selling, General and Administrative" (“SG&A”) expenses in the consolidated statements of income and are expensed as incurred.

Advertising expense for the three months ended December 31, 2023 and 2022 was

$ 696,000 and $ 505,000 , respectively.

Advertising expense for the six months ended December 31, 2023 and 2022 was $ 1,457,000 and $ 1,259,000 , respectively.

Research and Development Costs

Research and development (“R&D”) costs incurred by the Company are charged to expense as incurred and are included in operating expenses in the consolidated statements of income.

Company-sponsored R&D expense for the three months ended September 30, 2023 and 2022 was $ 2,437,000 and $ 2,428,000 , respectively.

Company-sponsored R&D expense for the three months ended December 31, 2023 and 2022 was $ 2,542,000 and $ 2,222,000 , respectively.

Company-sponsored R&D expense for the six months ended December 31, 2023 and 2022 was $ 4,979,000 and $ 4,650,000 , respectively.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

8 unchanged sentences

Diluted net income per common share (Diluted EPS) is computed by dividing net income by the weighted average number of common shares and dilutive common share equivalents and convertible securities then outstanding.

The following provides a reconciliation of information used in calculating the per share amounts for the three months ended September 30, 2023 and 2022 (in thousands, except share and per share data):

The following provides a reconciliation of information used in calculating the per share amounts for the three months ended December 31, 2023 and 2022 (in thousands, except share and per share data):

Weighted Average Shares

2 unchanged sentences

Stock Options

Options to purchase 5,000 and 62,500 shares of common stock were excluded for the three months ended September 30, 2023 and 2022, respectively, and were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive.

Options to purchase 67,500 and 0 shares of common stock were excluded for the three months ended December 31, 2023 and 2022, respectively, and were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive.

These options were still outstanding at the end of the period.

The following provides a reconciliation of information used in calculating the per share amounts for the six months ended December 31, 2023 and 2022 (in thousands, except share and per share data):

Weighted Average

Net Income per

Effect of Dilutive Securities:

Stock Options

Options to purchase 36,250 and 12,568 shares of common stock were excluded for the six months ended December 31, 2023 and 2022, respectively, and were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive.

These options were still outstanding at the end of the period.

Stock-Based Compensation

2 unchanged sentences

Determining the fair value of share-based awards at the grant date requires assumptions and judgments about expected volatility and forfeiture rates, among other factors.

Stock-based compensation costs of $ 307,000 and $ 477,000 were recognized for the three months ended September 30, 2023 and 2022, respectively.

Stock-based compensation costs of $ 303,000 and $ 335,000 were recognized for the three months ended December 31, 2023 and 2022, respectively.

Stock-based compensation costs of $ 610,000 and $ 812,000 were recognized for the six months ended December 31, 2023 and 2022, respectively.

Foreign Currency

2 unchanged sentences

The day-to-day operations of all foreign subsidiaries are dependent on the economic environment of the U.S.

Therefore, no realized and unrealized gains and losses associated with foreign currency translation are recorded for the three months ended September 30, 2023 or 2022.

Therefore, no realized and unrealized gains and losses associated with foreign currency translation are recorded for the three and six months ended December 31, 2023 or 2022.

Comprehensive Income

For the three months ended September 30, 2023 and 2022, the Company’s operations did not give rise to material items includable in comprehensive income, which were not already included in net income.

For the three and six months ended December 31, 2023 and 2022, the Company’s operations did not give rise to material items includable in comprehensive income, which were not already included in net income.

Accordingly, the Company’s comprehensive income approximates its net income for all periods presented.

5 unchanged sentences

Shipping and Handling Sales and Costs

The Company records the amount billed to customers for shipping and handling in net sales ($ 83,000 and $ 112,000 in the three months ended September 30, 2023 and 2022, respectively);

and classifies the costs associated with these sales in cost of sales ($ 371,000 and $ 394,000 in the three months ended September 30, 2023 and 2022, respectively).

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

The Company records the amount billed to customers for shipping and handling in net sales ($ 103,000 and $ 128,000 in the three months ended December 31, 2023 and 2022, respectively, and $ 186,000 and $ 240,000 in the six months ended December 31, 2023 and 2022, respectively);

and classifies the costs associated with these sales in cost of sales ($ 389,000 and $ 454,000 in the three months ended December 31, 2023 and 2022, respectively, and $ 760,000 and $ 848,000 in the six months ended December 31, 2023 and 2022, respectively).

The Company records a right of use asset and corresponding liability for the operating lease on our Consolidated Balance Sheets, excluding short-term leases (leases with terms of 12 months or less) as described under ASU No.

2016-02, Leases (Topic 842) .

5 unchanged sentences

Reference Rate Reform (ASC Topic 848)

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 March 2020, the FASB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”), which is expected to be phased out for new arrangements at the end of calendar 2021, and applies to lease contracts, hedging instruments, held-to-maturity debt securities and debt arrangements that have LIBOR as the benchmark rate.

The Company’s bank has notified the Company that its LIBOR option, which was available to it through June 30, 2023, has shifted to the Benchmark Replacement as defined in the agreement with the bank.

7 unchanged sentences

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

As of September 30, 2023 and June 30, 2023, the Company included refund liabilities of approximately $ 3,833,000 and $ 5,521,000 , respectively, in current liabilities.

As of September 30, 2023 and June 30, 2023, the Company included return-related assets of approximately $ 1,201,000 and $ 1,338,000 , respectively, in other current assets.

As a percentage of gross sales, returns, rebates and allowances were 4 % and 5 % for the three months ended September 30, 2023 and 2022, respectively.

As of December 31, 2023 and June 30, 2023, the Company included refund liabilities of approximately $ 4,612,000 and $ 5,521,000 , respectively, in current liabilities.

As of December 31, 2023 and June 30, 2023, the Company included return-related assets of approximately $ 1,221,000 and $ 1,338,000 , respectively, in other current assets.

As a percentage of gross sales, returns, rebates and allowances were 6 % and 5 % for the three months ended December 31, 2023 and 2022, respectively.

As a percentage of gross sales, returns, rebates and allowances were 5 % for both the six months ended December 31, 2023 and 2022, respectively.

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

2 unchanged sentences

Following is the disaggregation of revenues based on major product lines (in thousands):

Three months ended September 30,

Three months ended December 31,

Six months ended December 31,

Major Product Lines:

5 unchanged sentences

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

The Company had two customers with an accounts receivable balance that comprised of 13 % and 10 % as of September 30, 2023.

The Company had two customers with an accounts receivable balance that comprised of 19 % and 10 % as of December 31, 2023.

As of June 30, 2023, the accounts receivable balance with these respective customers were 19 % and 14 %.

Sales to either of these customers did not exceed 10% of net sales during the three months ended September 30, 2023, however sales to one of these two customers were 12 % for the three months ended September 30, 2022.

There were no other customers who had sales that comprised of 10% or more of net sales for the 3 months ended September 30, 2023 and 2022.

Sales to either of these customers did not exceed 10% of net sales during the three and six months ended December 31, 2023 and 2022, respectively.

NOTE 4 – Marketable Securities

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

The disaggregated net gains and losses

on the marketable securities recognized within the accompanying condensed consolidated statements of income for the three months ended September 30, 2023 and 2022, are as follows (in thousands):

Three months ended September 30,

The disaggregated net gains and losses on the marketable securities recognized within the accompanying condensed consolidated statements of income for the three and six months ended December 31, 2023 and 2022, are as follows (in thousands):

Three months ended December 31,

Six months ended December 31,

Net gains recognized during the period on marketable securities

8 unchanged sentences

The Company’s marketable securities, which are considered available-for-sale securities, are re-measured to fair value on a recurring basis and are valued using Level 1 inputs using quoted prices (unadjusted) for identical assets in active markets.

The following tables summarize the Company’s investments at September 30, 2023 and June 30, 2023, respectively (in thousands):

September 30, 2023

The following tables summarize the Company’s investments at December 31, 2023 and June 30, 2023, respectively (in thousands):

December 31, 2023

June 30, 2023

5 unchanged sentences

Inventories, net of reserves consist of the following (in thousands):

September 30,

Component parts

4 unchanged sentences

Property, plant and equipment consist of the following (in thousands):

September 30, 2023

December 31, 2023

June 30, 2023

6 unchanged sentences

accumulated depreciation and amortization

Depreciation and amortization expense on property, plant, and equipment was approximately $ 453,000 and $ 367,000 for the three months ended September 30, 2023 and 2022, respectively.

Depreciation and amortization expense on property, plant, and equipment was approximately $ 467,000 and $ 379,000 for the three months ended December 31, 2023 and 2022, respectively.

Depreciation and amortization expense on property, plant and equipment was approximately $ 920,000 and $ 747,000 for the six months ended December 31, 2023 and 2022, respectively.

NOTE 7 - Income Taxes

3 unchanged sentences

In addition, changes in judgment from the evaluation of new information resulting in the recognition de-recognition or re-measurement of a tax position taken in a prior annual period is recognized separately in the quarter of the change.

For the three months ended September 30, 2023 and September 30, 2022, the Company recognized net income tax expense of $ 1,517,000 and $ 461,000 , respectively.

For the six months ended December 31, 2023 the Company recognized total pre-tax book income of $ 26,529,000 , comprised of $ 3,696,000 and $ 22,833,000 of domestic and foreign pre-tax book income, respectively.

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 September 30, 2023, the Company had accrued interest totaling $ 162,000 , as well as $ 700,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period.

For the three months ended September 30, 2023, additional interest expense was accrued for in the amount of $ 23,000 .

As of December 31, 2023, the Company had accrued interest totaling $ 178,000 , as well as $ 700,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period.

For the six months ended December 31, 2023, additional interest expense was accrued for in the amount of $ 39,000 .

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

1 unchanged sentence

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

As of September 30, 2023, we remain subject to examination in all tax jurisdictions for all relevant jurisdictional statutes for fiscal years 2018 and thereafter.

As of December 31, 2023, we remain subject to examination in all tax jurisdictions for all relevant jurisdictional statutes for fiscal years 2018 and thereafter.

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

1 unchanged sentence

NOTE 8 - Long-Term Debt

As of September 30, 2023 and June 30, 2023, the Company had a revolving line of credit of $ 11,000,000 (“Revolver Agreement”) which expires in June 2024.

As of December 31, 2023 and June 30, 2023, the Company had a revolving line of credit of $ 11,000,000 (“Revolver Agreement”) which expires in June 2024.

As of December 31, 2023 and June 30, 2023, the Company has no outstanding debt.

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.

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.

2 unchanged sentences

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 new benchmark rate is the Secured Overnight Financing Rate (SOFR).

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 extinguishment was accounted for in accordance with ASC 470 “Debt”.

4 unchanged sentences

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

NOTE 9 - Stock Option

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 three months ended September 30, 2023 and 2022, the Company recorded non-cash compensation expense of $ 307,000 ($ 0.01 per basic and diluted share) and $ 477,000 ($ 0.01 per basic and diluted share), respectively, relating to stock-based compensation.

For the three months ended December 31, 2023 and 2022, the Company recorded non-cash compensation expense of $ 303,000 ($ 0.01 per basic and diluted share) and $ 335,000 ($ 0.01 per basic and diluted share), respectively, relating to stock-based compensation which are included in SG&A in the consolidated statements of income.

For the six months ended December 31, 2023 and 2022, the Company recorded non-cash compensation expense of $ 610,000 ($ 0.01 per basic and diluted share) and $ 812,000 ($ 0.02 per

basic and diluted share), respectively, relating to stock-based compensation which are included in SG&A in the consolidated statements of income.

2012 Employee Stock Option Plan

5 unchanged sentences

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

At September 30, 2023, 521,580 stock options were outstanding, 258,328 stock options were exercisable and no further stock options were available for grant under this plan.

0 and 37,500 options were granted during the three months ended September 30, 2023 and 2022, respectively.

At December 31, 2023, 478,980 stock options were outstanding, 289,728 stock options were exercisable and no further stock options were available for grant under this plan.

0 and 37,500 options were granted during the three and six months ended December 31, 2023 and 2022, respectively.

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

4 unchanged sentences

Expected dividend yields

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

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

Weighted average

10 unchanged sentences

Total intrinsic value of options exercisable

0 and 5,200 stock options were exercised during the three months ended September 30, 2023 and 2022, respectively.

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

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

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at September 30, 2023:

A total of 31,600 stock options were exercised during the three and six months ended December 31, 2023.

The 31,600 options that were exercised during the three and six months ended December 31, 2023 were settled by the Company withholding 20,567 from the shares issuable on exercise of the options.

The withheld shares of Common Stock had an aggregate fair market value on the date of exercise equal to the purchase price being paid.

No cash was received from the option exercises during the three and six months ended December 31, 2023.

The actual tax benefit realized for the tax deductions from option exercises during the three and six months ended December 31, 2023 was $ 52,000 each period.

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

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

No cash and $ 45,000 cash was received from the option exercises during the three and six months ended December 31, 2022.

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

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at December 31, 2023:

Options outstanding

8 unchanged sentences

$ 3.15 ‑ $ 26.94

As of September 30, 2023, there was $ 1,738,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan.

0 and 37,500 options were granted during the three months ended September 30, 2023 and 2022, respectively.

10,700 and 12,300 options vested during the three months ended September 30, 2023 and 2022, respectively.

The total grant date fair value of the options vesting during the three months ended September 30, 2023 and 2022 under this plan was $ 124,000 and $ 129,000 , respectively.

As of December 31, 2023, there was $ 1,518,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan.

No options were granted during the three and six months ended December 31, 2023.

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

74,000 and 84,700 options vested during the three and six months ended December 31, 2023.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2023 was $ 724,000 and $ 849,000 , respectively.

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

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

2012 Non-Employee Stock Option Plan

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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.

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

At September 30, 2023, 20,400 stock options were outstanding, 13,920 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three months ended September 30, 2023 or 2022.

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

At December 31, 2023, 20,400 stock options were outstanding, 15,840 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three and six months ended December 31, 2023 and 2022.

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

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Expected dividend yields

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

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

Weighted average

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Total intrinsic value of options exercisable

No stock options were exercised during the three months ended September 30, 2023 or 2022, respectively.

No cash was received from option exercises during the three months ended September 30, 2023 or 2022, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $ 0 for both periods.

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at September 30, 2023:

No stock options were exercised during the three and six months ended December 31, 2023 and 2022, respectively.

No cash was received from option exercises during the three and six months ended December 31, 2023 and 2022, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $ 0 for both periods.

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at December 31, 2023:

Options outstanding

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$ 4.35 - $ 22.93

As of September 30, 2023, there was $ 40,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan.

No options were granted during the three months ended September 30, 2023 and 2022, respectively.

No options vested during the three months ended September 30, 2023 and 2022.

As of December 31, 2023, there was $ 34,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan.

No options were granted during the three and six months ended December 31, 2023 and 2022, respectively.

1,920 options vested during the three and six months ended December 31, 2023 and 2022, respectively.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2023 and 2022 under this plan was $ 19,000 for both periods.

2018 Non-Employee Stock Option Plan

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

This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 100,000 shares of the Company's common

stock to be acquired by the holders of such awards.

This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 100,000 shares of the Company's common stock to be acquired by the holders of such awards.

Under this plan, the Company may grant stock options to non-employee directors and consultants to the Company and its subsidiaries.

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

At September 30, 2023, 75,000 stock options were outstanding, 50,720 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three months ended September 30, 2023 and 2022.

At December 31, 2023, 73,400 stock options were outstanding, 58,620 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three and six months ended December 31, 2023 and 2022.

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

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Expected dividend yields

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

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

Weighted average

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Total intrinsic value of options exercisable

0 and 6,300 options were exercised during the three months ended September 30, 2023 and 2022, respectively.

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

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

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at September 30, 2023:

A total of 1,600 stock options were exercised during the three and six months ended December 31, 2023.

The 1,600 options that were exercised during the three and six months ended December 31, 2023 were settled by the Company withholding 740 from the shares issuable on exercise of the options.

The withheld shares of Common Stock had an aggregate fair market value on the date of exercise equal to the purchase price being paid.

No cash was received from the option exercises during the three and six months ended December 31, 2023.

The actual tax benefit realized for the tax deductions from option exercises during the three and six months ended December 31, 2023 was $ 6,000 each period.

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

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

The 9,900 options that were exercised during the six months ended December 31, 2022, were settled by exchanging 5,657 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

No cash was received from option exercises during the three and six months ended December 31, 2022, and the actual tax benefit realized for the tax deductions from option exercises was $ 5,000 and $ 26,000 , respectively.

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at December 31, 2023:

Options outstanding

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$ 8.10 - $ 22.93

As of September 30, 2023, there was $ 104,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan.

No options were granted during the three months ended September 30, 2023 and 2022, respectively.

No options vested during the three months ended September 30, 2023 and 2022.

As of December 31, 2023, there was $ 83,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan.

No options were granted during the three and six months ended December 31, 2023 and 2022, respectively.

9,500 options vested during the three and six months ended December 31, 2023, respectively.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2023 under this plan was $ 89,000 for both periods.

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

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

2020 Non-Employee Stock Option Plan

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

At September 30, 2023, 56,900 stock options were outstanding, 25,760 stock options were exercisable and 43,100 stock options were available for grant under this plan.

0 and 25,000 options were granted during the three months ended September 30, 2023 and 2022, respectively.

At December 31, 2023, 56,900 stock options were outstanding, 29,140 stock options were exercisable and 43,100 stock options were available for grant under this plan.

No options were granted during the three and six months ended December 31, 2023.

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

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

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Expected dividend yields

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

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

Weighted average

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Total intrinsic value of options exercisable

No stock options were exercised during the three months ended September 30, 2023 or 2022.

No cash was received from option exercises during either of the three months ended September 30, 2023 or 2022 and the actual tax benefit realized for the tax deductions from option exercises was $ 0 for both periods.

The following table summarizes information about stock options outstanding under the 2020 Non-Employee Plan at September 30, 2023:

No stock options were exercised during the three and six months ended December 31, 2023 and 2022.

No cash was received from option exercises during either of the three and six months ended December 31, 2023 or 2022 and the actual tax benefit realized for the tax deductions from option exercises was $ 0 for both periods.

The following table summarizes information about stock options outstanding under the 2020 Non-Employee Plan at December 31, 2023:

Options outstanding

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$ 11.40 - $ 30.71

As of September 30, 2023, there was $ 312,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan.

0 and 25,000 options were granted during the three months ended September

30, 2023 and 2022, respectively.

7,000 options vested during both the three months ended September 30, 2023 and 2022.

The total grant date fair value of the options vesting during the three months ended September 30, 2023 and 2022, under this plan was $ 79,000 each period.

As of December 31, 2023, there was $ 278,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan.

No stock options were granted during the three and six months ended

December 31, 2023.

3,380 and 10,380 options vested during the three and six months ended December 31, 2023 and 2022, respectively.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2023 and 2022 under this plan was $ 34,000 and $ 113,000 , respectively.

2022 Employee Stock Option Plan

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

At September 30, 2023, there were no stock options outstanding or exercisable and 950,000 stock options were available for grant under this plan.

There were no options granted during the three months ended September 30, 2023.

At December 31, 2023, 10,000 stock options were outstanding, 2,000 stock options were exercisable and 940,000 stock options were available for grant under this plan.

There were 10,000 options granted during the three and six months ended December 31, 2023.

No options may be granted under this plan after December 2032.

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Expected dividend yields

The following table reflects activity under the 2022 Employee Plan for the three months ended September 30:

The following table reflects activity under the 2022 Employee Plan for the six months ended December 31:

Weighted average

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Total intrinsic value of options exercisable

No options were exercised during the three months ended September 30, 2023.

No cash was received from option exercises during the three months ended September 30, 2023 and the actual tax benefit realized for the tax deductions from option exercises was $ 0 .

The following table summarizes information about stock options outstanding under the 2022 Employee Plan at September 30, 2023:

No options were exercised during the three and six months ended December 31, 2023.

No cash was received from option exercises during the three and six months ended December 31, 2023 and the actual tax benefit realized for the tax deductions from option exercises was $ 0 .

The following table summarizes information about stock options outstanding under the 2022 Employee Plan at December 31, 2023:

Options outstanding

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exercise price

As of September 30, 2023, there was $ 0 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2022 Employee Plan.

No options were granted during the three months ended September 30, 2023.

No options vested during the three months ended September 30, 2023.

As of December 31, 2023, there was $ 73,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2022 Employee Plan.

10,000 options were granted during the three and six months ended December 31, 2023.

2,000 options vested during the three and six months ended December 31, 2023, respectively.

The total grant date fair value of the options vesting during the three and six months ended December 31, 2023 under this plan was $ 19,500 , 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.

During the three months ended September 30, 2023 and the fiscal year ended June 30, 2023, the Company did no t repurchase any shares of its outstanding common stock.

On August 18, 2023, the Company’s Board of Directors declared a cash dividend of $ .08 per share payable on September 22, 2023 to stockholders of record on September 1, 2023.

There were no options exercised by certain employees and directors during the three months ended September 30, 2023.

On November 2, 2023, the Company’s Board of Directors declared a cash dividend of $ .08 per share payable on December 22, 2023 to stockholders of record on December 1, 2023.

During the three and six months ended December 31, 2023, certain employees and directors exercised stock options under the Company's 2012 Employee and 2018 Non-Employee Stock Option Plans totaling 33,200 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 withheld by the Company was 21,307 and was based upon the aggregate fair market value on the date of exercise equal to the purchase price being paid.

During fiscal 2023, certain employees and directors exercised stock options under the Company's 2012 Employee and 2018 Non-Employee Stock Option Plans totaling 53,000 shares.

43,600 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 17,385 and was based upon the per share price on the effective date of the option exercise.

The number of shares withheld by the Company was 17,385 and was based upon the aggregate fair market value on the date of exercise equal to the purchase price being paid.

NOTE 11 – Related Party Transaction

In February 2023, the Company's President and Chairman and the Company’s Executive Vice President and Chief Financial Officer sold 2,300,000 and 100,000 shares of our common stock, respectively, as selling stockholders in an underwritten secondary public offering at a public offering price of $ 31.50 per share.

The Company did not sell any shares in the offering and received no proceeds from the offerings.

The Company did not sell any shares in the offering and received no proceeds from the offerings, but the Company incurred $ 96,000 and $ 293,000 in offering expenses, which are recorded in SG&A in the accompanying condensed consolidation statements of income during the three and six months ended December 31, 2022, respectively.

NOTE 12 - 401(k) Plan

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

Company contributions to this plan are discretionary and totaled $ 62,000 and $ 63,000 for the three months ended September 30, 2023 and 2022, respectively.

Company contributions to this plan are discretionary and totaled $ 58,000 and $ 61,000 for the three months ended December 31, 2023 and 2022, respectively.

Company contributions to this plan totaled $ 119,000 and $ 123,000 for the six months ended December 31, 2023 and 2022, respectively.

NOTE 13 - Commitments and Contingencies

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Operating leases are included in operating lease right-of-use assets, accrued expenses and operating lease liabilities, non-current on our condensed consolidated balance sheets.

For the three months ended September 30, 2023 and 2022 cash payments against operating lease liabilities totaled $ 86,000 and $ 72,000 , respectively.

For the three months ended December 31, 2023 and 2022 cash payments against operating lease liabilities totaled $ 86,000 and $ 92,000 , respectively.

For the six months ended December 31, 2023 and 2022 cash payments against operating lease liabilities totaled $ 171,000 and $ 164,000 , respectively.

Supplemental balance sheet information related to operating leases was as follows:

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Weighted-average discount rate

The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2023 (in thousands):

The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2023 (in thousands):

Year Ending June 30,

Operating lease expense totaled approximately $ 124,000 and $ 80,000 for the three months ended September 30, 2023 and 2022, respectively.

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.

On August 18, 2023, the Company announced that it would be restating its financial statements for the quarters ending September 30, 2022, December 31, 2022 and March 31, 2023.

Following this announcement, on August 29, 2023, a purported class action, brought on behalf of a putative class who acquired publicly traded NAPCO securities between November 7, 2022 and August 18, 2023, was filed in the United States District Court for the Eastern District of New York against the Company, its Chairman and Chief Executive Officer, and its Chief Financial Officer.

Operating lease expense totaled approximately $ 129,000 and $ 131,000 for the three months ended December 31, 2023 and 2022, respectively.

Operating lease expense totaled approximately $ 253,000 and $ 211,000 for the six months ended December 31, 2023 and 2022, respectively.

On August 29, 2023, a purported class action, brought on behalf of a putative class who acquired publicly traded NAPCO securities between November 7, 2022 and August 18, 2023, was filed in the United States District Court for the Eastern District of New York against the Company, its Chairman and Chief Executive Officer, and its Chief Financial Officer.

The action, captioned Zornberg v.

Napco Security Technologies, Inc.

, asserts securities fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in connection with statements made in the Company’s quarterly reports and earnings releases during the period of November 7, 2022 through May 8, 2023.

On October 30, 2023, five plaintiffs filed applications to be lead plaintiff in the action.

et al., asserts securities fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in connection with statements made in the Company’s quarterly reports and earnings releases during the period of November 7, 2022 through May 8, 2023.

A lead plaintiff was appointed in November 2023 and it is expect that such plaintiff will file an amended complaint by February 16, 2024.

The Company intends to vigorously defend against the action.

With respect to all litigation and related matters, the Company records a liability when the Company believes it is probable that a liability has been incurred and the amount can be reasonably estimated.

As of the end of the period covered by this report, the Company has not recorded a liability for the matter disclosed in this note.

It is possible that the Company could be required to pay damages, incur other costs or establish accruals in amounts that could not be reasonably estimated as of the end of the period covered by this report.

Employment Agreements

As of September 30, 2023, the Company was obligated under two employment agreements and one severance agreement.

The employment agreements are with the Company’s CEO, Cand the Senior Vice President of Engineering (“the SVP of Engineering”) and the severance agreement is with the Company’s Executive Vice President of Operations and Chief Financial Officer (“CFO”).

As of December 31, 2023, the Company was obligated under two employment agreements and one severance agreement with executive officers of the Company.

The employment agreements are with the Company’s CEO, and the Senior Vice President of Engineering (“the SVP of Engineering”) and the severance agreement is with the Company’s Executive Vice President of Operations and Chief Financial Officer (“CFO”).

The employment agreement with the CEO provides for an annual salary of $ 906,000 , as adjusted for inflation;

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

Three months ended September 30,

Three months ended December 31,

Six months ended December 31,

Sales to external customers (1) :

Total Net Sales

September 30, 2023

December 31, 2023

June 30, 2023

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There were no sales into any one foreign country in excess of 10% of total Net Sales.

(2) Consists primarily of inventories (September 30, 2023 = $ 37,385 ;

June 30, 2023 = $ 33,477 ), operating lease assets (September 30, 2023 = $ 5,722 ;

June 30, 2023 = $ 5,797 ) and fixed assets (September 30, 2023 = $ 3,851 ;

(2) Consists primarily of inventories (December 31, 2023 = $ 37,068 ;

June 30, 2023 = $ 33,477 ), operating lease assets (December 31, 2023 = $ 5,642 ;

June 30, 2023 = $ 5,797 ) and fixed assets (December 31, 2023 = $ 3,807 ;

June 30, 2023 = $ 3,958 ) 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 condensed consolidated financial statements for events requiring recording or disclosure in the condensed consolidated financial statements.

On November 2, 2023, the Company’s Board of Directors declared a cash dividend of $ .08 per share payable on December 22, 2023 to stockholders of record on December 1, 2023.

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

On February 1, 2024, the Company’s Board of Directors declared a cash dividend of $ .10 per share payable on March 22, 2024 to stockholders of record on March 1, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements