What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-08-29 compared with 2023-09-08 · 403 added, 310 removed, 764 unchanged (48% of the section changed)

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AND SUBSIDIARIES

Management Report on Internal Control

Report of Independent Registered Accounting Firm (PCAOB ID 34 )

Report of Independent Registered Public Accounting Firm (PCAOB ID 23 )

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Notes to Consolidated Financial Statements

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, 2023, the Company identified three material weaknesses in internal control.

Controls and Procedures

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 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 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.

In addition to the foregoing, during the Company’s closing of its books for the period ended June 30, 2023, management identified a third material weakness related to the Company’s Cost of Goods Sold (“COGS”) and Inventory during the first three quarters of fiscal 2023.

COGS reflected in the Company’s Original Form 10-Q was based on inventory costing as of June 30, 2022.

However, in the period following June 30, 2022, substantial fluctuations occurred in certain material costs.

Our inventory costing process did not identify these fluctuations in a timely manner resulting in Inventory being overstated and COGS being understated and resulting in an overstated gross profit, operating income, income before the provision for income taxes and net income for the first three quarters of fiscal 2023.

While the Company has begun the process to take measures which it believes will remediate the underlying causes of this material weakness, there can be no assurance as to when the remediation plan will be fully developed and implemented and whether such measures will be effective.

Until the Company’s remediation plan is fully implemented and effective, the Company will continue to devote time, attention and financial resources to these efforts.

Based on these material weaknesses, the Company’s management has concluded that at June 30, 2023 the Company’s internal controls over financial reporting were not effective.

Management is currently designing and implementing additional controls and procedures to remediate these items and expects to complete these actions during fiscal 2024.

While the Company has begun the process to take measures which it believes will remediate the underlying causes of these material weaknesses, there can be no assurance as to when the remediation plans will be fully developed and implemented and whether such measures will be effective.

Until the Company’s remediation plans are fully implemented and effective, the Company will continue to devote time, attention and financial resources to these efforts.

During the three months ended June 30, 2023, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting except as described above.

The effectiveness of our internal control over financial reporting as of June 30, 2023 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 Stockholders and the Board of Directors of Napco Security Technologies, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Napco Security Technologies, Inc.

and subsidiaries (the "Company") as of June 30, 2024, the related consolidated statements of income, stockholders' equity, and cash flows, for the year ended June 30, 2024, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024, and the results of its operations and its cash flows for the year ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 29, 2024, expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Excess and Slow-Moving Inventory Reserve — Refer to Note 1 and 6 to the financial statements

Critical Audit Matter Description

Management records a reserve for excess and slow-moving inventory, which represents any excess of the cost of the inventory over its estimated net realizable value.

The reserve is calculated using an estimated reserve 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.

The reserve for excess and slow-moving inventory was $5 million at June 30, 2024.

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 reserve percentage and forecasted inventory usage.

This required a high degree of auditor judgment when performing audit procedures to evaluate the reasonableness of management’s reserve for excess and slow-moving inventory.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the significant estimates and assumptions used in the excess and slow-moving inventory reserve included the following, among others:

● We tested the operating effectiveness of management’s internal controls over the determination of the inventory reserve.

● We evaluated the methods and assumptions used by management to estimate the inventory reserve by:

o Testing the significant inputs used to determine the reserve percentage for accuracy and completeness.

o Inquiring with production and engineering management of the Company as to specific products considered in the reserve, the product life cycles and corroborating alternate applications where applicable.

o Comparing management’s forecasted usage with (1) historical inventory usage as well as forecasted sales, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in Company press releases as well as in analyst and industry reports of the Company and companies in its peer group.

o Evaluating management’s ability to accurately forecast inventory usage by comparing actual results to management’s historical forecasts.

o Considering the impact of changes in the macroeconomic environment on management’s forecasted usage.

o Testing the mathematical accuracy of management’s calculations.

/s/ DELOITTE & TOUCHE LLP

Jericho, New York

August 29, 2024

We have served as the Company's auditor since 2024.

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, 2023 and 2022, the related consolidated statements of income, stockholders’ equity, and cash flows, for each of the three years in the period ended June 30, 2023, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023, 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, 2023, 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.

There were ineffectively designed control activities over the proper costing of inventory at interim dates to ensure that inventory is presented on a first-in first-out (FIFO) basis and at net realizable value.

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 2023 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.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Napco Security Technologies, Inc.

and Subsidiaries (the "Company") as of June 30, 2023, the related consolidated statements of income, stockholders’ equity, and cash flows, for each of the two years in the period ended June 30, 2023, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The Company’s management is responsible for these consolidated financial statements.

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

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.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud 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.

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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

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.

Excess and Slow-Moving Inventory Reserve

Critical Audit Matter Description

As described in Notes 1 and 5 to the consolidated financial statements, 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.

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.

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.

We believe that our audits provide a reasonable basis for our opinion.

/s/ BAKER TILLY US, LLP

Uniondale, New York

We served as the Company's auditor from 2008 to 2023.

New York, New York

September 8, 2023

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Accounts receivable, net of allowance for credit losses of $ 32 and $ 131 as of June 30, 2024 and June 30, 2023, respectively

Inventories, net

Income tax receivable

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Total Current Assets

Inventories - non-current, net

Inventories - non-current

Property, plant and equipment, net

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Deferred income taxes

Operating lease asset

Operating lease - Right-of-use asset

CURRENT LIABILITIES

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Accrued salaries and wages

Accrued income taxes

Total Current Liabilities

Deferred income taxes

Accrued income taxes

Long term operating lease liabilities

Operating lease liability

TOTAL LIABILITIES

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Operating Income

Other income (expense):

Other income:

Interest and other income (expense), net

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Stock-based compensation expense

Cash dividend ($ .0625 per share)

Balances at June 30, 2023

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Stock-based compensation expense

Cash dividend

Cash dividend ($ .36 per share)

Balances at June 30, 2024

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Gain on disposal of fixed asset

Interest income on other investments

Unrealized loss (gain) on marketable securities

(Recovery) reserve of credit losses

Interest expense (income) on other investments

Unrealized (gain) loss on marketable securities

(Recovery of) Provision for credit losses

Change to inventory reserve

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Net Cash (Used in) Provided by Financing Activities

Net (decrease) increase in Cash and Cash Equivalents

Net increase (decrease) in Cash and Cash Equivalents

CASH AND CASH EQUIVALENTS - Beginning

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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.

Napco Security Technologies, Inc (“NAPCO”, “the Company”, “we”, “us”) 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.

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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.

Significant future deterioration of the current economic conditions may also affect this trend.

The monthly recurring revenue, which is less susceptible to these fluctuations, allows us to generate a more consistent and predictable stream of income and mitigates the risk of fluctuation in market demand for our equipment products.

Significant Accounting Policies :

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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.

We continuously evaluate our estimates and judgments based on historical experience, as well as other factors that we believe to be reasonable under the circumstances.

The results of our evaluation form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Critical estimates include management’s judgments associated with reserves for sales returns and allowances, allowance for credit losses, overhead expenses applied to inventory, inventory reserves, valuation of intangible assets, share based compensation and income taxes.

Actual results could differ from those estimates.

These estimates may change in the future if underlying assumptions or factors change, and actual results may differ from these estimates.

Fair Value of Financial Instruments

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

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

The carrying amounts of financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued expenses reflected in the consolidated financial statements approximate fair value due to their short-term maturities.

The fair value of debt for footnote disclosure purposes, including current maturities, if any, is estimated using recently quoted market prices of the instrument, or if not available, a discounted cash flow analysis based on the estimated current incremental borrowing rates for similar types of instruments.

Cash and Cash Equivalents

All financial instruments purchased with an original maturity of three months or less at the time of purchase are considered cash equivalents.

Such items may include liquid money market funds, certificate of deposit and time deposit accounts.

Investments that are classified as cash equivalents are carried at cost, which approximates fair value.

Certificate of deposits with an original maturity greater than three months are classified as Investments – other.

The Company’s cash and cash equivalents included approximately $ 46,518,000 of short-term time deposits, consisting of a certificate of deposit totaling $ 5,402,000 and $ 41,116,000 in money market funds as of June 30, 2024.

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 market fund as of June 30, 2023.

Cash and cash equivalents include approximately $ 63,000 of short-term time deposits, consisting of $ 63,000 in a money market fund as of June 30, 2022.

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

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

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

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Money Market Fund

Certificates of Deposit

Certificate of Deposits

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

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June 30, 2023

Certificates of Deposit

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

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

Certificate of Deposits

Certificate of deposits are recorded at the original cost plus accrued interest.

The Company’s Certificate of Deposits consist of the following as of (in thousands):

June 30, 2024

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Cash and Cash Equivalents

Investments - other

4.55 % - 4.75 %

7/25/2024 - 10/24/2024

June 30, 2023

Balance Sheet Classification

Interest Rate

Maturity Date

Carrying Value

Cash and Cash Equivalents

4.59 % - 5.00 %

7/30/2023 - 8/29/2023

Investments - other

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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).

The Company’s marketable securities are reported at fair value with the related unrealized and realized gains and losses included in other income (expense).

Realized gains or losses on mutual funds are determined on a specific identification basis.

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Accounts receivable is stated net of the reserves for credit losses of $ 32,000 and $ 131,000 as of June 30, 2024 and 2023, respectively.

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

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

In accordance with ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326), the Company recognizes an allowance for credit losses for trade and other receivables to present the net amount expected to be collected as of the balance sheet date.

Such allowance is based on the credit losses expected to arise over the life of the asset which includes consideration of past events and historical loss experience, current events and also future events based on our expectation as of the balance sheet date.

Receivables are written off when the Company determined that such receivables are deemed uncollectible.

The Company pools its receivables based on similar risk characteristics in estimating its expected credit losses.

In situations where a receivable does not share the same risk characteristics with other receivables, the Company measures those receivables individually.

The Company also continuously evaluates such pooling decisions and adjusts as needed from period to period as risk characteristics change.

The Company utilizes the loss rate method in determining its lifetime expected credit losses on its receivables.

This method is used for calculating an estimate of losses based primarily on the Company’s historical loss experience.

In determining its loss rates, the Company evaluates information related to its historical losses, adjusted for current conditions and further adjusted for the period of time that can be reasonably forecasted.

Qualitative and quantitative adjustments related to current conditions and the reasonable and supportable forecast period consider all the following:

past due receivables, the customer creditworthiness, changes in the terms of receivables, effect of other external forces such as competition, and legal and regulatory requirements on the level of estimated credit losses in the existing receivables.

Inventories are valued at the lower of cost or net realizable value, with cost being determined on the first-in, first-out (FIFO) method.

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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.

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.

The Company records a reserve for excess and slow-moving inventory, which represents any excess of the cost of the inventory over its estimated realizable value.

This reserve is calculated using an estimated excess and slow-moving 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.

There is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated excess and slow-moving percentage (See Note 6).

The Company also regularly reviews the period over which its inventories will be converted to sales.

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

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

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

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June 30, 2023

June 30, 2021

Customer relationships

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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 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.

Equipment Revenue

Equipment revenue, which includes shipping and handling costs, is primarily generated from the sale of finished products to customers.

Those sales predominantly contain a single performance obligation and revenue is recognized at a single point in time when ownership, risks and rewards transfer, which is typically the date of shipment of the related equipment when the product is picked up by the carrier or customer.

A provision for product returns, credits and rebates is recorded as a reduction of equipment revenue in the same period the revenue is recognized.

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

Reserves are established for the estimated returns, rebates and credits and such variable consideration is measured based on the expected value method.

The Company analyzes product sales returns and is able to make reasonable and reliable estimates of product returns based on several factors including actual returns and expected return data communicated to the Company by its customers.

Service Revenue

Service revenue is primarily generated from the sale of monthly cellular communication services to customers.

Those sales predominantly contain a single performance obligation and revenue is recognized ratably with the delivery of cellular communication service over the related monthly period, and when ownership, risks and rewards transfer to the customer.

The services are billed monthly, and customers have the right to cancel the cellular communication services at any time, however the contract with the customer does not provide for a refund.

Cost of Sales

Equipment Cost of Sales

Equipment cost of sales is primarily comprised of direct materials and supplies consumed in the manufacturing of products, as well as manufacturing labor, depreciation expense and direct and indirect overhead expenses necessary to acquire and convert the purchased materials and supplies into finished products.

Service Cost of Sales

Service cost of sales includes the cost of operating our network operations center to manage and deliver telecommunication services.

Shipping and Handling Sales and Costs

The Company records the amount billed to customers for shipping and handling in net sales ($ 349,000 , $ 450,000 and $ 428,000 in the fiscal years ended June 30, 2024, 2023 and 2022, respectively) and classifies the costs associated with these sales in cost of sales ($ 1,573,000 , $ 1,697,000 and $ 1,425,000 in the fiscal years ended June 30, 2024, 2023 and 2022, respectively).

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 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, 2024, 2023 and 2022 was $ 3,262,000 , $ 2,931,000 and $ 2,889,000 , respectively.

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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

Weighted Average Shares

Effect of Dilutive Securities:

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The Company has established five share incentive programs as discussed in Note 10.

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 awards exchanged for services are accounted for under the fair value method.

Accordingly, stock-based compensation cost is measured at the grant date based on the estimated fair value of the award.

The expense for awards is recognized over the requisite service period (generally the vesting period of the award).

The Company has elected to treat awards with only service conditions and with graded vesting as one award.

Consequently, the total compensation expense is recognized straight-line over the entire vesting period, so long as the compensation cost recognized at any date at least equals the portion of the grant date fair value of the award that is vested at that date.

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

Stock-based compensation costs of $ 1,733,000 , $ 1,464,000 and $ 1,649,000 were recognized for the fiscal years ended June 30, 2024, 2023 and 2022, respectively.

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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 operates and measures its results in one operating segment and therefore has one reportable segment:

the development, manufacture and sales of high-tech security devices and related cellular communication services for the devices.

The Company’s Chief Operating Decision Maker, (the President, Chief Operating Officer, and Chief Financial Officer) evaluates performance of the Company and makes decisions regarding the allocation of resources based on total Company results.

The Company has presented required geographical data in Note 15.

Shipping and Handling Sales and Costs

The Company records the amount billed to customers for shipping and handling in net sales ($ 450,000 , $ 428,000 and $ 395,000 in the fiscal years ended June 30, 2023, 2022 and 2021, respectively) and classifies the costs associated with these sales in cost of sales ($ 1,697,000 , $ 1,425,000 and $ 1,058,000 in the fiscal years ended June 30, 2023, 2022 and 2021, respectively).

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

2016-02, Leases (Topic 842) .

Lease payments are discounted using a third-party secured incremental borrowing rate based on information available at lease commencement.

The Company analyzes whether or not amendments to existing leases classify as a Lease Modification or a full or partial termination of the existing lease.

The Company determines at contract inception if an arrangement is a lease, or contains a lease, of an identified asset for which the Company has the right to obtain substantially all of the economic benefits from its use and the right to direct its use.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, while lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term.

The implicit discount rate in the Company’s leases generally cannot readily be determined, and therefore the Company uses its incremental borrowing rate based on information available at lease commencement date in determining the present value of future payments.

If the Company has options to renew or terminate certain leases, those options are included in the determination of lease term when it is reasonably certain that the Company will exercise such options.

The Company does not separate lease and non-lease components in determining ROU assets or lease liabilities for real estate leases.

Additionally, the Company does not recognize ROU assets or lease liabilities for leases with original terms or renewals of one year or less.

See Note 14 – Commitments and Contingencies;

Leases for additional accounting policies and disclosures.

Recently Issued Accounting Standards

Legal and Other Contingencies

The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty.

An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired, or a liability has been incurred and the amount of the loss can be reasonably estimated.

In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

Changes in these factors could materially impact our consolidated financial statements.

Recently Adopted 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.

The Company’s bank has notified the Company that its LIBOR option will continue to be available to it through June 30, 2023, at which time the option will shift to the Benchmark Replacement as defined in the agreement with the bank (see Note 8).

The Company does not believe that this transition will have a material impact on its financial condition.

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.

On February 9, 2024, the Company’s bank has shifted to the Benchmark Replacement as defined in the Fourth Amended and Restated Credit Agreement (“Amended Agreement”) with the bank.

The new benchmark rate is the Secured Overnight Financing Rate (SOFR) (see Note 9).

The adoption of the standard and the transition did not have a material impact on the condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

The update improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer.

The guidance requires that an acquiring entity in a business combination recognize and measure contract assets and contract liabilities acquired in accordance with Topic 606 as if it had originated the contract.

The amendments in this update were adopted at the beginning of fiscal 2024 and will be applied prospectively to applicable business combinations.

The Company determined that adoption of this update has not had a material impact on the Company's consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

The update expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss.

It further requires disclosure of the amount and description of its composition for other segment items, and interim disclosures of both a reportable segment’s profit or loss and assets.

The guidance requires disclosure of the title and position of the chief operating decision maker and how reported measures of segment profit or loss are used to assess performance and allocate resources.

This pronouncement is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning

after December 15, 2024, with early adoption permitted.

The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures,” which requires public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income taxes paid.

It also includes certain other amendments to improve the effectiveness of income tax disclosures.

The guidance is effective for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.

The Company is evaluating other pronouncements recently issued but not yet adopted.

The adoption of these pronouncements is not expected to have a material impact on our consolidated financial statements.

NOTE 2 – Revenue Recognition and Contracts with Customers

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

As of June 30, 2023 and 2022, the Company included refund liabilities of approximately $ 5,521,000 and $ 5,863,000 , respectively, in current liabilities.

As of June 30, 2024 and 2023, the Company included refund liabilities of approximately $ 6,295,000 and $ 5,521,000 , respectively, in accrued expenses within the Consolidated Balance Sheets.

As of June 30, 2024 and 2023, the Company included return-related assets of approximately $ 1,586,000 and $ 1,338,000 , respectively, in other current assets.

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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.

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.

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An entity is more vulnerable to concentrations of credit risk if it is exposed to risk of loss greater than it would have had if it mitigated its risk through diversification of customers.

The Company had one customer with an accounts receivable balance that comprised 19 % , 22 % and 19 % of the Company’s overall accounts receivable at June 30, 2023, 2022 and 2021, respectively.

Sales to this customer did not exceed 10% of the Company’s net sales during fiscal years ended June 30, 2023, 2022 and 2021.

The Company had another customer with an accounts receivable balance that comprised 14 % and 11 % of the Company’s overall accounts receivable at June 30, 2023 and 2021, respectively.

This customers’ accounts receivable balance did not exceed 10% of the Company’s overall accounts receivable at June 30, 2022.

Sales to this customer did not exceed 10% of the Company’s net sales in any of the fiscal years ended June 30, 2023, 2022 and 2021.

The Company had a third customer with an accounts receivable balance that comprised 16 % and 12 % of the Company’s overall accounts receivable at June 30, 2022 and 2021, respectively.

This customers’ accounts receivable balance did not exceed 10% of the Company’s overall accounts receivable at June 30, 2023.

Sales to this customer did not exceed 10% of the Company’s net sales in any of the fiscal years ended June 30, 2023, 2022 and 2021.

The Company had one customer with an accounts receivable balance that comprised 17 %, 19 % and 22 % of the Company’s accounts receivable at June 30, 2024, 2023 and 2022, respectively.

Sales to this customer did not exceed 10% of net sales during fiscal years ended June 30, 2024, 2023 and 2022.

The Company had another customer with an accounts receivable balance that comprised 12 % and 14 % of the Company’s accounts receivable at June 30, 2024 and 2023, respectively.

The customer accounts receivable balance did not exceed 10% at June 30, 2022.

Sales to this customer did not exceed 10% of net sales in any of the fiscal years ended June 30, 2024, 2023 and 2022, respectively.

The Company had a third customer with an accounts receivable balance that comprised 16 % of the Company’s accounts receivable at June 30, 2022.

The customer accounts receivable balance did not exceed 10% at June 30, 2024 or 2023.

Sales to this customer did not exceed 10% of net sales in any of the fiscal years ended June 30, 2024, 2023 and 2022.

NOTE 4 – Fair Value Measurements

Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants.

The Company is required to classify certain assets and liabilities based on the following fair value hierarchy:

Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly;

Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources.

The use of different market assumptions or estimation methodologies could have a significant effect on the estimated fair value amounts.

The following table presents the Company’s assets that were measured at fair value on a recurring basis at June 30, 2024 and 2023:

June 30, 2024

Cash equivalents

Certificate of deposits

Money market funds

Short-term investments

Certificate of deposits

Marketable securities

June 30, 2023

Cash equivalents

Certificate of deposits

Money market funds

Short-term investments

Certificate of deposits

Marketable securities

The Company’s investments classified as Level 1 are based on quoted prices that are available in active markets, as well as certificates of deposits and time deposits that are classified as Level 1 due to their short-term nature.

The Company’s investments classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes, or alternative pricing sources with reasonable levels of price transparency.

For the years ended June 30, 2024 and 2023, there were no transfers between Levels 1 and 2 investments and no transfers in or out of Level 3.

NOTE 5 – Marketable Securities

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Unrealized gains (losses) recognized during the reporting period on marketable securities still held at the reporting date

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):

The following tables summarize the Company’s marketable securities (in thousands):

June 30, 2024

June 30, 2023

Mutual Funds - Level 1

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, 2023 and 2022, there were no transfers between Levels 1 and 2 investments and no transfers in or out of Level 3.

Available-for-sale securities in a loss position at June 30, 2024 and 2023 were as follows:

Continuous Loss Position for Less than 12 Months

Continuous Loss Position for 12 Months or More

Estimated Fair Value

Gross Unrealized Losses

Estimated Fair Value

Gross Unrealized Losses

June 30, 2024

June 30, 2023

NOTE 6 - Inventories

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Finished product

Classification of inventories, net of reserves:

The following table represents the inventory obsolescence and net realizable value inventory reserves as of the respective years ending June 30 (in thousands):

Balance at beginning of period

Charged to costs and expenses

Deductions/ (recoveries)

Balance at end of period

For the Year Ended June 30, 2021:

Inventory obsolescence and net realizable value reserve

For the Year Ended June 30, 2022:

Inventory obsolescence and net realizable value reserve

For the Year Ended June 30, 2023:

Inventory obsolescence and net realizable value reserve

Classification of inventories:

The reserve for excess and slow-moving inventory, which reduces inventory in our consolidated balance sheets were $ 5,026,000 and $ 3,367,000 as of June 30, 2024 and 2023, respectively.

NOTE 7 - Property, Plant, and Equipment

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

June 30, 2023

June 30, 2022

Useful Life in Years

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NOTE 8 - Income Taxes

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 state and local income taxes, tax rates in foreign jurisdictions, global intangible low-taxed income (“GILTI”), tax benefit of R&D credits, and certain nondeductible expenses.

Our effective tax rate will change based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, and state and local income taxes.

The amounts of income before income taxes attributable to domestic and foreign operations were as follows:

For the Year ended June 30,

The provision for income taxes is comprised of the following (in thousands):

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Global intangible low-taxed income

Foreign withholding tax

Executive Compensation

Foreign Source income not subject to Tax

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Uncertain Tax Positions

IRS examination settlements

Effective tax rate

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Revenue reserves

Unrealized loss (gain) on marketable securities

Unrealized loss on marketable securities

Capitalized research and development cost

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Total Deferred Tax Liability

Net Deferred Tax Asset/(Liability)

Net Deferred Tax Asset

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.

Fiscal years 2021 and forward are still open for examination, in addition to fiscal year 2018, which is subject to a six year statute of limitations.

In addition, the Company has a wholly-owned subsidiary which operates in a Free Zone in the Dominican Republic (“DR”) and is exempt from DR income tax.

The Company was audited by the IRS for the fiscal year 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.

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

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

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 and global intangible low-taxed income ("GILTI").

During the year ending June 30, 2023, the Company increased its reserve for uncertain income tax positions by $ 22,000 .

During the year ending June 30, 2024, the Company did no t increase or decrease its reserve for uncertain income tax positions.

The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes.

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Balance of gross unrecognized tax benefits as of Beginning of Year

Increase (Decrease) to unrecognized tax benefits from deemed dividends for investments in US property

Increase (Decrease) to unrecognized tax benefits resulting from the release of R&D credits due to the settled IRS audit

Increase (Decrease) to unrecognized tax benefits resulting from a state filing tax position

Increase to unrecognized tax benefits resulting from a state filing tax position

Balance of gross unrecognized tax benefits as of End of Year

NOTE 9 - Debt

As of June 30, 2023 and 2022, debt consisted of a revolving line of credit of $ 11,000,000 (“Revolver Agreement”), with no amounts outstanding, which expires in June 2024.

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”).

The 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").

On February 9, 2024, the Company and its primary bank, HSBC Bank USA National Association (“HSBC”), agreed to amend and restate the existing Third Amended and Restated Credit Agreement (“Agreement”) dated June 29, 2012, as amended, between the Registrant and HSBC with the Fourth Amended and Restated Credit Agreement (“Amended Agreement”).

The Amended Agreement extends the term of the Agreement from June 28, 2024, to February 9, 2029.

The Amended Agreement also increases the available

revolving credit line from $ 11,000,000 to $ 20,000,000 and replaces the LIBOR benchmark rate with the Secured Overnight Financing Rate (SOFR) benchmark rate.

As of June 30, 2024 and 2023, the Company has no outstanding debt.

The Amended Agreement provides for a SOFR-based interest rate option of SOFR plus 1.2645 % to 1.3645 % , depending on the Fixed Charge Coverage Ratio, which is to be measured and adjusted quarterly, a prime rate-based interest rate option of the prime rate, as defined in the Amended Agreement, and other terms and conditions as more fully described in the Amended Agreement.

The Company’s obligations under the Amended Agreement continue to be secured by substantially all 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, except for the Company’s foreign subsidiaries, have issued guarantees and pledges of all their assets to secure the Company’s obligations under the Amended Agreement.

All the outstanding common stock of the Company’s domestic subsidiaries and 65% of the common stock of the Company’s foreign subsidiaries have been pledged to secure the Company’s obligations under the Amended Agreement.

The Amended Agreement contains various restrictions and covenants including, but not limited to, compliance with certain financial rations, restrictions on payment of dividends and restrictions on borrowings.

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”.

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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, 2023, 2022 and 2021, the Company recorded non-cash compensation expense of $ 1,464,000 ($ .04 per basic and diluted share), $ 1,649,000 ($ .04 per basic and diluted share) and $ 435,000 ($ .01 per basic and diluted share), respectively, relating to stock-based compensation.

For the fiscal years ended June 30, 2024, 2023 and 2022, the Company recorded non-cash compensation expense of $ 1,733,000 ($ .05 per basic and diluted share), $ 1,464,000 ($ .04 per basic and diluted share) and $ 1,649,000 ($ .04 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

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At June 30, 2024, 363,036 stock options were outstanding, 190,960 stock options were exercisable and no further stock options were available for grant under this plan.

37,500 options were granted under this plan during the year ended June 30, 2023.

No options were granted under this plan during the year ended June 30, 2024.

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:

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147,544 , 39,000 and 29,000 options were exercised during the fiscal years ended June 30, 2024, 2023 and 2022, respectively.

29,600 of the 39,000 stock options exercised during the fiscal year ended June 30, 2023, were settled by exchanging 10,150 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

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.

$ 84,000 , $ 155,000 and $ 0 was received from the remaining option exercises for the fiscal years ended June 30, 2023, 2022 and 2021, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $ 0 for each of these periods.

109,544 of the 147,544 stock options exercised during the fiscal year ended June 30, 2024 were settled by the Company withholding 46,570 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.

29,600 of the 39,000 stock options exercised during the fiscal year ended June 30, 2023, were settled by the Company withholding 10,150 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.

1,000 of the 29,000 stock options exercised during the fiscal year ended June 30, 2022, were settled by the Company withholding 153 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.

$ 427,000 , $ 84,000 and $ 155,000 was received from the remaining option exercises for the fiscal years ended June 30, 2024, 2023 and 2022, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $ 119,000 , $ 0 and $ 0 for the years ended June 30, 2024, 2023 and 2022, respectively.

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at June 30, 2024:

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0 , 0 and 1,200 options were exercised during the fiscal years ended June 30, 2024, 2023 and 2022, 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.

1,200 stock options exercised during the fiscal year ended June 30, 2022 were settled by the Company withholding 258 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.

$ 0 was received from the remaining option exercises for each of the fiscal years ended June 30, 2024, 2023 and 2022, and the actual tax benefit realized for the tax deductions from option exercises was $ 0 , $ 0 and $ 4,000 in fiscal 2024, 2023 and 2022 respectively.

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6,100 , 14,000 and 4,600 options were exercised during the fiscal years ended June 30, 2024, 2023 and 2022, respectively.

14,000 stock options exercised during the fiscal year ended June 30, 2023 were settled by exchanging 7,235 shares of the Company’s common stock which were retired and returned to unissued status upon receipt.

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.

6,100 stock options exercised during the fiscal year ended June 30, 2024 were settled by the Company withholding 2,700 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.

14,000 stock options exercised during the fiscal year ended June 30, 2023 were settled by the company withholding 7,235 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.

4,600 stock options exercised during the fiscal year ended June 30, 2022 were settled by the company withholding 2,075 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.

$ 0 was received from the remaining option exercises for each of the fiscal years ended June 30, 2024, 2023 and 2022, and the actual tax benefit realized for the tax deductions from option exercises was $ 30,000 , $ 44,000 and $ 12,000 in fiscal 2024, 2023 and 2022, respectively.

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As of June 30, 2024 and 2023, there was $ 59,000 and $ 135,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan, respectively.

19,680 options vested during each of the years June 30, 2023, 2022 and 2021, respectively.

14,880 , 19,680 and 19,680 options vested during the years June 30, 2024, 2023 and 2022, respectively.

The total grant date fair value of the options vesting during the fiscal year ended June 30, 2024, 2023 and 2022 under this plan was $ 124,000 , $ 149,000 and $ 160,000 , respectively.

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At June 30, 2024, 56,900 stock options were outstanding, 30,140 stock options were exercisable and 43,100 stock options were available for grant under this plan.

30,000 options were granted under this plan during the year ended June 30, 2023.

No options were granted under this plan during the year ended June 30, 2024.

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:

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As of June 30, 2024 and 2023, there was $ 215,000 and $ 344,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan, respectively.

11,380 , 5,380 and 2,000 options vested during

the years June 30, 2023, 2022 and 2021, respectively.

11,380 , 11,380 and 5,380 options vested during the years June 30, 2024, 2023 and 2022, respectively.

The total grant date fair value of the options vesting during the fiscal year ended June 30, 2024, 2023 and 2022 under this plan was $ 129,000 , $ 129,000 and $ 55,000 , respectively.

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The plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 950,000 shares of the Company’s common stock to be acquired by the holders of such awards.

Under this plan, the Company may grant stock options, which are intended to qualify as incentive stock options (“ISOs”) or non-incentive stock options, to valued employees.

Under this plan, the Company may grant stock options, which are intended to

qualify as incentive stock options (“ISOs”) or non-incentive stock options, 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.

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Expected lives

5.63 - 5.87 Years

Expected volatility

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Weighted average

exercise price

Outstanding, beginning of year

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Total intrinsic value of options exercisable

5,000 options were granted during the fiscal year ended June 30, 2023.

130,000 and 5,000 options were granted during the fiscal year ended June 30, 2024 and 2023.

No options were exercised during the fiscal year ended June 30, 2023.

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exercise price

As of June 30, 2023, there was $ 74,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan.

1,000 options vested during the year ended June 30, 2023.

The total grant date fair value of the options vesting during the fiscal year ended June 30, 2023 under this plan was $ 20,000 .

$ 21.60 - $ 49.39

As of June 30, 2024 and 2023, there was $ 2,066,000 and $ 74,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan, respectively.

26,000 and 1,000 options vested during the year ended June 30, 2024 and 2023.

The total grant date fair value of the options vesting during the fiscal year ended June 30, 2024 and 2023 under this plan was $ 553,000 and $ 20,000 , respectively.

NOTE 11 – 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 Revolver Agreement described in Note 8, the Company’s lender gave its consent to this stock repurchase plan.

During the fiscal year ended June 30, 2023, 2022 and 2021, the Company did no t repurchase any shares of its outstanding common stock.

Shares repurchased through June 30, 2023 are included in the Company’s Treasury Stock as of June 30, 2023, 2022 and 2021.

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.

On May 2, 2024 , the Company’s Board of Directors declared a cash dividend of $ .10 per share payable on June 24, 2024 to stockholders of record on June 3, 2024 .

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 .

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 .

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 .

On May 5, 2023 , the Company’s Board of Directors declared a cash dividend of $ .0625 per share payable on June 12, 2023 to stockholders of record on May 22, 2023 .

The cash dividend resulted in approximately $ 2,298,000 of cash paid to stockholders.

During fiscal 2024, certain employees and directors exercised stock options under the Company's 2012 Employee and 2018 Non-Employee Stock Option Plans totaling 153,644 shares.

115,644 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.

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.

The number of shares surrendered by the optionees was 49,270 and was based upon the aggregate fair market value on the date of the 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 2,486 and was based upon the per share price on the effective date of the option exercise.

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

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.

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.

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 aggregate fair market value on the date of the exercise equal to the purchase price being paid.

NOTE 12 – Related Party Transaction

On February 13, 2023, the Company's President and Chairman and the Company’s Executive Vice President and Chief Financial Officer sold 2,012,500 and 87,500 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.

In March 2024, the Company's President and Chairman sold 2,000,000 shares of our common stock as a selling stockholder in an underwritten secondary public offering at a public offering price of $ 40.75 per share.

In connection with such offering, the selling stockholder has granted the underwriters an option to purchase additional shares (the “Greenshoe Option”) up to an additional 300,000 shares of their common stock.

On April 8, 2024, the underwriters exercised the Greenshoe Options, pursuant to which the selling stockholder sold an additional 50,000 shares.

The Company did not sell any shares in the offering and received no proceeds from the offerings, but the Company incurred $ 407,000 in offering expenses, which are recorded in SG&A in the consolidation statements of income for the year ended June 30, 2024.

On February 13, 2023, the Company's Chief Executive Officer and Chairman and the Company’s President, Chief Operating Officer and Chief Financial Officer sold 2,012,500 and 87,500 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.

In connection with such offering, the selling stockholders granted the underwriters an option to purchase additional shares (the “Greenshoe Option”).

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The Company maintains a 401(k) plan (“the Plan”) that is available to all U.S.

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

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 $ 258,000 , $ 251,000 and $ 191,000 for the years ended June 30, 2024, 2023 and 2022, respectively.

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Year Ending June 30,

Total future minimum lease payments

Imputed interest

Operating lease expense totaled approximately $ 512,000 , $ 458,000 and $ 319,000 , for the fiscal years ended June 30, 2024, 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 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.

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 lead plaintiff filed an Amended

Complaint on February 16, 2024.

The Amended Complaint added claims under Sections 11, 12, and 15 of the Securities Act of 1933 in connection with the secondary public offering in February 2023.

These additional claims are brought against the defendants named in the initial complaint, as well as the directors who allegedly signed the offering materials (prospectuses and registration statement in connection with the offering), and the underwriters for the offering.

The Company filed a motion to dismiss the Amended Complaint on April 26, 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, due to the early stage of the case the Company is not able to estimate any range of potential loss related to this matter and has not recorded any liability.

It is possible that the Company could be required to pay damages (in excess of insurance coverages), 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, 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 severance agreement is with the Company’s CFO.

As of June 30, 2024, the Company was obligated under three employment agreements and one severance agreement.

The employment agreements are with the Company’s CEO, Senior Vice President of Finance and Chief Accounting Officer (“SVP of Finance”), and the Senior Vice President of Engineering and Chief Technology Officer (“the SVP of Engineering”).

The severance agreement is with the Company’s President, COO and CFO.

The employment agreement with the CEO provides for an annual salary of $ 942,000 , as adjusted for inflation;

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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 Finance expires in June 2025 and provides for an annual salary of $ 350,000 .

Upon the anniversary date, if terminated by the Company without cause, the SVP of Finance is entitled to severance of six months’ salary and continued company-sponsored health insurance for six months from the date of termination.

The employment agreement with the SVP of Engineering expires in August 2024 and provides for an annual salary of $ 440,000 , and, if terminated by the Company without cause, severance of nine months’ 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 months’ salary, continued company-sponsored health insurance for six months from the date of termination and certain non-compete and other restrictive provisions.

The severance agreement is with the President, Chief Operating Officer 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 months’ salary, based on a salary of $ 604,000 , continued company-sponsored health insurance for six months from the date of termination and certain non-compete and other restrictive provisions.

NOTE 15 - Geographical Data

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(2) Consists primarily of inventories (2024 = $ 33,584 ;

2022 = $ 38,755 ), operating lease assets (2023 = $ 5,797 ;

2023 = $ 33,477 ), operating lease right of use (2024 = $ 5,487 ;

2023 = $ 5,797 ) and fixed assets (2024 = $ 3,623 ;

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NOTE 16 – 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.

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.

On August 29, 2023, a purported class action 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, alleging violations of the Securities Exchange Act of 1934 in connection with statements made in the Company’s quarterly reports on Form 10-Q for the quarters ended September 30, 2022, December 31, 2022 and March 31, 2023 (the “10-Q’s”).

The Company previously announced that it was going to restate the financial statements contained in the 10-Qs.

The Company intends to vigorously defend against the action.

The Company has evaluated subsequent events occurring after the date of the consolidated financial statements through the date the consolidated financial statements were issued for events requiring recognition or disclosure.

On August 22, 2024 , the Company’s Board of Directors declared a cash dividend of $ .125 per share payable on October 3, 2024 to stockholders of record on September 12, 2024 .

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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Evaluation of Disclosure Controls and Procedures

At the conclusion of the period ended June 30, 2023, 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, 2023.

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.

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.

We have established disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including the CEO and CFO, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report.

Based on that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were not effective as of June 30, 2024, due to the material weakness in our internal control over financial reporting described below.

Management’s Report on Internal Control over Financial Reporting

Management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a- 15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with U.S.

Under the supervision and with the participation of our management, including our CEO and CFO, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO framework).

Based on evaluation under these criteria, management determined, based upon the existence of the material weakness described below, that we did not maintain effective internal control over financial reporting as of June 30, 2024.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

Current Year Material Weakness

Management identified a material weakness related to inventory costing.

The material weakness was a result of ineffective review of information used in the inventory costing process.

Remediation Plan of Current Year Material Weakness

Management, with the oversight of the audit committee of our Board of Directors, is currently designing and implementing reconciliation procedures to determine that the information used is complete and accurate and expects to complete these actions during fiscal 2025.

While the Company has begun the process to take measures which it believes will remediate the underlying cause of this material weakness, there can be no assurance as to when the remediation plan will be fully developed and implemented and whether such measures will be effective.

Until the Company’s remediation plan is fully implemented and effective, the Company will continue to devote time, attention and financial resources to this effort.

Deloitte & Touche LLP, our independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of June 30, 2024, and has issued an attestation report on our internal controls over financial reporting, which is included herein.

Remediation of Prior Year Material Weaknesses

The following material weaknesses as previously disclosed in our Annual Report on Form 10-K for the year ended June 30, 2023, have been remediated.

Our management, with the oversight of the audit committee of our Board of Directors, implemented procedures and controls, including:

● Improved the control activities related to information technology user access and program change management.

Specifically, we installed monitoring software that logs and tracks the activity of the administrative users and generates reports of all logged activity.

● Implemented quarterly review and reconciliation control activities over the completeness and accuracy of the forecasted sales and usage data utilized in the determination of the reserve for excess and slow-moving inventory.

Based upon the above, we believe the steps taken have improved the effectiveness of our internal control over financial reporting and determined that these new or redesigned controls are operating effectively.

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, 2023 that have materially affected or is likely to materially affect our internal controls over financial reporting.

Other than the remediation of the material weaknesses in the internal controls described above, and the planned remediation of the current period material weakness, there were no changes in our internal control over financial reporting during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Napco Security Technologies, Inc.

and subsidiaries (the “Company”) as of June 30, 2024, 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, because of the effect of the material weakness identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2024, of the Company and our report dated August 29, 2024, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible 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 internal control over financial reporting based on our audit.

We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

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;

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.

Material Weakness

The following material weakness has been identified and included in management's assessment:

Management identified a material weakness related to inventory costing.

The material weakness was a result of ineffective review of information used in the inventory costing process.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended June 30, 2024, of the Company, and this report does not affect our report on such financial statements.

/s/ DELOITTE & TOUCHE LLP

Jericho, New York

August 29, 2024

OTHER INFORMATION

The Company adopted an Insider Trading Policy on May 6, 2021.

The policy was filed as an exhibit to the Company’s form 8-K filed on May 6, 2021.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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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.

The information appearing in the Proxy Statement relating to the members of the Audit Committee and the Audit Committee financial expert under the headings “Corporate Governance and Board Matters – Board Structure and Committee Composition” and “Corporate Governance and Board Matters – Board Structure and Committee Composition – Audit Committee” and the information appearing in

the Proxy Statement under the heading “Delinquent Section 16(c) Beneficial Ownership Reporting Compliance” is incorporated herein by this reference.

The information set forth in the Proxy Statement under the heading “Information Concerning Executive Officers” is incorporated herein by reference.

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and its subsidiaries are included in Part II, Item 8:

Management Report on Internal Control

Report of Independent Registered Accounting Firm (PCAOB ID 34)

Report of Independent Registered Public Accounting Firm (PCAOB ID 23)

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Description of the Company’s Securities

Amendment No 4.

To Fourth Amended and Restated Credit Agreement

Exhibit 4.11 to Report on Form 8-K (Commission file No.

0-10004) dated February 9, 2024

*Ex-10.A (ii)

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Appendix A to Proxy Statement dated April 13, 2020 for Annual Meeting of Stockholders to be held on May 21, 2020

2022 Employee Stock Option Plan

Appendix A to Proxy Statement dated October 31, 2022 for Annual Meeting of Stockholders to be held on December 5, 2022

Amended and Restated Employment Agreement with Richard Soloway

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Two (2) Year Extension, dated October 21, 2021, 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, 2023

Form of Indemnification Agreement adopted September 3, 2020

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0-10004) dated September 13, 2021

Compensation Agreement between the Registrant and Andrew Vuono dated June 3, 2024

Two (2) Year Extension, dated April 27, 2024, of Employment Agreement between the Registrant and Michael Carrieri

Code of Ethics

1 unchanged sentence

0-10004) for the fiscal year ended June 30, 2010

Insider Trading Policy

Exhibit 14.1 to Report on Form 8-K (Commission File No.

0-10004) dated May 6, 2021

Subsidiaries of the Registrant

Consent of Independent Auditors

Consent of Independent Registered Accounting Firm – Deloitte & Touche LLP

Consent of Independent Registered Accounting Firm – Baker Tilly, LLP

Section 302 Certification of Chief Executive Officer

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Certification of Chief Financial Officer Pursuant to 18 USC Section 1350 and Section 906 of Sarbanes - Oxley Act of 2002

Incentive Compensation Clawback Policy

Inline XBRL Instance Document **

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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.

September 8, 2023

August 29, 2024

NAPCO SECURITY TECHNOLOGIES, INC.

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Chairman of the Board of

Directors, President and Secretary

Director and Secretary

(Principal Executive Officer)

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Chairman of the Board of Directors,

September 8, 2023

August 29, 2024

Richard Soloway

President and Secretary and Director

Director and Secretary

(Principal Executive Officer)

Executive Vice President

September 8, 2023

President, Chief Operating Officer

August 29, 2024

and Chief Financial Officer

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/s/ PAUL STEPHEN BEEBER

September 8, 2023

August 29, 2024

Paul Stephen Beeber

/s/ RICK LAZIO

September 8, 2023

August 29, 2024

/s/ DONNA SOLOWAY

September 8, 2023

August 29, 2024

Donna Soloway

/s/ ROBERT UNGAR

September 8, 2023

August 29, 2024

/s/ ANDREW J.

September 8, 2023

August 29, 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-K

Item 8. Financial Statements and Supplementary Data