What changed in this filing

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Item 1. Financial Statements

2024-11-04 compared with 2024-05-06 · 317 added, 326 removed, 466 unchanged (58% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

March 31, 2024

September 30, 2024

June 30, 2024

4 unchanged sentences

Marketable securities

Accounts receivable, net of allowance for credit losses of $ 105 and $ 131 as of March 31, 2024 and June 30, 2023, respectively

Inventories, net

Accounts receivable, net of allowance for credit losses of $ 23 and $ 32 as of September 30, 2024 and June 30, 2024, respectively

Income tax receivable

1 unchanged sentence

Total Current Assets

Inventories - non-current, net

Inventories - non-current

Property, plant and equipment, net

1 unchanged sentence

Deferred income taxes

Right-of-use asset

Operating lease - Right-of-use asset

CURRENT LIABILITIES

2 unchanged sentences

Accrued salaries and wages

Accrued income taxes

Dividend payable

Total Current Liabilities

Accrued income taxes

Long term right-of-use liability

Operating lease liability

TOTAL LIABILITIES

2 unchanged sentences

Common Stock, par value $ 0.01 per share;

100,000,000 shares authorized as of March 31, 2024 and June 30, 2023;

100,000,000 shares authorized as of September 30, 2024 and June 30, 2024;

39,771,035 and 39,768,186 shares issued;

2 unchanged sentences

Retained earnings

Treasury Stock, at cost ( 2,893,715 shares)

Treasury Stock, at cost ( 3,086,967 and 2,893,715 shares as of September 30, 2024 and June 30, 2024, respectively)

TOTAL STOCKHOLDERS’ EQUITY

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Three Months ended March 31,

Three Months Ended September 30,

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

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Other income:

Interest and other income, net

Interest and other income (expense), net

Income before Provision for Income Taxes

5 unchanged sentences

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Nine Months Ended March 31,

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

Equipment revenues

Service revenues

Cost of sales:

Equipment-related expenses

Service-related expenses

Operating expenses:

Research and development

Selling, general, and administrative expenses

Total Operating Expenses

Operating Income

Other income:

Interest and other income, net

Income before Provision for Income Taxes

Provision for Income Taxes

Income per share:

Weighted average number of shares outstanding:

NAPCO SECURITY TECHNOLOGIES, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (unaudited)

Nine months ended March 31, 2024 (in thousands, except for share data)

Three months ended September 30, 2024 (in thousands, except for share data)

Treasury Stock

2 unchanged sentences

Stock-based compensation expense

Cash dividend ($ .08 per share)

Balances at September 30, 2023

( 2,893,715 )

Stock-based compensation expense

Stock options exercised

Cash dividend ($ .08 per share)

Balances at December 31, 2023

( 2,893,715 )

Stock-based compensation expense

Stock options exercised

Purchase of treasury shares

Cash dividend ($ .125 per share)

Balances at March 31, 2024

Balances at September 30, 2024

( 3,086,967 )

Nine months ended March 31, 2023 (in thousands, except share data)

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

Treasury Stock

2 unchanged sentences

Stock-based compensation expense

Stock options exercised

Cash dividend ($ .08 per share)

Balances at September 30, 2023

( 2,893,715 )

Stock-based compensation expense

Stock options exercised

Balances at December 31, 2022

( 2,893,715 )

Stock-based compensation expense

Stock options exercised

Balances at March 31, 2023

( 2,893,715 )

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine Months ended March 31,

Three Months ended September 30,

(in thousands)

2 unchanged sentences

Depreciation and amortization

Gain on disposal of fixed asset

Interest expense (income) on other investments

Interest (income) expense on other investments

Unrealized (gain) loss on marketable securities

11 unchanged sentences

Purchases of property, plant, and equipment

Proceeds from disposal of fixed asset

Purchases of marketable securities

1 unchanged sentence

Redemption of other investments

Net Cash Used in Investing Activities

Net Cash Provided by (Used in) Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES

1 unchanged sentence

Cash paid for dividend

Net Cash (Used in) Provided by Financing Activities

Net increase (decrease) in Cash and Cash Equivalents

Cash paid for purchase of treasury shares

Net Cash Used in Financing Activities

Net increase in Cash and Cash Equivalents

CASH AND CASH EQUIVALENTS - Beginning

3 unchanged sentences

Income taxes paid

Non-Cash Investing and Financing Transactions

Cash dividends declared and not paid

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

March 31, 2024

September 30, 2024

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

5 unchanged sentences

Our wireless communication services have led to substantial growth in our monthly recurring revenues.

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 our products may be affected by the housing and construction markets.

Deterioration of the current economic conditions may also affect this trend.

The monthly recurring service 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, marketable securities, current receivables and payables and certain other short-term financial instruments approximate their fair value as of March 31, 2024 and June 30, 2023 due to their short-term maturities.

Lease liabilities reflect fair value based on prevailing market rates.

Current Assets and Current Liabilities - The carrying amount of cash and cash equivalents, certificates of deposits, marketable securities, current receivables and payables and certain other short-term financial instruments approximate their fair value as of September 30, 2024 and June 30, 2024 due to their short-term maturities.

Cash and Cash Equivalents and Investments – other

Cash and cash equivalents include approximately $ 36,106,000 of short-term time deposits, consisting of several certificates of deposit totaling $ 5,340,000 and $ 30,766,000 in money market funds as of March 31, 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.

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

Cash and cash equivalents include approximately $ 73,055,000 of short-term time deposits in money market funds as of September 30, 2024.

Cash and cash equivalents include approximately $ 46,518,000 of short-term time deposits, consisting of several certificates of deposit totaling $ 5,402,000 and $ 41,116,000 in a money market fund as of June 30, 2024.

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 consist of the following as of (in thousands):

March 31, 2024

September 30, 2024

June 30, 2024

Money Market Fund

Certificates of Deposit

Certificate of Deposits

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

March 31, 2024

September 30, 2024

June 30, 2024

Certificates of Deposit

Certificate of Deposits

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

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

March 31, 2024

September 30, 2024

Balance Sheet Classification

5 unchanged sentences

4.60 % - 4.75 %

June 30, 2024

Balance Sheet Classification

Interest Rate

Maturity Date

Carrying Value

Cash and Cash Equivalents

Investments - other

4.55 % - 4.75 %

The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of March 31, 2024 and June 30, 2023.

7/25/2024 - 10/24/2024

The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of September 30, 2024 and June 30, 2024.

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

1 unchanged sentence

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.

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

During the three and nine months ended March 31, 2024, the Company did not record an impairment charge regarding its investment in marketable securities because

management believes, based on its evaluation of the circumstances, that the decline in fair value below the cost of certain of the Company’s marketable securities is temporary.

The Company evaluates its investments periodically for possible other-than-temporary impairment by reviewing factors such as the length of time and extent to which fair value had been below cost basis, the financial condition of the issuer and the Company’s ability and intent to hold the investment for a period of time, which may be sufficient for anticipated recovery of market value.

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

During the three months ended September 2024 and 2023, the Company did not record an impairment charge regarding its investment in marketable securities because management believes, based on its evaluation of the circumstances, that the decline in fair value below the cost of certain of the Company’s marketable securities is temporary.

Accounts Receivable

Accounts receivable is stated net of the reserves for credit losses of $ 105,000 and $ 131,000 as of March 31, 2024 and June 30, 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.

Accounts receivable is stated net of the reserves for credit losses of $ 23,000 and $ 32,000 as of September 30, 2024 and June 30, 2024, respectively.

In accordance with ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326), the Company recognizes an allowance for credit losses for trade 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.

3 unchanged sentences

These proportions, the method of their application, and the resulting overhead included in ending inventory, are based in part on subjective estimates and actual results could differ from those estimates.

In addition, the Company records an inventory obsolescence reserve, which represents any excess of the cost of the inventory over its estimated realizable value.

This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, product life cycle, requirements to support forecasted sales, and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand.

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.

11 unchanged sentences

Intangible assets consisted of the follows (in thousands):

March 31, 2024

September 30, 2024

June 30, 2024

Customer relationships

Amortization expense for intangible assets subject to amortization was approximately $ 84,000 and $ 90,000 for the three months ended March 31, 2024 and 2023, respectively.

Amortization expense for intangible assets subject to amortization was approximately $ 253,000 and $ 271,000 for the nine months ended March 31, 2024 and 2023, respectively.

Amortization expense for intangible assets subject to amortization was approximately $ 79,000 and $ 84,000 for the three months ended September 30, 2024 and 2023, respectively.

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

4 unchanged sentences

and 2030 - $ 202,000 .

The weighted average remaining amortization period for intangible assets was 15.0 years and 15.5 years at March 31, 2024 and June 30, 2023, respectively.

The weighted average remaining amortization period for intangible assets was 14.6 years and 14.8 years at September 30, 2024 and June 30, 2024, respectively.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.

For product sales, the Company typically transfers control at a point in time upon shipment or delivery of the product.

For monthly communication services the Company satisfies its performance obligation as the services are rendered and therefore recognizes revenue over the monthly period.

Typically timing of revenue recognition coincides with the timing of invoicing to the customers, at which time the Company has an unconditional right to consideration.

As such, the Company typically records a receivable when revenue is recognized.

The contract with the customer states the final terms of the sale, including the description, quantity, and price of each product purchased.

Payment for product sales is typically due within 30 and 180 days of the delivery date .

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

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

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

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

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

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

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

Actual results could differ from those estimates.

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 ($ 89,000 and $ 83,000 in the three months ended September 30, 2024 and 2023, respectively);

and classifies the costs associated with these sales in cost of sales ($ 390,000 and $ 371,000 in the three months ended September 30, 2024 and 2023).

Advertising and Promotional Costs

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

Advertising expense for the three months ended March 31, 2024 and 2023 was

$ 395,000 and $ 926,000 , respectively.

Advertising expense for the nine months ended March 31, 2024 and 2023 was $ 1,852,000 and $ 2,185,000 , respectively.

Advertising expense for the three months ended September 30, 2024 and 2023 was $ 890,000 and $ 761,000 , respectively.

Research and Development Costs

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

Company-sponsored R&D expense for the three months ended March 31, 2024 and 2023 was $ 2,757,000 and $ 2,314,000 , respectively.

Company-sponsored R&D expense for the nine months ended March 31, 2024 and 2023 was $ 7,736,000 and $ 6,964,000 , respectively.

Company-sponsored R&D expense for the three months ended September 30, 2024 and 2023 was $ 3,057,000 and $ 2,437,000 , respectively.

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

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

The following provides a reconciliation of information used in calculating the per share amounts for the three months ended March 31, 2024 and 2023 (in thousands, except share and per share data):

Weighted Average Shares

Net Income per Share

Effect of Dilutive Securities:

Stock Options

Options to purchase 0 shares of common stock were excluded for both the three months ended March 31, 2024 and 2023, respectively, and were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive.

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

The following provides a reconciliation of information used in calculating the per share amounts for the nine months ended March 31, 2024 and 2023 (in thousands, except share and per share data):

Weighted Average

The following provides a reconciliation of information used in calculating the per share amounts for the three months ended September 30, 2024 and 2023 (in thousands, except share and per share data):

Net Income per

Weighted Average Shares

Effect of Dilutive Securities:

Stock Options

Options to purchase 24,167 and 8,379 shares of common stock were excluded for the nine months ended March 31, 2024 and 2023, respectively, and were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive.

Options to purchase 20,000 and 5,000 shares of common stock were excluded for the nine months ended September 30, 2024 and 2023, respectively, and were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive.

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

1 unchanged sentence

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 compensation costs of $ 266,000 and $ 322,000 were recognized for the three months ended March 31, 2024 and 2023, respectively.

Stock-based compensation costs of $ 876,000 and $ 1,134,000 were recognized for the nine months ended March 31, 2024 and 2023, respectively.

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 $ 371,000 and $ 307,000 were recognized for the three months ended September 30, 2024 and 2023, respectively.

Foreign Currency

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

Therefore, no realized and unrealized gains and losses associated with foreign currency translation are recorded for the three and nine months ended March 31, 2024 or 2023.

Therefore, no realized and unrealized gains and losses associated with foreign currency translation are recorded for the three months ended September 30, 2024 or 2023.

Comprehensive Income

For the three and nine months ended March 31, 2024 and 2023, the Company’s operations did not give rise to material items includable in comprehensive income, which were not already included in net income.

For the three months ended September 30, 2024 and 2023, the Company’s operations did not give rise to material items includable in comprehensive income, which were not already included in net income.

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

Segment Reporting

The Company’s reportable operating segments are determined based on the Company’s management approach.

The management approach is based on the way that the chief operating decision maker organizes the segments within an enterprise for making operating decisions and assessing performance.

The Company’s results of operations are reviewed by the chief operating decision maker on a consolidated basis and the Company operates in only one segment.

The Company 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 14.

Shipping and Handling Sales and Costs

The Company records the amount billed to customers for shipping and handling in net sales ($ 93,000 and $ 106,000 in the three months ended March 31, 2024 and 2023, respectively, and $ 279,000 and $ 346,000 in the nine months ended March 31, 2024 and 2023, respectively);

and classifies the costs associated with these sales in cost of sales ($ 421,000 and $ 437,000 in the three months ended March 31, 2024 and 2023, respectively, and $ 1,181,000 and $ 1,285,000 in the nine months ended March 31, 2024 and 2023, respectively).

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

2016-02, Leases (Topic 842) .

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 13 – Commitments and Contingencies;

Leases for additional accounting policies and disclosures.

Recently Issued Accounting Standards

Reference Rate Reform (ASC Topic 848)

In March 2020, the FASB issued authoritative guidance to provide optional relief for companies preparing for the discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”), which 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 8).

The transition did not have a material impact on the condensed consolidated financial statements.

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.

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

The Company is engaged in one major line of business:

the development, manufacture, and distribution of security products, encompassing access control systems, door security products, intrusion and fire alarm systems, alarm communication services, and video surveillance products for commercial and residential use.

The Company is engaged in the development, manufacture, and distribution of security products, encompassing access control systems, door security products, intrusion and fire alarm systems, alarm communication services, and video surveillance products for commercial and residential use.

The Company also provides wireless communication service for intrusion and fire alarm systems on a monthly basis.

All of these products and services are used for commercial, residential, institutional, industrial and governmental applications, and are sold primarily to independent distributors, dealers and installers of security equipment.

These products and services are used for commercial, residential, institutional, industrial and governmental applications, and are sold primarily to independent distributors, dealers and installers of security equipment.

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

As of March 31, 2024 and June 30, 2023, the Company included refund liabilities of approximately $ 5,224,000 and $ 5,521,000 , respectively, in current liabilities.

As of March 31, 2024 and June 30, 2023, the Company included return-related assets of approximately $ 1,316,000 and $ 1,338,000 , respectively, in other current assets.

As a percentage of gross sales, returns, rebates and allowances were 6 % and 8 % for the three months ended March 31, 2024 and 2023, respectively.

As a percentage of gross sales, returns, rebates and allowances were 6 % for both the nine months ended March 31, 2024 and 2023, respectively.

As of September 30, 2024 and June 30, 2024, the Company included refund liabilities of approximately $ 6,066,000 and $ 6,295,000 , respectively, in current liabilities.

As of September 30, 2024 and June 30, 2024, the Company included return-related assets of approximately $ 1,557,000 and $ 1,586,000 , respectively, in other current assets.

As a percentage of gross sales, returns, rebates and allowances were 9 % and 4 % for the three months ended September 30, 2024 and 2023, respectively.

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

2 unchanged sentences

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

Three months ended March 31,

Nine months ended March 31,

Three months ended September 30,

Major Product Lines:

5 unchanged sentences

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

The Company had two customers with an accounts receivable balance that comprised of 16 % and 11 % as of March 31, 2024.

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

Sales to either of these customers did not exceed 10% of net sales during the three and nine months ended March 31, 2024.

Sales to one of these customers was 12 % and 10 % of net sales during the three and nine months ended March 31, 2023.

The Company had one customer with an accounts receivable balance that comprised of 15 % and 17 % as of September 30, 2024 and June 30, 2024.

The Company had one additional customer with an accounts receivable balance that comprised of 15 % as of September 30, 2024.

The Company had another additional customer with an accounts receivable balance that comprised of 12 % as of June 30, 2024.

Sales to any of these customers did not exceed 10% of net sales during the three months ended September 30, 2024 and 2023, respectively.

NOTE 4 – Fair Value Measurement

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 September 30, 2024 and June 30, 2024, respectively:

September 30, 2024

Cash equivalents

Certificate of deposits

Money market funds

Short-term investments

Certificate of deposits

Marketable securities

June 30, 2024

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.

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

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

The disaggregated net gains and losses on the marketable securities recognized within the accompanying condensed consolidated statements of income for the three and nine months ended March 31, 2024 and 2023, are as follows (in thousands):

Three months ended March 31,

Nine months ended March 31,

The Company’s marketable securities include investments in fixed income mutual funds, which are reported at their fair values.

The disaggregated net gains and losses on the marketable securities recognized within the accompanying condensed consolidated statements of income for the three months ended September 30, 2024 and 2023, are as follows (in thousands):

Three months ended September 30,

Net gains recognized during the period on marketable securities

Net gains recognized during the period on marketable securities sold during the period

Net (losses) recognized during the period on marketable securities sold during the period

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 at March 31, 2024 and June 30, 2023, respectively (in thousands):

March 31, 2024

The following tables summarize the Company’s investments at September 30, 2024 and June 30, 2024, respectively (in thousands):

September 30, 2024

June 30, 2024

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.

Available-for-sale securities in a loss position at September 30, 2024 and June 30, 2024 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

September 30, 2024

June 30, 2024

NOTE 6 - Inventories

1 unchanged sentence

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

September 30,

Component parts

1 unchanged sentence

Finished product

Classification of inventories, net of reserves:

Classification of inventories:

The reserve for excess and slow-moving inventory, which reduces inventory in our consolidated balance sheets were $ 4,820,000 and $ 5,026,000 as of September 30, 2024 and June 30, 2024, respectively.

NOTE 7 – Property, Plant, and Equipment

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

March 31, 2024

September 30, 2024

June 30, 2024

6 unchanged sentences

accumulated depreciation and amortization

Depreciation and amortization expense on property, plant, and equipment was approximately $ 454,000 and $ 380,000 for the three months ended March 31, 2024 and 2023, respectively.

Depreciation and amortization expense on property, plant and equipment was approximately $ 1,374,000 and $ 1,127,000 for the nine months ended March 31, 2024 and 2023, respectively.

Depreciation and amortization expense on property, plant, and equipment was approximately $ 470,000 and $ 453,000 for the three months ended September 30, 2024 and 2023, respectively.

NOTE 8 - Income Taxes

3 unchanged sentences

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

For the nine months ended March 31, 2024 the Company recognized total pre-tax book income of $ 41,660,000 , comprised of $ 5,412,000 and $ 36,248,000 of domestic and foreign pre-tax book income, respectively.

For the three months ended September 30, 2024 the Company recognized total pre-tax book income of $ 13,000,000 , comprised of $ 2,529,000 and $ 10,471,000 of domestic and foreign pre-tax book income, respectively.

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

As of March 31, 2024, the Company had accrued interest totaling $ 198,000 , as well as $ 700,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period.

For the nine months ended March 31, 2024, additional interest expense was accrued for in the amount of $ 59,000 .

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

As of September 30, 2024, the Company had accrued interest totaling $ 209,000 , as well as $ 700,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period.

For the three months ended September 30, 2024, additional interest expense was accrued for in the amount of $ 15,000 .

The company has FIN 48 liabilities accrued due to historic Section 956 positions.

These positions would not be reversed until the earlier of when the statute of limitation lapses noting that Section 956 adjustments are subject to a 6-year period under the constructive dividend rules, or the position is effectively settled via an IRS audit.

Based on the tax returns filed in April of 2019, the six year statute of limitations would expire during Q4 of June 30, 2025.

We file a consolidated U.S.

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

As of March 31, 2024, we remain subject to examination in all tax jurisdictions for all relevant jurisdictional statutes for fiscal years 2018 and thereafter.

As of September 30, 2024, 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.

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.

4 unchanged sentences

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 March 31, 2024 and June 30, 2023, the Company has no outstanding debt.

As of September 30, 2024 and June 30, 2024, 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.

3 unchanged sentences

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.

During the fourth quarter of fiscal 2020, the Company received the proceeds of promissory notes dated between April 17, 2020 and May 7, 2020 (the "PPP Loan Agreement"), entered into between the Company and HSBC Bank USA N.A., as lender (the "Lender).

Lender made the loans pursuant to the Paycheck Protection Program (the "PPP"), created by Section 1102 of the CARES Act and governed by the CARES Act, Section 7(a)(36) of the Small Business Act, any rules or guidance that has been issued by the Small Business Association (“SBA”) implementing the PPP and acting as guarantor, or any other applicable loan program requirements, as defined in 13 CFR § 120.10, as amended from time to time.

During Fiscal 2020, the Company received the proceeds of promissory notes (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.

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”.

Pursuant to the CARES Act, the loans may be forgiven by the SBA.

During the year ended June 30, 2022, the PPP Loans were forgiven, in their entirety, in accordance with guidelines set forth in the PPP loan documents.

The Company recognized a gain on the extinguishment of debt during the quarter ended September 30, 2021 in the amount of $ 3,904,000 within the other (expense) income section in the accompanying condensed consolidated statements of income.

The SBA reserves the right to audit PPP forgiveness applications for a period of six years from the date of forgiveness.

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

Pursuant to the CARES Act, the loans may be forgiven, and during Fiscal 2022, the PPP Loans were forgiven, in their entirety, in accordance with guidelines set forth in the PPP Loan Agreement.

In accordance with the CARES Act, the federal government reserves the right to audit any forgiveness of PPP Loan’s for a period of six years from the date of forgiveness, and it has indicated that it intends to audit loans that were in excess of $2 million.

NOTE 10 - Stock Options

The Company follows ASC 718 (“Share-Based Payment”), which requires that all share-based payments to employees, including stock options, be recognized as compensation expense in the consolidated financial statements based on their fair values and over the requisite service period.

For the three months ended March 31, 2024 and 2023, the Company recorded non-cash compensation expense of $ 266,000 ($ 0.01 per basic and diluted share) and $ 322,000 ($ 0.01 per basic and diluted share), respectively, relating to stock-based compensation which are included in SG&A in the consolidated statements of income.

For the nine months ended March 31, 2024 and 2023, the Company recorded non-cash compensation expense of $ 876,000 ($ 0.02 per basic and diluted share) and $ 1,134,000 ($ 0.03

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

For the three months ended September 30, 2024 and 2023, the Company recorded non-cash compensation expense of

$ 371,000 ($ 0.01 per basic and diluted share) and $ 307,000 ($ 0.01 per basic and diluted share), respectively, relating to stock-based compensation which are included in SG&A in the consolidated statements of income.

2012 Employee Stock Option Plan

5 unchanged sentences

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

At March 31, 2024, 363,036 stock options were outstanding, 178,984 stock options were exercisable and no further stock options were available for grant under this plan.

No stock options were granted during the three and nine months ended March 31, 2024.

0 and 37,500 options were granted during the three and nine months ended March 31, 2023, respectively.

At September 30, 2024, 361,036 stock options were outstanding, 198,060 stock options were exercisable and no further stock options were available for grant under this plan.

No stock options were granted during the three months ended September 30, 2024 and 2023, respectively.

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

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rates

Expected lives

Expected volatility

Expected dividend yields

The following table reflects activity under the 2012 Employee Plan for the nine months ended March 31:

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

Weighted average

10 unchanged sentences

Total intrinsic value of options exercisable

A total of 115,944 and 147,544 stock options were exercised during the three and nine months ended March 31, 2024.

77,944 of the 115,944 options that were exercised during the three months ended March 31, 2024 were settled by the Company withholding 26,002 from the shares issuable on exercise of the options.

109,544 of the 147,544 options that were exercised during the nine months ended March 31, 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.

For the remaining 38,000 shares exercised during the three and nine months ended March 31, 2024, $ 427,000 cash was received from the option exercises.

The actual tax benefit realized for the tax deductions from option exercises during the three and nine months ended March 31, 2024 was $ 67,000 and $ 119,000 , respectively.

30,800 and 38,000 stock options were exercised during the three and nine months ended March 31, 2023, respectively.

27,600 of the 30,800 options that were exercised during the three months ended March 31, 2023 were settled by the Company withholding 9,943 from the shares issuable on exercise of the options.

29,600 of the 38,000 options that were exercised during the nine months ended March 31, 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.

$ 36,000 and $ 81,000 cash was received from the option exercises during the three and nine months ended March 31, 2023.

The actual tax benefit realized for the tax deductions from option exercises during the three and nine months ended March 31, 2023 was $ 0 for both periods.

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at March 31, 2024:

A total of 2,000 and 0 stock options were exercised during the three months ended September 30, 2024 and 2023, respectively.

$ 54,000 cash was received from the option exercises during the three months ended September 30 ,2024.

The actual tax benefit realized for the tax deductions from option exercises during the three months ended September 30, 2024 and 2023 was $ 0 and $ 0 , respectively.

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

Options outstanding

8 unchanged sentences

$ 10.02 ‑ $ 26.94

As of March 31, 2024, there was $ 1,306,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan.

No options were granted during the three and nine months ended March 31, 2024.

0 and 37,500 options were granted during the three and nine months ended March 31, 2023.

5,200 and 89,900 options vested during the three and nine months ended March 31, 2024.

The total grant date fair value of the options vesting during the three and nine months ended March 31, 2024 was $ 33,000 and $ 881,000 , respectively.

5,200 and 97,900 options vested during the three and nine months ended March 31, 2023, respectively.

The total grant date fair value of the options vesting during the three and nine months ended March 31, 2023 under this plan was $ 33,000 and $ 916,000 , respectively.

As of September 30, 2024, there was $ 885,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan.

9,100 and 10,700 options vested during the three months ended September 30, 2024 and 2023, respectively.

The total grant date fair value of the options vesting during the three months ended September 30, 2024 and 2023 was $ 112,000 and $ 124,000 , respectively

2012 Non-Employee Stock Option Plan

4 unchanged sentences

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

At March 31, 2024, 20,400 stock options were outstanding, 16,560 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three and nine months ended March 31, 2024 and 2023.

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

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rates

Expected lives

Expected volatility

Expected dividend yields

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

At September 30, 2024, 20,400 stock options were outstanding, 16,560 stock options were exercisable and no further stock options were available for grant under this plan after December 2022.

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

Weighted average

10 unchanged sentences

Total intrinsic value of options exercisable

No stock options were exercised during the three and nine months ended March 31, 2024 and 2023, respectively.

No cash was received from option exercises during the three and nine months ended March 31, 2024 and 2023, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $ 0 for both periods.

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at March 31, 2024:

No stock options were exercised during the three months ended September 30, 2024 and 2023, respectively.

No cash was received from option exercises during the three months ended September 30, 2024 and 2023, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $ 0 for both periods.

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

Options outstanding

6 unchanged sentences

$ 4.35 - $ 22.93

As of March 31, 2024, there was $ 29,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan.

No options were granted during the three and nine months ended March 31, 2024 and 2023, respectively.

720 and 2,640 options vested during the three and nine months ended March 31, 2024 and 2023, respectively.

The total grant date fair value of the options vesting during the three and nine months ended March 31, 2024 and 2023 under this plan was $ 5,000 and 24,000 , respectively.

As of September 30, 2024, there was $ 19,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan.

No options vested during the three months ended September 30, 2024 and 2023, respectively.

2018 Non-Employee Stock Option Plan

4 unchanged sentences

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

At March 31, 2024, 71,900 stock options were outstanding, 62,500 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three and nine months ended March 31, 2024 and 2023.

At September 30, 2024, 64,900 stock options were outstanding, 59,500 stock options were exercisable and 4,000 further stock options were available for grant under this plan.

There were no options granted during the three months ended September 30, 2024 and 2023.

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

4 unchanged sentences

Expected dividend yields

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

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

Weighted average

10 unchanged sentences

Total intrinsic value of options exercisable

A total of 1,500 and 3,100 stock options were exercised during the three and nine months ended March 31, 2024.

The 1,500 options that were exercised during the three months ended March 31, 2024 were settled by the Company withholding 792 from the shares issuable on exercise of the options.

The 3,100 options that were exercised during the nine months ended March 31, 2024 were settled by the Company withholding 1,532 from the shares issuable on exercise of the options.

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

No cash was received from the option exercises during the three and nine months ended March 31, 2024.

The actual tax benefit realized for the tax deductions from option exercises during the three and nine months ended March 31, 2024 was $ 6,000 and $ 12,000 , respectively.

1,600 and 11,500 options were exercised during the three and nine months ended March 31, 2023, respectively.

The 1,600 options that were exercised during the three months ended March 31, 2023, were settled by the Company withholding 395 from the shares issuable on exercise of the options.

The 11,500 options that were exercised during the nine months ended March 31, 2023, were settled by the Company withholding 6,052 from the shares issuable on exercise of the options.

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

No cash was received from option exercises during the three and nine months ended March 31, 2023, and the actual tax benefit realized for the tax deductions from option exercises was $ 8,000 and $ 34,000 , respectively.

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at March 31, 2024:

No stock options were exercised during the three months ended September 30, 2024 and 2023, respectively.

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at September 30, 2024:

Options outstanding

6 unchanged sentences

$ 8.10 - $ 22.93

As of March 31, 2024, there was $ 71,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan.

No options were granted during the three and nine months ended March 31, 2024 and 2023, respectively.

5,380 and 14,880 options vested during the three and nine months ended March 31, 2024, respectively.

The total grant date fair value of the options vesting during the three and nine months ended March 31, 2024 under this plan was $ 35,000 and $ 124,000 , respectively.

5,380 and 19,680 options vested during the three and nine months ended March 31, 2023, respectively.

grant date fair value of the options vesting during the three and nine months ended March 31, 2023 under this plan was $ 35,000 and $ 149,000 , respectively.

As of September 30, 2024, there was $ 27,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan.

No options vested during the three months ended September 30, 2024, respectively.

2020 Non-Employee Stock Option Plan

In May 2020, the stockholders approved the 2020 Non-Employee Stock Option Plan (the “2020 Non-Employee Plan”).

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

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

stock to be acquired by the holders of such awards.

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

1 unchanged sentence

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

At March 31, 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.

No options were granted during the three and nine months ended March 31, 2024.

5,000 and 30,000 options were granted during the three and nine months ended March 31, 2023, respectively.

At September 30, 2024, 51,900 stock options were outstanding, 34,140 stock options were exercisable and 45,100 stock options were available for grant under this plan.

No options were granted during the three months ended September 30, 2024 and 2023, respectively.

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

2 unchanged sentences

Expected lives

7.23 - 7.27 Years

Expected volatility

Expected dividend yields

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

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

Weighted average

10 unchanged sentences

Total intrinsic value of options exercisable

No stock options were exercised during the three and nine months ended March 31, 2024 and 2023.

No cash was received from option exercises during either of the three and nine months ended March 31, 2024 or 2023 and the actual tax benefit realized for the tax deductions from option exercises was $ 0 for both periods.

The following table summarizes information about stock options outstanding under the 2020 Non-Employee Plan at March 31, 2024:

A total of 3,000 and 0 stock options were exercised during the three months ended September 30, 2024 and 2023, respectively.

3,000 stock options exercised during the three months ended September 30, 2024 were settled by the company withholding 2,151 shares 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.

The actual tax benefit realized for the tax deductions from option exercises during the three months ended September 30, 2024 and 2023 was $ 7,000 and $ 0 , respectively.

The following table summarizes information about stock options outstanding under the 2020 Non-Employee Plan at September 30, 2024:

Options outstanding

8 unchanged sentences

$ 11.40 - $ 30.71

As of March 31, 2024, there was $ 248,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan.

No stock options were granted during the three and nine months ended March 31, 2024.

5,000 and 30,000 stock options were granted during the three and nine months ended March 31, 2023, respectively.

1,000 and 11,380 options vested during the three and nine months ended March 31, 2024 and 2023, respectively.

The total grant date fair value of the options vesting during the three and nine months ended March 31, 2024 and 2023 under this plan was $ 16,000 and $ 129,000 , respectively.

As of September 30, 2024, there was $ 163,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan.

7,000 options vested during both the three months ended September 30, 2024 and 2023, respectively.

The total grant date fair value of the options vesting during the three months ended September 30, 2024 and 2023 under this plan was $ 79,000 each period.

2022 Employee Stock Option Plan

5 unchanged sentences

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

At March 31, 2024, 10,000 stock options were outstanding, 2,000 stock options were exercisable and 940,000 stock options were available for grant under this plan.

No stock options were granted during the three months ended March 31, 2024.

There were 10,000 options granted during the nine months ended March 31, 2024.

At September 30, 2024, 130,000 stock options were outstanding, 26,000 stock options were exercisable and 820,000 stock options were available for grant under this plan.

No stock options were granted during the three months ended September 30, 2024 and 2023, respectively.

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

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Expected dividend yields

The following table reflects activity under the 2022 Employee Plan for the nine months ended March 31:

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

Weighted average

exercise price

Outstanding, beginning of year

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Total intrinsic value of options exercisable

No options were exercised during the three and nine months ended March 31, 2024.

No cash was received from option exercises during the three and nine months ended March 31, 2024 and the actual tax benefit realized for the tax deductions from option exercises was $ 0 .

The following table summarizes information about stock options outstanding under the 2022 Employee Plan at March 31, 2024:

No options were exercised during the three months ended September 30, 2024 and 2023, respectively.

No cash was received from option exercises during the three months ended September 30, 2024 and 2023 and the actual tax benefit realized for the tax deductions from option exercises was $ 0 .

The following table summarizes information about stock options outstanding under the 2022 Employee Plan at September 30, 2024:

Options outstanding

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exercise price

As of March 31, 2024, there was $ 68,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2022 Employee Plan.

No options were granted during the three months ended March 31, 2024.

10,000 options were granted during the nine months ended March 31, 2024.

No options vested during the three months ended March 31, 2024.

2,000 options vested during the nine months ended March 31, 2024, respectively.

The total grant date fair value of the options vesting during the three and nine months ended March 31, 2024 under this plan was $ 0 and $ 19,500 , respectively.

$ 21.60 - $ 49.39

As of September 30, 2024, there was $ 1,955,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2022 Employee Plan.

No options vested during the three months ended September 30, 2024 and 2023, respectively.

NOTE 11 – Stockholders’ Equity Transactions

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 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 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.

During the three months ended March 31, 2024, certain employees and directors exercised stock options under the Company's 2012 Employee and 2018 Non-Employee Stock Option Plans totaling 117,444 shares.

Of the 117,444 shares exercised, 79,444 of these exercises were completed as cashless exercises as allowed for under the plans, where the exercise shares are issued by the Company in exchange for shares of the Company's common stock that are owned by the optionees.

The number of shares withheld by the Company was 26,794 and was based upon the aggregate fair market value on the date of exercise equal to the purchase price being paid.

During the nine months ended March 31, 2024, certain employees and directors exercised stock options under the Company's 2012 Employee and 2018 Non-Employee Stock Option Plans totaling 150,644 shares.

The following tables summarizes information about dividends declared by the Company for the three months ended September 30, 2024 and the fiscal year ended June 30, 2024:

Dividend Declaration Date

Stockholders of Record Date

Dividend Payable Date

Per Share Cash Dividend Amount

August 22, 2024

September 12, 2024

October 3, 2024

June 24, 2024

February 1, 2024

March 1, 2024

March 22, 2024

November 2, 2023

December 1, 2023

December 22, 2023

August 18, 2023

September 1, 2023

September 22, 2023

The dividend payable from the dividend declared on August 22, 2024, has been settled subsequent to September 30, 2024.

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.

In December of Fiscal 2018, the board of directors authorized the repurchase of up to an additional 1 million shares.

During the three months ended September 30, 2024 the Company repurchased 193,252 shares of its outstanding common stock at a weighted average price of $ 37.67 .

Shares repurchased through September 30, 2024 are included in the Company’s Treasury Stock as of September 30, 2024.

The Company currently has available 387,388 shares that can be repurchased under this authorization.

See Note 15, Subsequent Events, for an additional authorization.

The following tables summarizes information about shares repurchased by the Company for the three months ended September 30, 2024:

Total Number of

Shares Purchased as

Number of Shares

Part of Publicly

that May Yet Be

Announced Plans or

Purchased Under

Plans or Programs

September 10, 2024 - September 19, 2024

Total for the 3 months ended September 30, 2024

During the three months ended September 30, 2024, certain employees and directors exercised stock options under the Company's 2012 Employee and 2020 Non-Employee Stock Option Plans totaling 5,000 shares.

Of the 5,000 shares exercised, 3,000 of these exercises were completed as cashless exercises as allowed for under the plans, where the exercise shares are issued by the Company in exchange for shares of the Company's common stock that are owned by the optionees.

The number of shares withheld by the Company was 2,151 and was based upon the aggregate fair market value on the date of exercise equal to the purchase price being paid.

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

43,600 of these exercises were completed as cashless exercises as allowed for under the plans, where the exercise shares are issued by the Company in exchange for shares of the Company's common stock that are owned by the optionees.

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

NOTE 11 – Related Party Transaction

In 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 $ 372,000 in offering expenses, which are recorded in SG&A in the accompanying condensed consolidation statements of income during the three and nine months ended March 31, 2024, respectively.

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

The Company did not sell any shares in the offering and received no proceeds from the offerings, but the Company incurred $ 496,000 in offering expenses, which are recorded in SG&A in the accompanying condensed consolidation statements of income during the nine months ended March 31, 2023, respectively.

NOTE 12 - 401(k) Plan

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

Company contributions to this plan are discretionary and totaled $ 72,000 and $ 64,000 for the three months ended March 31, 2024 and 2023, respectively.

Company contributions to this plan totaled $ 191,000 and $ 187,000 for the nine months ended March 31, 2024 and 2023, respectively.

Company contributions to this plan are discretionary and totaled $ 69,000 and $ 62,000 for the three months ended September 30, 2024 and 2023, respectively.

NOTE 13 - Commitments and Contingencies

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

For the three months ended March 31, 2024 and 2023 cash payments against operating lease liabilities totaled $ 57,000 and $ 85,000 , respectively.

For the nine months ended March 31, 2024 and 2023 cash payments against operating lease liabilities totaled $ 228,000 and $ 249,000 , respectively.

For the three months ended September 30, 2024 and 2023 cash payments against operating lease liabilities totaled $ 57,000 and $ 86,000 , respectively.

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

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Weighted-average discount rate

The following is a schedule, by years, of maturities of lease liabilities as of March 31, 2024 (in thousands):

The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2024 (in thousands):

Year Ending June 30,

Operating lease expense totaled approximately $ 127,000 and $ 123,000 for the three months ended March 31, 2024 and 2023, respectively.

Operating lease expense totaled approximately $ 380,000 and $ 334,000 for the nine months ended March 31, 2024 and 2023, respectively.

Total future minimum lease payments

Imputed interest

Operating lease expense totaled approximately $ 95,000 and $ 124,000 for the three months ended September 30, 2024 and 2023, respectively.

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

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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.

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.

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Employment Agreements

As of March 31, 2024, the Company was obligated under two employment agreements and one severance agreement with executive officers of the Company.

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

The Company is obligated under three employment agreements and one severance agreement with executive officers of the Company.

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”) and the severance agreement is with the Company’s President , Chief Operating Officer and Chief Financial Officer (“CFO”).

The employment agreement with the CEO provides for an annual salary of $ 970,000 , as adjusted for inflation;

1 unchanged sentence

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 month’s salary and continued company-sponsored health insurance for six months from the date of termination.

2 unchanged sentences

The Company is engaged in one major line of business:

the development, manufacture, and distribution of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems, video surveillance products and wireless communication service for intrusion and fire alarm systems.

These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold primarily to independent distributors, dealers and installers of security equipment.

Sales to unaffiliated customers are shipped from the United States.

the development, manufacture, and distribution of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products for commercial and residential use.

The Company also provides wireless communication service for intrusion and fire alarm systems.

These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold worldwide principally to independent distributors, dealers and installers of security equipment.

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

The Company has customers worldwide with major concentrations in North America.

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

Three months ended March 31,

Nine months ended March 31,

Three months ended September 30,

Sales to external customers (1) :

Total Net Sales

March 31, 2024

September 30, 2024

June 30, 2024

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

(2) Consists primarily of inventories (March 31, 2024 = $ 36,424 ;

June 30, 2023 = $ 33,477 ), operating lease assets (March 31, 2024 = $ 5,564 ;

June 30, 2023 = $ 5,797 ) and fixed assets (March 31, 2024 = $ 3,700 ;

(2) Consists primarily of inventories (September 30, 2024 = $ 33,445 ;

June 30, 2024 = $ 33,584 ), operating lease right of use (September 30, 2024 = $ 5,410 ;

June 30, 2024 = $ 5,487 ) and fixed assets (September 30, 2024 = $ 3,543 ;

June 30, 2024 = $ 3,623 ) located at the Company’s principal manufacturing facility in the Dominican Republic.

1 unchanged sentence

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

On 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 November 1, 2024 , the Company’s Board of Directors declared a cash dividend of $ .125 per share payable on January 3, 2025 to stockholders of record on December 12, 2024 .

Additionally, on November 1, 2024, the Company’s Board of Directors authorized the Company to repurchase up to 1,000,000 shares of its common stock in addition to the prior authorized repurchases described in Note 11.

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

What changed 10-Q

Item 1. Financial Statements