Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: September 30, 2026
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
Commission File number: 0-10004
NAPCO SECURITY TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware
11-2277818
(State or other jurisdiction of
(IRS Employer Identification
incorporation of organization)
Number)
333 Bayview Avenue
Amityville, New York
11701
(Address of principal executive offices)
(Zip Code)
(631) 842-9400
(Registrant’s telephone number including area code)
(Former name, former address and former fiscal year if
changed from last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
NSSC
Nasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ⌧ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ⌧ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧
As of October 30, 2026, there were 35,768,437 outstanding of the registrant’s common stock, par value $.01 per share.
NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2026
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION
ITEM 1.
Financial Statements (Unaudited)
3
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Operations
4
Condensed Consolidated Statements of Comprehensive Income
5
Condensed Consolidated Statements of Stockholders’ Equity
6
Condensed Consolidated Statements of Cash Flows
7
Notes to Condensed Consolidated Financial Statements
8
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
28
ITEM 4.
Controls and Procedures
PART II: OTHER INFORMATION
Legal Proceedings
29
ITEM 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
ITEM 5.
Other Information
ITEM 6.
Exhibits
30
SIGNATURE
31
2
Item 1. Financial Statements (unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 2026
June 30, 2026
(in thousands, except share data)
Assets
Current Assets
Cash and cash equivalents
$
123,882
126,928
Marketable securities
10,734
10,637
Accounts and other receivable, net of allowance for credit losses of $129 and $101 as of September 30, 2026 and June 30, 2026, respectively
29,248
35,975
Inventories
34,130
30,118
Income tax receivable
1,523
—
Prepaid expenses and other current assets
3,838
4,325
Total Current Assets
203,355
207,983
Inventories - non-current
9,195
9,256
Property, plant and equipment, net
9,202
9,238
Intangible assets, net
2,919
2,990
Deferred income taxes
1,777
4,105
Operating lease - Right-of-use asset
4,838
4,906
Other assets
185
190
Total Assets
231,471
238,668
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable
7,749
6,925
Accrued expenses
9,275
8,546
Accrued litigation costs
16,000
Accrued salaries and wages
5,036
4,484
Dividends payable
6,081
5,365
Accrued income taxes
1,134
Total Current Liabilities
28,141
42,454
33
Operating lease liability
5,142
5,179
Total Liabilities
33,283
47,666
Commitments and Contingencies (Note 13)
Stockholders' Equity
Common Stock, par value $0.01 per share; 100,000,000 shares authorized; 39,883,051 shares issued; and 35,768,437 shares outstanding as of both September 30, 2026 and June 30, 2026, respectively.
399
Additional paid-in capital
25,628
25,355
Retained earnings
228,331
221,403
Treasury Stock, at cost, 4,114,614 shares as of both September 30, 2026 and June 30, 2026
(56,315)
Accumulated other comprehensive income
145
160
Total Stockholders' Equity
198,188
191,002
Total Liabilities and Stockholders' Equity
See accompanying notes to condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months ended September 30,
2026
2025
(in thousands, except for share and per share data)
Revenue:
Equipment revenue
23,850
25,739
Service revenue
26,130
23,429
Total revenue
49,980
49,168
Cost of Revenue:
Cost of equipment revenue
18,043
19,046
Cost of service revenue
2,585
2,276
Total cost of revenue
20,628
21,322
Gross Profit
29,352
27,846
Operating Expenses:
Research and development
4,053
3,240
Selling, general, and administrative
12,182
10,963
Litigation settlement
(1,000)
Total operating expenses
15,235
14,203
Operating Income
14,117
13,643
Other Income:
Interest income, net
1,117
854
Other income, net
115
138
Income before Provision for Income Taxes
15,349
14,635
Provision for Income Taxes
2,340
2,470
Net Income
13,009
12,165
Income Per Share:
Basic
0.36
0.34
Diluted
Weighted Average Number of Shares Outstanding:
35,768,000
35,658,000
35,881,000
35,865,000
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Other comprehensive income (loss)
Net change in unrealized gains (losses) on available-for-sale debt securities
(15)
38
Tax effect on net change in unrealized (gains) on available-for-sale debt securities
(13)
Total other comprehensive income (loss)
25
Comprehensive income
12,994
12,190
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three months ended September 30, 2026 (in thousands, except for share data)
Common Stock
Treasury Stock
Number of
Additional
Accumulated
Shares
Paid-in
Retained
Other Comprehensive
Issued
Amount
Capital
Earnings
Income
Total
Balances at June 30, 2026
39,883,051
(4,114,614)
Net income
Other comprehensive income, net of tax
Stock-based compensation expense
273
Cash dividend ($.17 per share)
(6,081)
Balances at September 30, 2026
Three months ended September 30, 2025 (in thousands, except share data)
Balances at June 30, 2025
39,771,035
398
25,280
199,083
168,606
309
Stock options exercised
7,903
Cash dividend ($.14 per share)
(4,992)
Balances at September 30, 2025
39,778,938
25,589
206,256
176,113
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Cash Flows from Operating Activities
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
540
570
Realized gain on sales of marketable securities
(114)
(92)
Charge (recovery) of credit losses
(1)
Change to inventory reserve
(109)
(354)
2,328
1,681
Changes in operating assets and liabilities:
Accounts and other receivable
6,699
(561)
(3,842)
(177)
487
(305)
(1,523)
(1,993)
Accounts payable, accrued expenses, accrued litigation costs, accrued salaries and wages, accrued income taxes
(15,031)
391
Net Cash Provided by Operating Activities
2,750
11,637
Cash Flows from Investing Activities
Purchases of property, plant, and equipment
(433)
(193)
Purchases of marketable securities
(3,570)
(2,540)
Proceeds from sales of marketable securities
3,572
8,407
Net Cash (Used In) Provided by Investing Activities
(431)
5,674
Cash Flows from Financing Activates
Dividends paid
(5,365)
Net Cash Used in Financing Activities
Net (decrease) increase in Cash and Cash Equivalents
(3,046)
12,319
Cash and Cash Equivalents - Beginning
83,081
Cash and Cash Equivalents - Ending
95,400
Supplemental Cash Flow Information
Income taxes paid, net of refunds received
2,701
3,104
Non-Cash Investing and Financing Transactions
Dividends declared and not paid
4,992
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1.Description of Business and Basis of Presentation
Description of business
Napco Security Technologies, Inc (“Napco”, “the Company”, “we”, “our”) is a leading manufacturer and designer of high-tech electronic security devices, cellular communication services for intrusion and fire alarm systems as well as a leading provider of school safety solutions. We offer a diversified array of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products. These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold principally to independent distributors, dealers and installers of security equipment. We have established a national network of trusted independent security dealers and integrators that are experts at selling, installing and supporting our various technologies. These dealers and installers are dependent on our platform for communication services to our radio communicators and smart security devices, and they pay us a monthly fee for these services to operate and manage their businesses efficiently.
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of Napco and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated.
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for annual financial statements. They should be read together with our audited consolidated financial statements and related notes thereto for the year ended June 30, 2026 included in our Annual Report on Form 10-K filed with the SEC on August 24, 2026. The condensed consolidated balance sheet as of June 30, 2026, was derived from our audited financial statements but does not include all disclosures required by GAAP for annual financial statements.
In the opinion of management, these unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of the results of operations, financial position and cash flows for the periods presented. The results of operations for the three months ended September 30, 2026 are not necessarily indicative of the results that can be expected for our entire fiscal year ending June 30, 2027.
Use of Estimates
The preparation of these unaudited condensed consolidated financial statements in conformity with 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. These estimates may change in the future if underlying assumptions or factors change, and actual results may differ materially from these estimates.
Note 2.Significant Accounting Policies and Recent Accounting Pronouncements
Our significant accounting policies are disclosed in our Annual Report on Form 10-K for the year ended June 30, 2026. During the three months ended September 30, 2026, there have been no significant changes to such policies.
Accounting pronouncements recently adopted
During the three months ended September 30, 2026, we adopted Accounting Standards Update (“ASU”) No. 2025-05, Credit Losses: Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient permitting companies to assume that conditions at the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current accounts receivable and current contract assets. This adoption did not have a material effect on our financial statements.
Accounting pronouncements not yet effective
Disclosure improvements. In October 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which modifies the disclosure or presentation requirements of a variety of Topics in the Codification. Among the various codification amendments, Topic 470 Debt is applicable to Arlo which requires the disclosure of amounts, terms and weighted-average interest rates of unused lines of credit. The effective date is either (i) the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or (ii) on June 30, 2027, if the SEC has not removed the requirement by that date, with early adoption prohibited. The adoption of this new standard will not have a material impact on our financial statements and related disclosures.
Expense disaggregation disclosures. In November 2024, the FASB issued ASU No. 2024-03, Income Statement: Reporting Comprehensive Income - Expense Disaggregation Disclosures, Disaggregation of Income Statement Expenses, which improves disclosure requirements and mandates enhanced transparency about the types of expenses in commonly presented expense captions in financial statements. This guidance is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective basis. We are currently evaluating the impact that this guidance may have on our financial statements and related disclosures.
Software development costs accounting and disclosure. In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software: Targeted Improvements to the Accounting for Internal-Use Software, which modernizes the recognition and capitalization framework to reflect current software development practices, including iterative and agile methodologies, by removing references to “development stages”. It also clarifies the criteria for capitalization, which begins when both of the following occur: (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed and the software will be used to perform the function intended. This guidance is effective for annual periods beginning after December 15, 2027, and for interim periods within those annual reporting periods. Early adoption is permitted and is effective on either a prospective basis or retrospective basis. We are currently evaluating the impact that this guidance may have on our financial statements and related disclosures.
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.
9
Note 3.Revenue from Contracts with Customers
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, monthly, to dealers and installers of intrusion and fire alarm systems. 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.
Variable consideration
Revenue from all sales is recognized at transaction price, the amount we expect to be entitled to in exchange for providing services or transferring goods. Transaction price is calculated as selling price net of variable consideration which includes estimates for sales incentives and sales returns related to current period equipment revenue. Sales incentives are determined based on a combination of the actual amounts committed and estimated future expenditure based upon historical customary business practice. Sales returns are estimated by analyzing certain factors, including historical and expected sales and returns data. Variable consideration estimates are based on predictive historical data or future commitments that we plan and control. The following tables provide activities related to refund liabilities and sales incentives and sales returns that are recognized as contra-revenue (in thousands).
Three months ended September 30,
Balance at beginning of period
3,924
4,973
Credits issued
(2,847)
(3,180)
Additions
2,142
2,495
Balance at end of period
3,219
4,288
As of September 30, 2026 and June 30, 2026, the Company included return assets of approximately $886,000 and $1,099,000, respectively, in other current assets.
Disaggregation of revenue
The Company disaggregates revenue into three major product offerings: intrusion and access control products, door locking products, and cellular and cloud-based communication services. Following is the disaggregation of revenues based on major product lines (in thousands):
Intrusion and access alarm products
8,500
8,656
Door locking products
15,350
17,083
Services
Total Revenue
The Company had two customers that comprised 10% and 16% of the accounts receivable balance as of September 30, 2026. The same two customers comprised 11% of the accounts receivable balance each as of June 30, 2026. The Company had one additional customer that comprised 12% accounts receivable balance as of June 30, 2026. Sales to any customer did not exceed 10% of net revenues during the three months ended September 30, 2026 and 2025, respectively.
10
Note 4.Accounts and Other Receivable, Net
The components of accounts and other receivable, net are as follows (in thousands):
September 30,
June 30,
Accounts receivable
29,377
33,145
Allowance for credit losses
(129)
(101)
33,044
Other receivable
2,931
Accounts and other receivable, net
Allowance for Credit Losses
The changes in the allowance for credit losses for accounts receivable are as follows (in thousands):
(25)
(Provision for) / recovery of expected credit losses
(39)
1
Write-offs
11
(24)
Note 5.Inventories
Inventories, net of reserves are valued at lower of cost (first-in, first-out method) or net realizable value. Inventories, net of reserves consist of the following (in thousands):
Component parts
24,584
24,128
Work-in-process
7,162
7,185
Finished product
11,579
8,061
43,325
39,374
Classification of inventories:
Current
Non-current
The reserve for excess and slow-moving inventory, which reduces inventory in our consolidated balance sheets were $5,041,000 and $5,150,000 as of September 30, 2026 and June 30, 2026, respectively.
Note 6.Balance Sheet Components
The following tables summarize the Company’s investments in debt securities at September 30, 2026 and June 30, 2026 (in thousands):
Amortized Cost
Unrealized Gains
Unrealized Losses
Aggregate Fair Value
U.S. Treasury Securities
10,563
171
10,451
186
The debt investments all mature within one year or less, and the Company did not recognize any credit or non-credit related losses related to its debt securities during the three months ended September 30, 2026 and 2025.
Property, plant and equipment
Property, plant and equipment consist of the following (in thousands):
Land
904
Buildings
8,911
Molds and dies
7,572
Furniture and fixtures
3,894
3,888
Machinery and equipment
32,699
32,459
Building improvements
4,248
4,061
58,228
57,795
Less: accumulated depreciation and amortization
(49,026)
(48,557)
Depreciation and amortization expense pertaining to property, plant and equipment are as follows (in thousands):
Equipment-related expenses
338
339
Service-related expenses
26
Operating expenses:
12
General and administrative
73
119
Total depreciation and amortization
469
496
Intangible assets, net consist of the following (in thousands):
Carrying
Net book
value
amortization
Customer relationships
9,800
(9,664)
136
(9,644)
156
Trade name
4,048
(1,265)
2,783
(1,214)
2,834
13,848
(10,929)
(10,858)
Amortization expense for intangible assets subject to amortization was approximately $70,000 and $74,000 for the three months ended September 30, 2026 and 2025, respectively. Amortization expense for each of the next five fiscal years is estimated to be as follows: 2028 - $269,000; 2029 - $210,000; 2030 through 2032 - $202,000. The weighted average remaining amortization period for intangible assets was 13.2 years and 13.3 years at September 30, 2026 and June 30, 2026, respectively.
Note 7.Fair Value Measurement
Fair value on a recurring basis
The following table presents the Company’s assets that were measured at fair value on a recurring basis at September 30, 2026 and June 30, 2026, respectively (in thousands):
Level 1
Level 2
Level 3
Cash equivalents
Money market funds
108,661
-
92,915
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 three months ending September 30, 2026 and 2025, there were no transfers between Levels 1 and 2 investments and no transfers in or out of Level 3.
Fair value on a non-recurring basis
Our non-financial assets, such as property and equipment, and intangible assets are assessed for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable.
13
Note 8.Credit Facility
The Company has available a $20 million revolving credit line (the “Line”) with its primary bank, HSBC Bank USA National Association (“HSBC”), which expires on February 9, 2029. Borrowings on the Line bear interest at the Secured Overnight Financing Rate (SOFR) benchmark rate plus 1.2645% to 1.3645%, depending on the Fixed Charge Coverage Ratio (as defined), which is to be measured and adjusted quarterly. As of September 30, 2026 and June 30, 2026, the Company has no outstanding borrowings on the Line.
The Line is secured by substantially all the Company’s 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 Line. 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 Line. The Line contains various restrictions and covenants including, but not limited to, compliance with certain financial rations, restrictions on payment of dividends and restrictions on borrowings.
Note 9.Income Taxes
The income tax provision is calculated using an estimated annual effective tax rate based upon estimates of annual income, permanent items, statutory tax rates and planned tax strategies in the various jurisdictions in which the Company operates, except that certain discrete items such as the resolution of uncertain tax positions and stock-based accounting income tax benefits are treated separately.
Income tax expense included on our accompanying consolidated statements of operations is as follows, (dollars in thousands):
Provision for income taxes(1)
Effective tax rate
15.2
%
16.9
The difference between the U.S. statutory tax rate of 21% and the effective tax rate in both periods is primarily due to lower tax rates in foreign jurisdictions and the related effect of global intangible low-taxed income (“GILTI”), tax benefit of R&D credits, offset by state and local income taxes and certain nondeductible expenses income.
We file a consolidated U.S. income tax return and tax returns in certain state and local and foreign jurisdictions. As of September 30, 2026, fiscal years 2023 and forward are still open for examination. In addition, the Company has a wholly-owned subsidiary which operates in a Free Zone in the Dominican Republic (“DR”) and is exempt from DR income tax.
Note 10. Employee Benefit Plans
Stock-based compensation
The Company recognized stock-based compensation of $273,000 and $309,000 for the three months ended September 30, 2026 and 2025, respectively.
14
The following table sets forth the stock-based compensation expense by line item in the condensed consolidated statements of operations, (in thousands):
55
218
Total stock-based compensation
Stock option plans
The Company has five stock option plans, two of the plans are available to grant stock options to employees (“Employee Plans”), and three of the plans are available to issue stock options to non-employee directors and consultants (“Non-Employee Plans”).
The Employee Plans provide for the Company to grant stock options, which are intended to qualify as incentive stock options (“ISOs”) or non-incentive stock options. Plan participants who are granted ISOs and possess more than 10% of the voting rights of the Company’s outstanding common stock must be granted options with an exercise price of at least 110% of the fair market value on the date of grant. Options granted under the Employee Plans have a term of up to 10 years, from date of grant, at an exercise price equal to or greater than the fair market value on the date of grant. The Employee Plans provide a cash-less exercise option for the participants, and options granted vest in full upon a “change in control” as defined in the plans.
The Non-Employee Plans provide for the grant of stock options with a term of up to 10 years, from date of grant, at an exercise price equal to or greater than the fair market value on the date of grant. The Non-Employee Plans provide a cash-less exercise option for the participants, and options granted vest in full upon a “change in control” as defined in the plans.
The following table reflects provisions of each of the stock option plans:
Plan Name
Options available to be granted at plan inception
Plan termination date
Options available for grant as of September 30, 2026
2012 Employee Stock Option plan
1,900,000
December 2022
2022 Employee Stock Option plan
950,000
December 2032
770,215
2012 Non-Employee Stock Option plan
100,000
2018 Non-Employee Stock Option plan
December 2028
4,000
2020 Non-Employee Stock Option plan
May 2030
45,100
24,785 stock options were granted during the three months ended September 30, 2026. No stock options were granted during the three months ended September 30, 2025. 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 for the options granted during the three months ended September 30, 2026 and 2025, respectively:
Risk-free interest rates
4.31
n/a
Expected lives
4.69 Years
Expected volatility
Expected dividend yields
1.44
15
The following table reflects the total activity for the stock option plans for the three months ended September 30, 2026:
Weighted average
Remaining
Contractual Life
Aggregate
Options
exercise price
(in years)
Intrinsic Value
Outstanding as of June 30, 2026
394,964
28.27
6.4
4,450,000
Granted
24,785
37.90
Outstanding as of September 30, 2026
419,749
28.84
6.1
3,860,000
Vested and Exercisable as of September 30, 2026
326,121
25.71
5.5
3,789,000
The total fair value of stock options vested during the three months ended September 30, 2026 and 2025 was $239,000 and $154,000, respectively. The aggregate intrinsic value of stock options exercised during the three months ended September 30, 2026 and 2025 was $0 and $325,000, respectively. As of September 30, 2026, the total compensation cost related to nonvested awards not yet recognized was $1,435,000. There was no cash received from exercises of stock options during the three months ended September 30, 2026 and 2025, respectively.
401(k) Plan
The Company maintains a 401(k) plan (“the Plan”) that covers all U.S. 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 $105,000 and $70,000 for the three months ended September 30, 2026 and 2025, respectively.
Note 11. Stockholders’ Equity Transactions
Dividends
The following table summarizes information about dividends declared by the Company for the three months ended September 30, 2026:
Dividend Declaration Date
Stockholders of Record Date
Dividend Payable Date
Per Share Cash Dividend Amount
August 20, 2026
September 11, 2026
October 2, 2026
$ 0.17
April 30, 2026
June 12, 2026
July 3, 2026
$ 0.15
Note 12. Income Per Share
Numerator:
Denominator:
Weighted average shares outstanding - basic
35,768
35,658
Effect of dilutive stock-based awards
113
207
Weighted average shares outstanding - diluted
35,881
35,865
Income per share - basic
Income per share - diluted
Anti-dilutive employee stock based awards, excluded
146,886
120,000
16
Note 13. Commitments and Contingencies
Leases
Our lease obligation consists of a 99-year lease, entered into by one of the Company’s foreign subsidiaries, for approximately four acres of land in the Dominican Republic on which the Company’s principal production facility is located. The lease commenced on April 26, 1993 and expires in 2092.
Operating leases are included in operating lease right-of-use assets, accrued expenses and operating lease liabilities, non-current on our condensed consolidated balance sheets.
For the three months ended September 30, 2026 and 2025 cash payments against operating lease liabilities totaled $87,000 and $86,000, respectively.
Supplemental balance sheet information related to operating leases was as follows:
Weighted-average remaining lease term
66 Years
Weighted-average discount rate
6.25
The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2026 (in thousands):
Year Ending June 30,
2027
262
2028
351
2029
353
2030
356
2031
358
Thereafter
28,951
Total future minimum lease payments
30,631
Less: Imputed interest
25,793
Operating lease expense totaled approximately $124,000 for both the three months ended September 30, 2026 and 2025, respectively.
Litigation
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 (now Founder and Executive Chairman) (the “former CEO”), and its former Chief Financial Officer (who is currently the President and Chief Executive Officer) (the “current CEO”). The action, captioned Zornberg v. NAPCO Security Technologies, Inc. et al., asserted 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 were brought against the Defendants named in the initial complaint, as well as the directors who allegedly signed the offering materials, and the underwriters for the offering. Defendants filed a motion to dismiss the Amended Complaint on April 26, 2024. On April 11, 2025, the Court granted in part and denied in part the motion to dismiss. The Section 11 and Section 12 claims brought against the individual Defendants were dismissed; the remaining claims survived the motion to dismiss. On May 12, 2025, Defendants filed Answers to the Amended Complaint. On September 29, 2025, Plaintiffs moved for class certification of both the Exchange Act and remaining Securities Act claims. On October 17, 2025, pursuant to a joint letter and stipulation filed by all the parties, the Court dismissed the Securities Act claims with prejudice and certified a class with respect to the
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Exchange Act claims. On February 9, 2026, a Second Amended Complaint was filed that added additional allegations but did not modify the claims brought against Defendants. On April 15, 2026, Defendants and Plaintiffs filed letters requesting a pre-motion conference regarding Defendants’ proposed motion for summary judgment and Plaintiffs’ proposed partial motion for summary judgment, respectively, which the Court scheduled for May 5, 2026. On May 1, 2026, the parties reached a settlement in principle to resolve all remaining claims. On August 25, 2026, the parties executed a settlement agreement and Plaintiffs filed a motion for preliminary approval of the settlement and approval of notice by the class. The Court granted preliminary approval of the settlement on September 9, 2026. A final approval hearing will be held on December 17, 2026. The Company accrued a liability of $16 million in the third quarter of Fiscal 2026 with respect to this litigation. During the quarter ending September 30, 2026, the Company made a payment of $15 million in accordance with the settlement agreement and recognized a benefit of $1 million for the difference between the litigation settlement costs accrued and what was paid by the Company.
On November 26, 2024, a putative derivative lawsuit captioned Minzer v. Soloway, et al., Case No. 2024-1218, was filed in the Court of Chancery in the State of Delaware against the Company’s former CEO, the current CEO, and certain current and former directors. The Company is a “Nominal Defendant” in the lawsuit. After the Company and the individual Defendants moved to dismiss or stay the action, the Plaintiff filed an Amended Complaint on June 12, 2025. The Amended Complaint alleges, among other things, that the individual Defendants breached their fiduciary duties and aided and abetted breach of fiduciary duties by allowing the Company to remain with ineffective internal controls over financial reporting and inventory and by allowing for the dissemination of false and misleading financial information in public filings. The Amended Complaint also brings breach of fiduciary duty and unjust enrichment claims in connection with stock sales by the Company’s former CEO and its current CEO and seeks indemnity and contribution. The Company’s status as a “Nominal Defendant” in the action reflects the fact that the lawsuit is maintained by the named Plaintiff on behalf of the Company and that the Plaintiff seeks damages on the Company’s behalf. Defendants filed a second motion to dismiss or stay the case on August 22, 2025. On May 7, 2026, the motion to stay was denied and the motion to dismiss was granted in part and denied in part, with four current and former directors being dismissed from the action; and certain claims against the former CEO and his wife, the current CEO, and the Chair of the Audit Committee remaining. On June 30, 2026, the Company’s Board of Directors appointed a special litigation committee (the “SLC”) to investigate the claims asserted in the action. On August 4, 2026, the parties and the SLC entered into a stipulation requesting the Court stay the action for 180 days pending the SLC’s investigation and the Court subsequently so-ordered the 180-day stay. The SLC’s investigation is ongoing.
On April 25, 2025, a purported class action, brought on behalf of a putative class who acquired publicly traded NAPCO securities between February 5, 2024 and February 3, 2025, was filed in the United States District Court for the Eastern District of New York against the Company, its former CEO, and its former Chief Financial Officer (the current CEO). The action, captioned Patel 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 quarterly earnings releases and calls during the period of February 5, 2024 through February 3, 2025. On March 10, 2026, the Court appointed Co-Lead Plaintiffs. On April 24, 2026, the Court approved the parties’ proposed case management schedule. On May 11, 2026, Co-Lead Plaintiffs filed an Amended Complaint. On July 13, 2026, Defendants filed a letter requesting a pre-motion conference regarding Defendants’ proposed motion to dismiss the Amended Complaint. On July 20, 2026, Co-Lead Plaintiffs filed a letter opposing Defendants’ request for a pre-motion conference and proposed motion to dismiss. On October 13, 2026, the Court denied Defendants’ motion for a pre-motion conference and set a briefing schedule for Defendants’ motion to dismiss. The Company believes it has meritorious defenses and 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 stage of the cases the Company is not able to estimate any range of potential loss related to these matters and has not recorded any liability other than the settlement described above. 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.
IEEPA Tariff Refunds
On February 20, 2026, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) were invalid, and in March 2026, the U.S. Court of International Trade further ruled that importers that paid such tariffs are due refunds. On April 20, 2026, the U.S. Customs and Border Protection launched a process for submitting IEEPA refund claims and subsequently, we submitted refund claims. We applied a gain contingency model in accordance with ASC 450, Contingencies, and account for refunds when the amounts are collected as a reduction of cost of revenue on the condensed
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consolidated statements of operations. Additionally, interest associated with refunds is accounted for as interest income on the unaudited condensed consolidated statements of operations.
Although we may be entitled to additional refunds of previously paid IEEPA tariffs, the amount and timing of any such refunds remain uncertain. Following these rulings, new tariffs under other laws and imports from more countries were imposed, in addition to existing non-IEEPA tariffs.
Employment Agreements
As of September 30, 2026, The Company is obligated under two employment agreements. The employment agreements are with the Company’s Chief Executive Officer and President (“CEO”) and the Company’s Founder and Executive Chairman (“Founder”).
The employment agreement with the CEO provides for an annual salary of $900,000 and for annual cash performance bonus targeted at 50% of base salary, in addition to being eligible for an annual equity award targeted at 50% of base salary.
The employment agreement with the Founder provides for an annual salary of $800,000 and for annual cash performance bonus targeted at 50% of base salary, in addition to being eligible for an annual equity award targeted at 50% of base salary.
The employment agreements for both the CEO and Founder provide for severance upon a termination without cause or a resignation for good reason, equal to two times their base salary and target bonus amount which is conditioned upon a standard release of claims. Both executives are subject to restrictive covenant obligations, including non-competition and non-solicitation obligations.
Note 14. Segment and Geographical Data
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker. We have one operating and reportable segment.
The Company’s CODM, (the Chief Executive Officer and President) evaluates performance of the Company and makes decisions regarding the allocation of resources based on total Company results. The measure of segment assets is reported on the balance sheet as total consolidated assets. The consolidated net income is the measure of segment profit that is most consistent with U.S. GAAP. Segment profit is used in developing the overall strategy and during the annual budget process, as well as considered in budget-to-actual variances monthly when making decisions about the allocation of operating and capital resources.
The CODM is regularly provided with not only the consolidated expenses as noted on the face of the income statement, but also the significant segment expenses as below:
Net Revenue
Less:
Cost of revenue
Compensation-related expenses(1)
7,537
7,164
Commission expenses
1,916
1,816
Marketing, advertising and other promotional expenses
811
935
Research and development (excluding compensation related benefits)
712
348
Selling, general, and administrative expenses(2)
5,259
3,939
Interest and other (income), net
(1,232)
(991)
Segment Profit
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Geographic Information for Revenue
The Company is engaged in one major line of business: the development, manufacture, and distribution of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products for commercial and residential use. The Company also provides wireless communication service for intrusion and fire alarm systems. These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold worldwide principally to independent distributors, dealers and installers of security equipment. Sales to unaffiliated customers are primarily shipped from the United States. The Company has customers worldwide with major concentrations in North America. The entirety of the Company’s sales originate in the United States and are shipped primarily from the Company’s facilities in the United States. There were no sales into any one foreign country in excess of 10% of total Net Revenue. The following table presents net revenue by geographic area (in thousands).
Sales to external customers:
United States
49,244
48,873
Foreign
736
295
Total Net Revenue
Geographic Information for Long-Lived Assets
Long-lived assets include property and equipment, net and operating lease right-of-use assets, net. Our long-lived assets are based on the physical location of the assets. The following table presents long-lived assets by geographic area (in thousands).
Long-lived assets:
5,974
5,814
Dominican Republic
8,066
8,330
Total Long-lived assets
14,040
14,144
Note 15. Subsequent Events
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 October 29, 2026, the Company’s Board of Directors declared a cash dividend of $.17 per share payable on January 4, 2027, to stockholders of record on December 14, 2026.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations together with (1) our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and (2) the audited consolidated financial statements and the related notes and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended June 30, 2026 included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026 filed on August 24, 2026, or Annual Report, with the Securities and Exchange Commission, or SEC.
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “could,” “may,” “will,” and similar expressions are intended to identify forward-looking statements, including statements concerning our business and the expected performance characteristics, specifications, reliability, market acceptance, market growth, specific uses, user feedback, and market position of our products and technology. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in “Part II—Item 1A—Risk Factors” and “Liquidity and Capital Resources” below.
All forward-looking statements in this document are based on information available to us as of the date hereof, such information may be limited or incomplete, and we assume no obligation to update any such forward-looking statements. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us,” the “Company,” and “Napco” refer to Napco Security Technologies, Inc. and our subsidiaries.
Overview
NAPCO is one of the leading manufacturers and designers of high-tech electronic security devices, cellular communication services for intrusion and fire alarm systems as well as a leading provider of school safety solutions. We offer a diversified array of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products. These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold principally to independent distributors, dealers and installers of security equipment. We have established a national network of trusted independent security dealers and integrators that are experts at selling, installing and supporting our various technologies. These dealers are dependent on our platform for communication services to our radio communicators and smart security devices, and they pay us a monthly fee for these services.
Since 1969, NAPCO has established a heritage and proven record in the professional security community for delivering both advanced technology and high-quality security solutions, building many of the industry’s widely recognized brands, such as NAPCO Security Systems, Alarm Lock, NAPCO Access Pro, Marks USA, and other popular product lines. We are dedicated to developing innovative technology and producing the next generation of reliable security solutions that utilize remote communications and wireless networks.
Highlights from the three months ended September 30, 2026 compared with the prior year’s period included:
Please see Non-GAAP Measures below in this section of this Quarterly Report for a discussion of the limitations of non-GAAP adjusted EBITDA (a non-GAAP measure) and a reconciliation of non-GAAP adjusted EBITDA from net income, the most directly comparable measurement in accordance with GAAP, for the three months ended September 30, 2026 and 2025.
Industry Landscape
Our industry continues to be dynamic and highly competitive, with frequent changes in both technologies and business models. Each industry shift is an opportunity to conceive new products, new technologies, or new ideas that can further transform the industry and our business. Napco continually strives to innovate through a broad range of research and development activities that seek to identify and address the changing demands of customers, industry trends, and competitive forces.
Economic Conditions and Other Factors
We are subject to the effects of general macroeconomic and market conditions.
The markets for security devices and services are dynamic and highly competitive. Our competitors are continually developing new products and solutions for consumers and businesses. We must continue to evolve and adapt to respond to customer and user preferences over an extended time in pace with this changing environment.
Tarif Matters
On February 20, 2026, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) were invalid, and in March 2026, the U.S. Court of International Trade further ruled that importers that paid such tariffs are due refunds. On April 20, 2026, the U.S. Customs and Border Protection launched a process for submitting IEEPA refund claims and subsequently, we submitted refund claims.
Changes in U.S. trade policy and tariffs continue to create uncertainty regarding our product costs. Effective July 24, 2026, a new tariff framework under Section 301 of the Trade Act of 1974 became applicable to imports from certain trading partners, including the Dominican Republic, where we manufacture most of our products. The applicable tariff on covered imports from the Dominican Republic increased from 10% to 12.5%. We continue to evaluate pricing, sourcing and other measures to mitigate increased tariff-related costs; however, such measures may not fully or timely offset these costs, which could adversely affect our product margins and results of operations.
Supply Chain and Component Costs
We continue to monitor supply chain conditions affecting the availability and cost of electronic components and other materials used in our products. Increased demand for certain electronic components, including from artificial intelligence and data center infrastructure, has contributed to supply constraints, longer lead times and increased component costs. We are working with suppliers, evaluating alternative sources and taking other actions to mitigate these pressures. However, continued supply constraints or increases in material costs could adversely affect our ability to manufacture and deliver products and could negatively impact product margins and results of operations.
Critical Accounting Policies and Estimates
The Company’s significant accounting policies are fully described in Note 1 to the Company’s consolidated financial statements included in its 2026 Annual Report on Form 10-K.
Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires a high degree of judgment, either in the application and interpretation of existing accounting literature or in the development of estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. We continuously evaluate our estimates and judgments based on historical experience, as well as other factors that we believe to be
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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. These estimates may change in the future if underlying assumptions or factors change, and actual results may differ from these estimates.
Liquidity and Capital Resources
Our cash and cash equivalents and short-term investments are as follows (in thousands):
Cash
15,221
34,013
Money Market Fund
We believe that our projected cash flow from operations, combined with our cash and short-term investments, will be sufficient to meet our projected working capital requirements, contractual obligations, and other cash flow needs for the next twelve months. We believe that there is minimal credit risk associated with the investments in cash equivalents and short-term investments due to the types of investment entered.
A summary of the cash flow activity for the three months ended September 30, 2026 and 2025 is as follows (in thousands):
(Recovery of) credit losses
(13,205)
(2,641)
Net cash provided by operating activities was $2.8 million for the three months ended September 30, 2026 and was due to net income of $13.0 million and increase in adjustments for non-cash items of $2.9 million offset from changes in operating assets and liabilities of $13.2 million. The changes in operating assets and liabilities were largely attributable to decrease in accounts and other receivables ($7 million) offset by increases in inventories ($4 million) and decreases in accounts payable and accrued expenses ($14 million), which was primarily a result of the payment of accrued litigation costs.
Net cash provided by operating activities was $11.6 million for the three months ended September 30, 2025 and was due to net income of $12.2 million and increase in adjustments for non-cash items of $2.1 million offset by cash outflow from changes in operating assets and liabilities of $2.6 million. The changes in operating assets and liabilities were largely attributable to increases in accounts receivables, inventories, prepaid expenses and income tax receivables partially offset by decreases in accounts payable and accrued expenses.
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The net cash used in investing activities of $.4 million during the three months ended September 30, 2026 was primarily attributable to expenditures used for capital expenditures of $.4 million. The net cash provided by investing activities of $5.6 million during the three months ended September 30, 2025 was primarily attributable to the redemption of marketable securities of $8.4 million partially offset by expenditures used for capital expenditures of $.2 million and purchase of marketable securities of $2.5 million.
Cash Flows from Financing Activities
The cash used in financing activities of $5.4 and $5.0 million for the three months ended September 30, 2026 and 2025, respectively, was related to the payment of stockholder dividends.
Credit Facility.
As of September 30, 2026, the Company’s available revolving credit line was $20,000,000, which expires in February 2029. As of September 30, 2026 and June 30, 2026, the Company has no outstanding debt.
Working Capital and Current Ratio.
Working capital increased by $9,685,000 to $175,214,000 as of September 30, 2026 from $165,529,000 at June 30, 2026. The current ratio increased to 7.2:1 as of September 30, 2026, from 4.9:1 as of June 30, 2026. Working capital is calculated by deducting Current Liabilities from Current Assets. Current ratio is calculated by dividing Current Labilities from Current Assets.
Contractual Obligations and Commitments
As of September 30, 2026, the Company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business. On April 26, 1993, the Company's foreign subsidiary entered into a 99-year land lease of approximately 4 acres of land in the Dominican Republic, on which the Company’s principal manufacturing facility is located, at an annual base rent of approximately $235,000 and $105,000 in annual service charges. The service charges increase 2% annually over the remaining life of the lease.
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Results of Operations
(dollars in thousands)
% Increase/
(decrease)
(7.3)
11.5
1.7
Gross Profit:
Gross profit: equipment
5,807
6,693
(13.2)
Gross profit: service
23,545
21,153
11.3
Total gross profit
5.4
Gross profit as a % of revenue:
58.7
56.6
3.7
Equipment
24.3
26.0
(6.5)
90.1
90.3
(0.2)
25.1
Selling, general and administrative
11.1
Selling, general and administrative as a percentage of net revenue
24.4
22.3
9.4
N/A
Operating income
3.5
30.8
(16.7)
Provision for income taxes
(5.3)
6.9
Revenue
Revenue by major product lines is as follows:
% Increase
Equipment Revenue
Intrusion products
6,811
6,696
Access alarm products
1,689
1,960
(13.8)
Total intrusion and access alarm products
(1.8)
Door locking devices
(10.1)
Total equipment revenue
Three Months Ended September 30, 2026:
Total revenue for the three months ended September 30, 2026, increased $812,000 (1.7%) to $49,980,000 as compared to $49,168,000 in the comparable period.
Net equipment revenues for the three months ended September 30, 2026, decreased $1,889,000 (7.3%) to $23,850,000 as compared to $25,739,000 in the comparable period. The decrease in net equipment revenue was attributable to decreases in sales of door locking products of $1,733,000 (10.1%) and decreases in intrusion and access products of $156,000 (1.8%).
Door locking product revenue decreased primarily due to lower sales volume of approximately 13.1%, partially offset by pricing increases of approximately 3.0%.
The volume decline was driven mainly by lower demand at two of our larger locking distributors who were reducing existing inventory levels during the quarter. This decline was partially offset by higher demand because of increased project activity.
Revenue from our intrusion and access alarm products decreased because of lower volume (approximately 6.5%), primarily related to lower sales of our access products, partially offset by pricing increases (approximately 4.7%).
Net service revenues for the three months ended September 30, 2026, increased $2,701,000, or 11.5%, to $26,130,000 from $23,429,000 in the comparable period. The increase was due to growth in the number of our cellular (radio) communication devices placed in service and activated by dealers.
Three Months Ended September 30, 2026
Overall gross profit for the three months ended September 30, 2026, increased $1,506,000 to $29,352,000, or 58.7% of net revenue, as compared to $27,846,000, or 56.6% of net revenue, for the comparable period.
Gross profit from equipment revenue was $5,807,000, or 24.3% of equipment revenue, as compared to $6,693,000, or 26.0% of equipment revenue, for the comparable period. The decrease in gross profit percentage from equipment revenue was a result of lower overall sales volume, product mix within our locking products, the impact of tariff increase (1.3%), increased inventory scrap (1.7%) and increased technical services costs (1.0%).
Gross profit as a percentage of service revenue was consistent in both periods. Gross profit on service revenues was $23,545,000, or 90.1% of net service revenues, as compared to $21,153,000, or 90.3% of net service revenues, for the comparable period a year ago.
Research and Development
Research and development expenses for the three months ended September 30, 2026, increased by $813,000 to $4,053,000, or 8.1% of net revenue, as compared to $3,240,000, or 6.6% of net revenue, for the comparable period. The increase in research and development expenses was primarily a result of increased labor compensation and benefit costs ($503,000) and engineering supplies ($76,000).
Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2026, increased by $1,219,000 to $12,182,000, or 24.4% of net revenue, as compared to $10,963,000, or 22.3% of net revenue, for the comparable period. The increase in SG&A expenses was primarily attributable to increases in legal expenses ($1,075,000), consulting-related expenses ($155,000), commission-related expenses ($76,000) offset by decreases in advertising ($235,000).
During the quarter ended September 30, 2026 the Company recognized a benefit of $1 million for the difference between the litigation settlement costs accrued and what was paid, as a result of the difference in the estimated amount of insurance coverage and what was ultimately paid by the carriers which reduced the Company’s portion of the settlement payment. See Note 13.
Interest and Other Income, Net
Three months ended September 30, (in thousdands)
% Increase (Decrease)
Interest Income
852
31%
Investment Income
**
1,232
990
**Percentage change not meaningful.
Interest income increased for the three months ended September 30, 2026, as compared to the comparable period, primarily due to higher interest rates and higher cash amounts invested.
Income Taxes
The Company’s provision for income taxes for the three months ended September 30, 2026 decreased by $130,000 to $2,340,000 as compared to $2,470,000 for the same period a year ago. The Company’s effective rate for income tax was 15.2% and 16.9% for the three months ended September 30, 2026 and 2025 respectively. The Company’s effective tax rate for the three months ended September 30, 2026 decreased due to the discrete items of $342,000 increasing the effective tax rate in the 3 months ended September 30, 2025.
Non-GAAP Measures
We define non-GAAP adjusted EBITDA as our GAAP net income plus income tax expense, less net interest income, stock-based compensation, legal costs and settlement fees incurred and received in connection with non-ordinary course litigation and other disputes, litigation settlement costs, and depreciation and amortization expense. We do not consider these items to be indicative of our core operating performance. The non-cash items include amortization and depreciation expense and stock-based compensation expense related to equity compensation. We define non-GAAP adjusted EBITDA margin as Adjusted EBITDA divided by net revenue. Non-GAAP adjusted EBITDA and adjusted EBITDA margin are not a measure calculated in accordance with GAAP. See the table below for a reconciliation of non-GAAP adjusted EBITDA from net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
We have included non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA margin in this report because they are key measure our management uses to understand and evaluate our core operating performance and trends, to generate future operating plans, to make strategic decisions regarding the allocation of capital and to make strategic investment decisions. Further, we believe the exclusion of certain expenses in calculating non-GAAP adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis and, in the case of exclusion of litigation settlement costs and certain historical legal expenses, excludes items that we do not consider to be indicative of our core operating performance. Accordingly, we believe non-GAAP adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Our use of non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA margin has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: (a) although amortization and depreciation are non-cash charges, the assets being amortized and depreciated may have to be replaced in the future, and non-GAAP adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; (b) non-GAAP adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (c) non-GAAP adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (d) non-GAAP adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and (e) other companies, including companies in our industry, may calculate non-GAAP adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.
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Because of these and other limitations, you should consider non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA margin alongside our other GAAP-based financial performance measures, net income and our other GAAP financial results. The following table presents a reconciliation of non-GAAP adjusted EBITDA from net income, the most directly comparable GAAP measure, for each of the periods indicated (in thousands, except share and per share data):
Non-GAAP adjusted EBITDA:
Net income, as reported
(1,117)
(854)
Non-GAAP EBITDA
14,772
14,351
Adjustments:
Stock based compensation
Nonrecurring legal expense(1)
1,464
282
Litigation settlement(2)
Total adjustments
737
591
Non-GAAP adjusted EBITDA
15,509
14,942
Non-GAAP adjusted EBITDA margin
31.0
30.4
Non-GAAP per share data:
Non-GAAP adjusted EBITDA per share - diluted
0.43
0.42
Weighted average shares outstanding
Basic, as reported
Effect of Dilutive Securities
113,000
207,000
Diluted, (Denominator)
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
During the three months ended September 30, 2026, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended June 30, 2026.
ITEM 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on this evaluation, our management, including our CEO and our CFO, has concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were, in design
and operation, effective at the reasonable assurance level. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings
The information called for by this item is incorporated herein by reference to Note 13, Commitments and Contingencies, in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Item 1A. Risk Factors
Information regarding the Company’s Risk Factors are set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2026. There has been no material change in the risk factors previously disclosed in the Company’s Form 10-K and Form 424(b)(7) for the three months ended September 30, 2026.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None
Item 6. Exhibits
31.1
Certification Pursuant to Rule 13a-14(a)/15d-14(a) of Kevin S. Buchel, Chief Executive Officer and President
31.2
Certification Pursuant to Rule 13a-14(a)/15d-14(a) of Andrew J. Vuono, Chief Financial Officer and Chief Accounting Officer
32.1
Section 1350 Certifications
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
November 2, 2026
(Registrant)
By:
/s/ KEVIN S. BUCHEL
Kevin S. Buchel
Chief Executive Officer and President
(Chief Executive Officer)
/s/ ANDREW J. VUONO
Andrew J, Vuono
Chief Financial Officer and Chief Accounting Officer
(Principal Financial and Accounting Officer)