10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: DECEMBER 31, 2014

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)

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    x    No     ¨     

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).      Yes     x      No     ¨    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer ¨    Accelerated Filer ¨     Non-Accelerated Filer  ¨   Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes ¨         No x

Number of shares outstanding of each of the issuer’s classes of common stock, as of: February 6, 2015

COMMON STOCK, $.01 PAR VALUE PER SHARE        19,075,236

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES

		Page
PART I:  FINANCIAL INFORMATION
ITEM 1.	Financial Statements (unaudited, except where noted)
	NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
	INDEX – DECEMBER 31, 2014
	Condensed Consolidated Balance Sheets December 31, 2014 and June 30, 2014 (audited)	3
	Condensed Consolidated Statements of Income for the Three Months ended December 31, 2014 and 2013	4
	Condensed Consolidated Statements of Income for the Six Months ended December 31, 2014 and 2013	5
	Condensed Consolidated Statements of Cash Flows for the Six Months ended December 31, 2014 and 2013
	Notes to Condensed Consolidated Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	22
ITEM 4.	Controls and Procedures	22
PART II:   OTHER INFORMATION
ITEM 1A.	Risk Factors	23
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	23
ITEM 6.	Exhibits	23
SIGNATURE PAGE		24

2

PART I:         FINANCIAL INFORMATION

Item 1. Financial Statements

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31, 2014			June 30, 2014
	(unaudited)			(audited)
	(in thousands, except for share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,710		$	2,483
Accounts receivable, net of reserves and allowances		15,352			16,904
Inventories		22,238			21,443
Prepaid expenses and other current assets		1,053			989
Income tax receivable		45			121
Deferred income taxes		781			739
Total Current Assets		41,179			42,679
Inventories - non-current		3,855			3,567
Deferred income taxes		965			1,005
Property, plant and equipment, net		6,306			6,394
Intangible assets, net		9,219			9,552
Other assets		156			167
TOTAL ASSETS	$	61,680		$	63,364
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long term debt	$	1,600		$	1,600
Accounts payable		3,604			4,082
Accrued expenses		1,570			1,737
Accrued salaries and wages		1,743			1,824
Total Current Liabilities		8,517			9,243
Long-term debt, net of current maturities		9,400			10,200
Accrued income taxes		190			169
Total Liabilities		18,107			19,612
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, par value $0.01 per share; 40,000,000 shares authorized;  21,049,243 and 21,049,243 shares issued; and 19,114,520 and 19,419,076 shares outstanding, respectively		210			210
Additional paid-in capital		16,133			16,032
Retained earnings		36,664			35,554
		53,007			51,796
Less: Treasury Stock, at cost (1,934,353 and 1,630,167 shares, respectively)		(9,434	)		(8,044	)
TOTAL STOCKHOLDERS' EQUITY		43,573			43,752
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	61,680		$	63,364

See accompanying notes to condensed consolidated financial statements.

3

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three months ended December 31,
	2014		2013
	(In thousands, except share and per share data)
Net sales	$	19,571	$	18,353
Cost of sales		13,468		13,272
Gross Profit		6,103		5,081
Selling, general, and administrative expenses		5,007		4,577
Operating Income		1,096		504
Other expense:
Interest expense, net		54		80
Other, net		3		4
Income before Income Taxes		1,039		420
Income tax expense		88		52
Net Income	$	951	$	368
Net Income per share:
Basic	$	0.05	$	0.02
Diluted	$	0.05	$	0.02
Weighted average number of shares outstanding:
Basic		19,188,000		19,408,000
Diluted		19,189,000		19,444,000

See accompanying notes to condensed consolidated financial statements.

4

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Six months ended December 31,
	2014			2013
	(In thousands, except share and per share data)
Net sales	$	36,907		$	35,592
Cost of sales		25,549			25,472
Gross Profit		11,358			10,120
Selling, general, and administrative expenses		10,016			9,376
Operating Income		1,342			744
Other expense (income):
Interest expense, net		109			179
Other, net		(2	)		7
Income before Income Taxes		1,235			558
Income tax expense		125			67
Net Income	$	1,110		$	491
Net Income per share:
Basic	$	0.06		$	0.03
Diluted	$	0.06		$	0.03
Weighted average number of shares outstanding:
Basic		19,304,000			19,366,000
Diluted		19,304,000			19,393,000

See accompanying notes to condensed consolidated financial statements.

5

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Six months ended December 31,
	2014			2013
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	1,110		$	491
Adjustments to reconcile net income to net cash provided  by operating activities:
Depreciation and amortization		750			837
Provision for doubtful accounts		(20	)		10
Change in inventory obsolescence reserve		—			125
Deferred income taxes		(2	)		(54	)
Stock based compensation expense		101			7
Changes in operating assets and liabilities:
Accounts receivable		1,572			4,497
Inventories		(1,083	)		(1,232	)
Prepaid expenses and other current assets		(64	)		(150	)
Income tax receivable		76			64
Other assets		5			—
Accounts payable, accrued expenses and accrued income taxes		(705	)		(499	)
Net Cash Provided by Operating Activities		1,740			4,096
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment		(323	)		(366	)
Net Cash Used in Investing Activities		(323	)		(366	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt		(800	)		(3,300	)
Cash paid for purchase of treasury stock		(1,390	)		(285	)
Proceeds from exercise of stock options		—			5
Net Cash Used in Financing Activities		(2,190	)		(3,580	)
Net Increase in Cash and Cash Equivalents		(773	)		150
CASH AND CASH EQUIVALENTS - Beginning		2,483			3,229
CASH AND CASH EQUIVALENTS - Ending	$	1,710		$	3,379
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net	$	110		$	240
Income taxes paid	$	30			24
NON-CASH FINANCING ACTIVITIES:
Shares surrendered and held in treasury for common stock options exercised	$	—		$	28
Shares surrendered and cancelled for shares for common stock options exercised	$	—		$	424

See accompanying notes to condensed consolidated financial statements.                 

6

NAPCO SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

DECEMBER 31, 2014

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

Nature of Business:

Napco Security Technologies, Inc. and Subsidiaries (the "Company") is a diversified manufacturer of security products, encompassing access control systems, door security products, intrusion and fire alarm systems and video surveillance products for commercial and residential use. 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.

The Company's fiscal year begins on July 1 and ends on June 30. Historically, the end users of the Company's products want to install its products prior to the summer; therefore sales of its 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 is affected by the housing and construction markets.

Significant Accounting Policies:

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company, including these notes, have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations promulgated by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended June 30, 2014 and the notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on September 15, 2014. Results of consolidated operations for the interim periods are not necessarily indicative of a full year’s operating results. The unaudited condensed consolidated financial statements herein include the accounts of the Company and its wholly owned subsidiaries. All material inter-company accounts and transactions have been eliminated. Certain prior period amounts relating to credit card fees have been reclassified for consistency with the current period presentation. The reclassification did not have an impact on the Balance Sheets, Statement of Cash Flows or reported Net income (loss) for any period.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent gains and losses at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical estimates include management's judgments associated with reserves for sales returns and allowances, concentration of credit risk, inventory reserves, intangible assets and income taxes. Actual results could differ from those 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, certificates of deposits, current receivables and payables and certain other short-term financial instruments approximate their fair value as of December 31, 2014 due to their short-term maturities. Long-Term Debt: The carrying amount of the Company’s long-term debt, including the current portion, at December 31, 2014 in the amount of $11,000,000 approximates fair value.

Cash and Cash Equivalents

Cash and cash equivalents include approximately $460,000 of short-term time deposits at December 31, 2014 and June 30, 2014. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of December 31, 2014 and June 30, 2014. The Company has historically not experienced any credit losses with balances in excess of FDIC limits

7

Accounts Receivable

Accounts receivable is stated net of the reserves for doubtful accounts of $160,000 and $180,000 and for returns and other allowances of $1,040,000 and $1,005,000 as of December 31, 2014 and June 30, 2014, respectively. Our reserves for doubtful accounts and for returns and other allowances are subjective critical estimates that have a direct impact on reported net earnings. These reserves are based upon the evaluation of accounts receivable agings, specific exposures, sales levels and historical trends.

Inventories

Inventories are valued at the lower of cost or fair market value, with cost being determined on the first-in, first-out (FIFO) method. The reported net value of inventory includes finished saleable products, work-in-process and raw materials that will be sold or used in future periods. Inventory costs include raw materials, direct labor and overhead. The Company’s overhead expenses are applied based, in part, upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products. These proportions, the method of their application, and the resulting overhead included in ending inventory, are based in part on subjective estimates and actual results could differ from those estimates.

In addition, the Company records an inventory obsolescence reserve, which represents any excess of the cost of the inventory over its estimated market value, based on various product sales projections. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, requirements to support forecasted sales, and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand. In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events. There is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage.

The Company also regularly reviews the period over which its inventories will be converted to sales. Any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current.

Property, Plant, and Equipment

Property, plant, and equipment are carried at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred; costs of major renewals and improvements are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and accumulated depreciation accounts and the profit or loss on such disposition is reflected in income.

Depreciation is recorded over the estimated service lives of the related assets using primarily the straight-line method. Amortization of leasehold improvements is calculated by using the straight-line method over the estimated useful life of the asset or lease term, whichever is shorter.

Intangible Assets

Intangible assets determined to have indefinite lives are not amortized but are tested for impairment at least annually. Intangible assets with definite lives are amortized over their useful lives. Intangible assets are reviewed for impairment at least annually at the Company’s fiscal year end of June 30 or more often whenever there is an indication that the carrying amount may not be recovered.

The Company’s acquisition of substantially all of the assets and certain liabilities of G. Marks Hardware, Inc. (“Marks”) in August 2008 included intangible assets recorded at fair value on the date of acquisition. The intangible assets are amortized over their estimated useful lives of twenty years (customer relationships) and seven years (non-compete agreement). The Marks trade name was deemed to have an indefinite life.

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

	December 31, 2014							June 30, 2014
	Cost		Accumulated amortization			Net book value		Cost		Accumulated amortization			Net book value
Customer relationships	$	9,800	$	(6,511	)	$	3,289	$	9,800	$	(6,203	)	$	3,597
Non-compete agreement		340		(310	)		30		340		(285	)		55
Trade name		5,900		—			5,900		5,900		—			5,900
	$	16,040	$	(6,821	)	$	9,219	$	16,040	$	(6,488	)	$	9,552

8

Amortization expense for intangible assets subject to amortization was approximately $167,000 and $195,000 for the three months ended December 31, 2014 and 2013, respectively. Amortization expense for intangible assets subject to amortization was approximately $333,000 and $391,000 for the six months ended December 31, 2014 and 2013, respectively. Amortization expense for each of the next five fiscal years is estimated to be as follows: 2015 - $667,000; 2016 - $529,000; 2017 - $441,000; 2018 - $371,000 and 2019 - $313,000. The weighted average amortization period for intangible assets was 13.5 years and 14.4 years at December 31, 2014 and 2013, respectively.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable. Impairment would be recorded in circumstances where undiscounted cash flows expected to be generated by an asset are less than the carrying value of that asset.

Revenue Recognition

The Company recognizes revenue when the following criteria are met: (i) persuasive evidence of an agreement exists, (ii) there is a fixed and determinable price for the Company's product, (iii) shipment and passage of title occurs, and (iv) collectability is reasonably assured. Revenues from product sales are recorded at the time the product is shipped or delivered to the customer pursuant to the terms of the sale. The Company reports its sales on a net sales basis, with net sales being computed by deducting from gross sales the amount of actual sales returns and other allowances and the amount of reserves established for anticipated sales returns and other allowances.

Sales Returns and Other Allowances

The Company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the Company’s past history. Estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers. Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns. Actual results could differ from those estimates. As a percentage of gross sales, sales returns, rebates and allowances were 7% and 6% for the three months ended December 31, 2014 and 2013, respectively. As a percentage of gross sales, sales returns, rebates and allowances were 8% and 7% for the six months ended December 31, 2014 and 2013, respectively.

Advertising and Promotional Costs

Advertising and promotional costs are included in "Selling, General and Administrative" expenses in the consolidated statements of operations and are expensed as incurred. Advertising expense for the three months ended December 31, 2014 and 2013 was $312,000 and $247,000, respectively. Advertising expense for the six months ended December 31, 2014 and 2013 was $856,000 and $612,000, respectively. The increase in Advertising and promotional costs was due primarily to increased expenditures on media advertising as compared to the same period a year ago.

Research and Development Costs

Research and development costs incurred by the Company are charged to expense as incurred and are included in "Cost of Sales" in the consolidated statements of operations. Company-sponsored research and development expense for the three months ended December 31, 2014 and 2013 was $1,335,000 and $1,252,000, respectively. Company-sponsored research and development expense for the six months ended December 31, 2014 and 2013 was $2,653,000 and $2,538,000, respectively.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis.

9

Net Income Per Share

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

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

	Net Income				Weighted Average Shares				Net Income per Share
	2014		2013		2014		2013		2014		2013
Basic EPS	$	951	$	368		19,188		19,408	$	0.05	$	0.02
Effect of Dilutive Securities:
Stock Options		—		—		1		36		—		—
Diluted EPS	$	951	$	368		19,189		19,444	$	0.05	$	0.02

Options to purchase 368,250 and 131,402 shares of common stock for the three months ended December 31, 2014 and 2013, respectively, were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive. These options were still outstanding at the end of the respective periods.

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

	Net Income				Weighted Average Shares				Net Income per Share
	2014		2013		2014		2013		2014		2013
Basic EPS	$	1,110	$	491		19,304		19,366	$	0.06	$	0.03
Effect of Dilutive Securities:
Stock Options		—		—		—		27		—		—
Diluted EPS	$	1,110	$	491		19,304		19,393	$	0.06	$	0.03

Options to purchase 256,875 and 199,759 shares of common stock for the six months ended December 31, 2014 and 2013, respectively, were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive. These options were still outstanding at the end of the respective periods.

Stock-Based Compensation

The Company has established two share incentive programs as discussed in Note 7.

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 $68,000 and $6,000 were recognized for three months ended December 31, 2014 and 2013, respectively. Stock-based compensation costs of $101,000 and $7,000 were recognized for six months ended December 31, 2014 and 2013, respectively. The effect on both Basic and Diluted Earnings per share was $0.00 for the three and six months ended December 31, 2014 and 2013.

Foreign Currency

All assets and liabilities of foreign subsidiaries are translated into U.S. Dollars at fiscal period-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal year. The realized and unrealized gains and losses associated with foreign currency translation, as well as related other comprehensive income, were not material for the three or six months ended December 31, 2014 and 2013.

10

Comprehensive Income

For the three and six months ended December 31, 2014 and 2013, the Company's operations did not give rise to material items includable in comprehensive income, which were not already included in net income. Accordingly, the Company's comprehensive income approximates its net income for all periods presented.

Segment Reporting

The Company’s reportable operating segments are determined based on the Company's management approach. The management approach is based on the way that the chief operating decision maker organizes the segments within an enterprise for making operating decisions and assessing performance. The Company's results of operations are reviewed by the chief operating decision maker on a consolidated basis and the Company operates in only one segment. The Company has presented required geographical data in Note 11, and no additional segment data has been presented.

Shipping and Handling Revenues and Costs

The Company records the amount billed to customers for shipping and handling in net sales ($130,000 and $121,000 in the three months ended December 31, 2014 and 2013, respectively, and $257,000 and $252,000 in the six months ended December 31, 2014 and 2013, respectively) and classifies the costs associated with these revenues in cost of sales ($240,000 and $221,000 in the three months ended December 31, 2014 and 2013, respectively, and $481,000 and $463,000 in the six months ended December 31, 2014 and 2013, respectively).

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual and interim periods beginning on or after December 15, 2016, and early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance. The Company is currently evaluating the impact of adopting this guidance.

In July 2013, the FASB issued authoritative guidance that requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss (“NOL”) carry-forward, a similar tax loss, or a tax credit carry-forward.  If either (i) an NOL carry-forward, a similar tax loss, or tax credit carry-forward is not available as of the reporting date under the governing tax law to settle taxes that would result from the disallowance of the tax position or (ii) the entity does not intend to use the deferred tax asset for this purpose (provided that the tax law permits a choice), an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset.  This guidance became effective for unrecognized tax benefits that exist as of the Company’s fiscal 2015 first quarter.  The guidance did not have an impact on the Company’s consolidated financial statements.

NOTE 2 - Business and Credit Concentrations

The Company had two customers with accounts receivable balance that aggregated 23% of the Company’s accounts receivable at December 31, 2014. The Company had one customer with an accounts receivable balance that comprised 12% of the Company’s accounts receivable at June 30, 2014. Sales to any one customer did not exceed 10% of net sales in any of the past two fiscal years.

NOTE 3 - Inventories

Inventories, net of reserves are valued at lower of cost (first-in, first-out method) or market. The Company regularly reviews parts and finished goods inventories on hand and, when necessary, records a provision for excess or obsolete inventories. The Company also regularly reviews the period over which its inventories will be converted to sales. Any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current.

11

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

	December 31, 2014		June 30, 2014
Component parts	$	15,929	$	15,268
Work-in-process		3,789		3,632
Finished product		6,375		6,110
	$	26,093	$	25,010
Classification of inventories, net of reserves:
Current	$	22,238	$	21,443
Non-current		3,855		3,567
	$	26,093	$	25,010

NOTE 4 – Property, Plant and Equipment

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

	December 31, 2014		June 30, 2014		Useful Life in Years
Land	$	904	$	904	—
Buildings		8,911		8,911	30 to 40
Molds and dies		6,957		6,906	3 to 5
Furniture and fixtures		2,451		2,427	5 to 10
Machinery and equipment		20,100		19,974	7 to 10
Leasehold improvements		288		288	Shorter of the lease term or life of asset
		39,611		39,410
Less: accumulated depreciation and amortization		33,305		33,016
	$	6,306	$	6,394

Depreciation and amortization expense on property, plant, and equipment was $210,000 and $223,000 for the three months ended December 31, 2014 and 2013, respectively and $412,000 and $440,000 for the six months ended December 31, 2014 and 2013, respectively

NOTE 5 - Income Taxes

The provision for income taxes represents Federal, foreign, and state and local income taxes. The effective rate differs from statutory rates due to the effect of state and local income taxes, tax rates in foreign jurisdictions, tax benefit of R&D credits and certain nondeductible expenses. Our effective tax rate will change from quarter to quarter based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, and state and local income taxes. 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.

The Company does not expect that our unrecognized tax benefits will significantly change within the next twelve months. We file a consolidated U.S. income tax return and tax returns in certain state and local and foreign jurisdictions. As of December 31, 2014 we remain subject to examination in all tax jurisdictions for all relevant jurisdictional statutes for fiscal years 2008 and thereafter.

The Company has identified its U.S. Federal income tax return and its State return in New York as its major tax jurisdictions. As of December 31, 2014 and June 30, 2014 the Company has a long-term accrued income tax liability of $190,000 and $169,000, respectively.

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NOTE 6 - Long-Term Debt

As of December 31, 2014, long-term debt consisted of a revolving credit facility of $11,000,000 (the “Revolving Credit Facility”) which expires in June 2017 and two term loans, one for $6,000,000 which expires in June 2019, and one for $6,500,000 which expires in June 2017 (the “Term Loans”). Repayment of the Term Loans commenced on September 30, 2012. The $6,000,000 Term Loan is being repaid with 28 equal, quarterly payments of $75,000 and the remaining balance of $3,900,000 due on or before the expiration date. The $6,500,000 Term Loan is being repaid in 20 equal, quarterly payments of $325,000.

Outstanding balances and interest rates as of December 31, 2014 and June 30, 2014 are as follows:

	December 31, 2014					June 30, 2014
	Outstanding		Interest Rate			Outstanding		Interest Rate
Revolving line of credit	$	2,500		1.7	%	$	2,500		1.7	%
Term loans		8,500		1.7	%		9,300		1.7	%
Total debt	$	11,000		1.7	%	$	11,800		1.7	%

The Revolving Credit Facility and Term Loans (collectively the “Agreement”) also provides for a LIBOR-based interest rate option of LIBOR plus 1.5% to 2.75%, depending on the ratio of outstanding debt to EBITDA, which is to be measured and adjusted quarterly, a prime rate-based option of the prime rate plus 0.25% and other terms and conditions as more fully described in the Agreement. In addition, the Agreement provides for availability under the Revolving Credit Facility to be limited to the lesser of $11,000,000 or the result of a borrowing base formula based upon the Company’s Accounts Receivables and Inventory values net of certain deductions. The Company’s obligations under the Agreement continue to be secured by all of its assets, including but not limited to, deposit accounts, accounts receivable, inventory, the Company’s corporate headquarters in Amityville, NY, equipment and fixtures and intangible assets. In addition, the Company’s wholly-owned subsidiaries, with the exception of the Company’s foreign subsidiaries, have issued guarantees and pledges of all of their assets to secure the Company’s obligations under the Agreement. All of the outstanding common stock of the Company’s domestic subsidiaries and 65% of the common stock of the Company’s foreign subsidiaries has been pledged to secure the Company’s obligations under the Agreement.

The Agreement contains various restrictions and covenants including, among others, restrictions on payment of dividends, restrictions on borrowings and compliance with certain financial ratios, as defined in the Agreement.

NOTE 7 - 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 December 31, 2014 and 2013, the Company recorded non-cash compensation expense of $67,000 ($.00 per basic and diluted share) and $6,000 ($.00 per basic and diluted share), respectively, relating to stock-based compensation. For the six months ended December 31, 2014 and 2013, the Company recorded non-cash compensation expense of $101,000 ($.01 per basic and diluted share) and $7,000 ($.00 per basic and diluted share), respectively, relating to stock-based compensation.

2012 Employee Stock Option Plan

In December 2012, the stockholders approved the 2012 Employee Stock Option Plan (the 2012 Employee Plan). The 2012 Employee Plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 950,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options, which are intended to qualify as incentive stock options (ISOs), to valued employees. Any plan participant who is granted ISOs and possesses more than 10% of the voting rights of the Company's outstanding common stock must be granted an option with a price of at least 110% of the fair market value on the date of grant.

Under the 2012 Employee Plan, stock options may be granted to valued employees with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable, in whole or in part, at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a “change in control” as defined in the plan. At December 31, 2014, 112,500 stock options were granted, 27,500 stock options were exercisable and 837,500 stock options were available for grant under this plan.

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The fair value of each option granted during fiscal 2014 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rates	2.3%
Expected lives	10 years
Expected volatility	54%
Expected dividend yields	0%

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

	2014					2013
	Options			Weighted average exercise price		Options		Weighted average exercise price
Outstanding, beginning of year		78,500		$	5.73		—	$	—
Granted		44,000			4.43		78,500		5.73
Terminated/Lapsed		(10,000	)		4.88		—		—
Exercised		—			—		—		—
Outstanding, end of period		112,500		$	5.30		78,500	$	5.73
Exercisable, end of period		27,500		$	5.26		15,700	$	5.73
Weighted average fair value at grant date of options granted	$	2.82				$	3.84
Total intrinsic value of options exercised		n/a					n/a
Total intrinsic value of options outstanding	$	13,000				$	44,000
Total intrinsic value of options exercisable	$	3,000				$	9,000

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at December 31, 2014:

	Options outstanding						Options exercisable
Range of exercise prices	Number outstanding		Weighted average remaining contractual life		Weighted average exercise price		Number exercisable		Weighted average exercise price
$ 4.88 - $ 6.31		112,500		9.2	$	5.30		27,500	$	5.26
		112,500		9.2	$	5.30		27,500	$	5.26

As of December 31, 2014, there was $260,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan. 44,000 options were granted during the three and six months ended December 31, 2014. The total fair value of the options vesting during the three and six months ended December 31, 2014 and 2013 under this plan was $25,000 and $37,000, respectively and $41,000 and $60,000, respectively.

2012 Non-Employee Stock Option Plan

In December 2012, the stockholders approved the 2012 Non-Employee Stock Option Plan (the 2012 Non-Employee Plan). This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 50,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options to non-employee directors and consultants to the Company and its subsidiaries.

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Under the 2012 Non-Employee Plan, stock options may be granted with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable in whole or in part at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a “change in control” as defined in the plan. At December 31, 2014, 35,000 stock options were granted, 12,000 stock options were exercisable and 15,000 stock options were available for grant under this plan.

The fair value of each option granted during fiscal 2014 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rates	2.3%
Expected lives	10 years
Expected volatility	54%
Expected dividend yields	0%

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

	2014				2013
	Options		Weighted average exercise price		Options		Weighted average exercise price
Outstanding, beginning of year		25,000	$	4.88		—	$	—
Granted		10,000		4.37		25,000		4.88
Terminated/Lapsed		—		—		—		—
Exercised		—		—		—		—
Outstanding, end of period		35,000	$	4.73		25,000	$	4.88
Exercisable, end of period		12,000	$	4.80		5,000	$	4.88
Weighted average fair value at grant date of options granted	$	2.86			$	3.30
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	3,000			$	35,000
Total intrinsic value of options exercisable	$	1,000			$	7,000

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at December 31, 2014:

	Options outstanding						Options exercisable
Range of exercise prices	Number outstanding		Weighted average remaining contractual life		Weighted average exercise price		Number exercisable		Weighted average exercise price
$4.37 - $ 4.88		35,000		9.0	$	4.73		12,000	$	4.80
		35,000		9.0	$	4.73		12,000	$	4.80

As of December 31, 2014, there was $72,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan. 10,000 options were granted during the three and six months ended December 31, 2014. The total fair value of the options vesting during each of the three and six month periods ended December 31, 2014 and 2013 under this plan was $6,000 and $17,000, respectively and $22,000 and $17,000, respectively.

2002 Employee Stock Option Plan

In December 2002, the stockholders approved the 2002 Employee Stock Option Plan (the 2002 Employee Plan). This plan expired in October 2012. This plan authorized the granting of awards, the exercise of which would allow up to an aggregate of 1,836,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may have granted stock options, which were intended to qualify as incentive stock options (ISOs), to key employees. Any plan participant who was granted ISOs and possessed more than 10% of the voting rights of the Company's outstanding common stock must have been granted an option with a price of at least 110% of the fair market value on the date of grant.

Under the 2002 Employee Plan, stock options have been granted to key employees with a term of 10 years at an exercise price equal to the fair market value on the date of grant and are exercisable in whole or in part at 20% per year from the date of grant. At December 31, 2014, 1,471,480 stock options had been granted, 264,750 stock options were exercisable and no further stock options were available for grant under this plan after the plans expiration in October 2012.

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The following table reflects activity under the 2002 Employee plan for the six months ended December 31,:

	2014					2013
	Options			Weighted average exercise price		Options			Weighted average exercise price
Outstanding, beginning of year		265,750		$	6.51		651,140		$	4.18
Granted		—			—		—			—
Terminated/Lapsed		(1,000	)		6.02		(30,240	)		1.74
Exercised		—			—		(326,800	)		2.70
Outstanding, end of period		264,750		$	6.51		294,100		$	6.07
Exercisable, end of period		264,750		$	6.51		294,100		$	6.07
Weighted average fair value at grant date of options granted		n/a					n/a
Total intrinsic value of options exercised		n/a				$	854,000
Total intrinsic value of options outstanding	$	—				$	254,000
Total intrinsic value of options exercisable	$	—				$	254,000

0 and 326,800 stock options were exercised during the six months ended December 31, 2014 and 2013, respectively. 324,100 of the 326,800 stock options exercised during the six months ended December 31, 2013 were settled by exchanging 164,859 shares of the Company’s common stock of which 85,170 was retired upon receipt. Cash received from option exercises was $0 and $5,000 for the six months ended December 31, 2014 and 2013, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $0 for each of these periods.

The following table summarizes information about stock options outstanding under the 2002 Employee Plan at December 31, 2014:

	Options outstanding and exercisable
Range of exercise prices	Number outstanding		Weighted average remaining contractual life		Weighted average exercise price
$ 5.22 - $ 6.62		227,250		1.3	$	5.75
$11.16		37,500		1.2		11.16
		264,750		1.3	$	6.51

NOTE 8 – Stockholders’ Equity Transactions

On September 16, 2014 the Company’s board of directors authorized the repurchase of up to 1 million of the approximately 19.4 million shares of the Company’s common stock outstanding. The repurchase will be made from time to time in the open market or in privately negotiated transactions subject to market conditions and the market price of the common stock. Relative to the Loan Agreement described in Note 6, the Company’s lender gave its consent to this stock repurchase plan. During the six months ended December 31, 2014 the Company repurchased 304,186 shares of its outstanding common stock for a weighted average price of $4.55 per share. These repurchased shares are included in the Company’s Treasury Stock as of December 31, 2014.

NOTE 9 - 401(k) Plan

The Company maintains a 401(k) plan (“the Plan”) that covers all U.S. non-union employees with one or more years of service and is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code. Company contributions to this plan are discretionary and totaled $41,000 and $25,000 for the three months ended December 31, 2014 and 2013, respectively and $67,000 and $51,000 for the six months ended December 31, 2014 and 2013, respectively.

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NOTE 10 - Commitments and Contingencies

Leases

The Company is committed under various operating leases, not including the land lease discussed below, which do not extend beyond fiscal 2016.

Rent expense, with the exception of the land lease referred to below, totaled approximately $9,000 and $9,000 for the three months ended December 31, 2014 and 2013, respectively and $16,000 and $18,000 for the six months ended December 31, 2014 and 2013, respectively.

Land Lease

On April 26, 1993, one of the Company's foreign subsidiaries entered into a 99 year lease, expiring in 2092, for approximately four acres of land in the Dominican Republic at an annual cost of $288,000, on which the Company's principal production facility is located.

Litigation

In the normal course of business, the Company is a party to claims and/or litigation. Management believes that the settlement of such claims and/or litigation, considered in the aggregate, will not have a material adverse effect on the Company's financial position and results of operations.

Employment Agreements

As of December 31, 2014, the Company was obligated under two employment agreements and one severance agreement. The employment agreements are with the Company’s CEO and Senior Vice President of Sales and Marketing (“the SVP”). The employment agreement with the CEO provides for an annual salary of $587,000, as adjusted for inflation; incentive compensation as may be approved by the Board of Directors from time to time and a termination payment in an amount up to 299% of the average of the prior five calendar year's compensation, subject to certain limitations, as defined in the agreement. The employment agreement renews annually in August unless either party gives the other notice of non-renewal at least six months prior to the end of the applicable term. The employment agreement with the SVP expires in October 2016 and provides for an annual salary of $296,900, a bonus arrangement for fiscal 2015 and, if terminated by the Company without cause, severance of nine months’ salary and continued company-sponsored health insurance for six months from the date of termination. The severance agreement provides for payments equal to nine months of salary and six months of health insurance in the event of a non-voluntary termination of employment without cause.

NOTE 11 - Geographical Data

The Company is engaged in one major line of business: the development, manufacture, and distribution of access control systems, door security products, intrusion and fire alarm systems and video surveillance products for commercial and residential use. Sales to unaffiliated customers are primarily shipped from the United States. The Company has customers worldwide with major concentrations in North America.

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Financial Information Relating to Domestic and Foreign Operations

	Three months ended December 31,				Six months ended December 31,
	2014		2013		2014		2013
	(in thousands)				(in thousands)
Sales to external customers(1):
Domestic	$	18,876	$	17,593	$	35,448	$	33,887
Foreign		695		760		1,459		1,705
Total Net Sales	$	19,571	$	18,353	$	36,907	$	35,592

Identifiable assets:	December 31, 2014		June 30, 2014
United States	$	47,553	$	49,529
Dominican Republic (2)		14,127		13,835
Total Identifiable Assets	$	61,680	$	63,364

(1) All of the Company's sales originate in the United States and are shipped primarily from the Company's facilities in the United States. There were no sales into any one foreign country in excess of 10% of total Net Sales.

(2) Consists primarily of inventories (December 31, 2014 = $10,477; June 30, 2014 = $10,216) and fixed assets (December 31, 2014 = $3,425; June 30, 2014 = $3,475) located at the Company's principal manufacturing facility in the Dominican Republic.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q and the information incorporated by reference may include "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. The Company intends the Forward-Looking Statements to be covered by the Safe Harbor Provisions for Forward-Looking Statements. All statements regarding the Company's expected financial position and operating results, its business strategy, its financing plans and the outcome of any contingencies are Forward-Looking Statements. The Forward-Looking Statements are based on current estimates and projections about our industry and our business. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," or variations of such words and similar expressions are intended to identify such Forward-Looking Statements. The Forward-Looking Statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any Forward-Looking Statements. For example, the Company is highly dependent on its Chief Executive Officer for strategic planning. If he is unable to perform his services for any significant period of time, the Company's ability to grow could be adversely affected. In addition, factors that could cause actual results to differ materially from the Forward-Looking Statements include, but are not limited to, uncertain economic, military and political conditions in the world, the ability to maintain adequate financing, our ability to maintain and develop competitive products, adverse tax consequences of offshore operations, significant fluctuations in the exchange rate between the Dominican Peso and the U.S. Dollar and distribution problems. The Company’s Risk Factors are discussed in more detail in Item 1A in the Company’s 2014 Annual Report on Form 10-K.

Overview

The Company is a diversified manufacturer of security products, encompassing access control systems, door security products, intrusion and fire alarm systems and video surveillance products for commercial and residential use. 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. International sales accounted for approximately 4% and 5% of our revenues for the six month periods ended December 31, 2014 and 2013, respectively.

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The Company owns and operates manufacturing facilities in Amityville, New York and the Dominican Republic. A significant portion of our operating costs are fixed, and do not fluctuate with changes in production levels or utilization of our manufacturing capacity. As production levels rise and factory utilization increases, the fixed costs are spread over increased output, which should improve profit margins. Conversely, when production levels decline our fixed costs are spread over reduced levels, thereby decreasing margins.

The security products market is characterized by constant incremental innovation in product design and manufacturing technologies. Generally, the Company devotes 6-8% of revenues to research and development (R&D) on an annual basis. The Company does not expect products resulting from our R&D investments in fiscal 2014 or thereafter to contribute materially to revenue during this fiscal year, but should benefit the Company over future years. In general, the new products introduced by the Company are initially shipped in limited quantities, and increase over time. Prices and manufacturing costs tend to decline over time as products and technologies mature.

Economic and Other Factors

We are subject to the effects of general economic and market conditions. In the event that the U.S. or international economic conditions deteriorate, our revenue, profit and cash-flow levels could be materially adversely affected in future periods. In the event of such deterioration, many of our current or potential future customers may experience serious cash flow problems and as a result may, modify, delay or cancel purchases of our products. Additionally, customers may not be able to pay, or may delay payment of, accounts receivable that are owed to us. If such events do occur, they may result in our expenses being too high in relation to our revenues and cash flows.

Seasonality

The Company's fiscal year begins on July 1 and ends on June 30. Historically, the end users of Napco's products want to install its products prior to the summer; therefore sales of its 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 is affected by the housing and construction markets. Deterioration of the current economic conditions may also affect this trend.

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 2014 Annual Report on Form 10-K.  Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

The Company recognizes revenue when the following criteria are met: (i) persuasive evidence of an agreement exists, (ii) there is a fixed and determinable price for the Company's product, (iii) shipment and passage of title occurs and (iv) collectability is reasonably assured. Revenues from product sales are recorded at the time the product is shipped or delivered to the customer pursuant to the terms of the sale. The Company reports its sales on a net sales basis, with net sales being computed by deducting from gross sales the amount of actual sales returns and other allowances and the amount of reserves established for anticipated sales returns and other allowances.

The Company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the Company’s past history. Estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers. Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns. Actual results could differ from those estimates.

Concentration of Credit Risk

An entity is more vulnerable to concentrations of credit risk if it is exposed to risk of loss greater than it would have had if it mitigated its risk through diversification of customers. Such risks of loss manifest themselves differently, depending on the nature of the concentration, and vary in significance. The Company had two customers with accounts receivable balance that aggregated 23% of the Company’s accounts receivable at December 31, 2014. The Company had one customer with an accounts receivable balance that comprised 12% of the Company’s accounts receivable at June 30, 2014. Sales to any one customer did not exceed 10% of net sales in any of the past two fiscal years.

In the ordinary course of business, we have established a reserve for doubtful accounts and customer deductions in the amount of $160,000 and $180,000 as of December 31, 2014 and June 30, 2014, respectively. Our reserve for doubtful accounts is a subjective critical estimate that has a direct impact on reported net earnings. This reserve is based upon the evaluation of accounts receivable agings, specific exposures and historical or anticipated events.

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Inventories

Inventories are valued at the lower of cost or fair market value, with cost being determined on the first-in, first-out (FIFO) method. The reported net value of inventory includes finished saleable products, work-in-process and raw materials that will be sold or used in future periods. Inventory costs include raw materials, direct labor and overhead. The Company’s overhead expenses are applied based, in part, upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products. These proportions, the method of their application, and the resulting overhead included in ending inventory, are based in part on subjective estimates and actual results could differ from those estimates.

In addition, the Company records an inventory obsolescence reserve, which represents the difference between the cost of the inventory and its estimated market value, based on various product sales projections. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, 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. There is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage. In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events. The Company also regularly reviews the period over which its inventories will be converted to sales. Any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current.

Intangible Assets

The Company evaluates its Intangible Assets for impairment at least on an annual basis and will evaluate them earlier if there are indicators of a potential impairment. Those intangible assets that are classified as goodwill or as other intangibles with indefinite lives are not amortized. Impairment testing is performed in two steps: (i) the Company determines impairment by comparing the fair value of a reporting unit with its carrying value, and (ii) if there is impairment, the Company measures the amount of impairment loss by comparing the implied fair value of intangible assets with the carrying amount of the intangible assets.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis.

Results of Operations

	Three months ended December 31, (dollars in thousands)									Six months ended December 31, (dollars in thousands)
	2014			2013			% Increase/  (decrease)			2014			2013			% Increase/ (decrease)
Net sales	$	19,571		$	18,353			6.6	%	$	36,907		$	35,592			3.7	%
Gross profit		6,103			5,081			20.1	%		11,358			10,120			12.2	%
Gross profit as a % of net sales		31.2	%		27.7	%		12.6	%		30.8	%		28.4	%		8.5	%
Selling, general and administrative		5,007			4,577			9.4	%		10,016			9,376			6.8	%
Selling, general and administrative as a percentage of net sales		25.6	%		24.9	%		2.8	%		27.1	%		26.3	%		3.0	%
Operating income		1,096			504			117.5	%		1,342			744			80.4	%
Interest expense, net		54			80			(32.5	)%		109			179			(39.1	)%
Other (income) expense		3			4			(25.0	)%		(2	)		7			(128.6	)%
Provision for income taxes		88			52			69.2	%		125			67			86.6	%
Net income		951			368			158.4	%		1,110			491			126.1	%

20

Sales for the three months ended December 31, 2014 increased by $1,218,000 to $19,571,000 as compared to $18,353,000 for the same period a year ago. Sales for the six months ended December 31, 2014 increased by $1,315,000 to $36,907,000 as compared to $35,592,000 for the same period a year ago. The increase in sales for the three months ended December 31, 2014 was due primarily to increased sales of the Company’s door-locking products ($136,000), intrusion products ($586,000), and access control products ($495,000). The increase in sales for the six months ended December 31, 2014 was due primarily to increased sales of the Company’s door-locking products ($508,000), intrusion products ($631,000), and access control products ($175,000). Intrusion sales in the three months ended December 31, 2013 were impacted by a temporary delay in processing orders from a large distributor. This did not occur in the three months ended December 31, 2014. The increase in sales of access control products in the quarter ended December 31, 2014 was due primarily to the shipment of a $410,000 order for a major college.

Gross profit for the three months ended December 31, 2014 increased to $6,103,000 or 31.2% of sales as compared to $5,081,000 or 27.7% of sales for the same period a year ago. Gross profit for the six months ended December 31, 2014 increased to $11,358,000 or 30.8% of sales as compared to $10,120,000 or 28.4% of sales for the same period a year ago. The increase in gross profit for the three and six months was primarily due to increased sales as well as a continued positive shift in product mix to the Company’s door-locking products.

Selling, general and administrative expenses for the three months ended December 31, 2014 increased by $430,000 to $5,007,000 from 4,577,000 for the same period a year ago. Selling, general and administrative expenses for the six months ended December 31, 2014 increased by $640,000 to $10,016,000 from 9,376,000 for the same period a year ago. Selling, general and administrative expenses as a percentage of net sales increased to 25.6% for the three months ended December 31, 2014 from 24.9% for the same period a year ago. Selling, general and administrative expenses as a percentage of net sales increased to 27.1% for the six months ended December 31, 2014 from 26.3% for the same period a year ago. The increase in dollars for the three months was due primarily from the addition of selling personnel and increased media advertising.

Interest expense, net for the three months ended December 31, 2014 decreased by $26,000 to $54,000 as compared to $80,000 for the same period a year ago. Interest expense, net for the six months ended December 31, 2014 decreased by $70,000 to $109,000 as compared to $179,000 for the same period a year ago. The decrease in interest expense for the three and six months ended December 31, 2014 resulted from lower average outstanding debt and lower interest rates during the current periods as compared to the same periods a year ago.

The Company’s provision for income taxes for the three months ended December 31, 2014 increased by $36,000 to $88,000 as compared to $52,000 for the same period a year ago. The Company’s provision for income taxes for the six months ended December 31, 2014 increased by $58,000 to $125,000 as compared to $67,000 for the same period a year ago. The change in the provision for income taxes were caused primarily by the increase in income before income taxes as offset by a change in the proportion of the income before income taxes being generated by the Company’s U.S. operations to the income being generated by non-taxable foreign operations for the three and six months ended December 31, 2014 as compared to the same period a year ago. As a result, the Company’s effective rate for income tax was 8% and 12% for the three months ended December 31, 2014 and 2013, respectively and 10% and 12% for the six months ended December 31, 2014 and 2013, respectively.

Net income increased by $583,000 to $951,000 or $0.05 per diluted share for the three months ended December 31, 2014 as compared to $368,000 or $0.02 per diluted share for the same period a year ago. Net income increased by $619,000 to $1,110,000 or $0.06 per diluted share for the six months ended December 31, 2014 as compared to $491,000 or $0.03 per diluted share for the same period a year ago. The increase in net income for the three and six months ended December 31, 2014 was primarily due to the items as described above.

Liquidity and Capital Resources

During the six months ended December 31, 2014 the Company utilized its cash from operations ($1,740,000) and a portion of its cash on-hand at June 30, 2014 ($773,000 of $2,483,000) to repay outstanding debt ($800,000), purchase treasury stock ($1,390,000) and purchase property, plant and equipment ($323,000). The Company believes its current working capital, cash flows from operations and its revolving credit agreement will be sufficient to fund the Company’s operations through the next twelve months.

Accounts Receivable at December 31, 2014 decreased $1,552,000 to $15,352,000 as compared to $16,904,000 at June 30, 2014. This decrease is primarily the result of the lower sales volume during the quarter ended December 31, 2014 as compared to the quarter ended June 30, 2014, which is typically the Company’s highest.

Inventories at December 31, 2014 increased $1,083,000 to $26,093,000 as compared to $25,010,000 at June 30, 2014. This increase is primarily the result of the Company level-loading its production facility in the Dominican Republic, whereas the Company’s sales are typically highest in the fourth quarter.

21

Accounts payable, accrued expenses and accrued income taxes decreased $705,000 to $7,107,000 as of December 31, 2014 as compared to $7,812,000 at June 30, 2014.

As of December 31, 2014, long-term debt consisted of a revolving credit facility of $11,000,000 (the “Revolving Credit Facility”) which expires in June 2017 and two term loans, one for $6,000,000 which expires in June 2019, and one for $6,500,000 which expires in June 2017 (the “Term Loans”). Repayment of the Terms Loans commenced on September 30, 2012. The $6,000,000 Term Loan is being repaid with 28 equal, quarterly payments of $75,000 and the remaining balance of $3,900,000 due on or before the expiration date. The $6,500,000 Term Loan is being repaid in 20 equal, quarterly payments of $325,000. As of December 31, 2014, the Company had $2,500,000 in outstanding borrowings and $8,500,000 in availability under the Revolving Credit Facility. The Company’s long-term debt is described more fully in Note 6 to the condensed consolidated financial statements.

The agreements contain various restrictions and covenants including, among others, restrictions on payment of dividends, restrictions on borrowings and compliance with certain financial ratios, as defined in the restated agreement.

As of December 31, 2014 the Company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business.

ITEM 3: Quantitative and Qualitative Disclosures About Market Risk

The Company's principal financial instrument is long-term debt (consisting of a revolving credit facility and term loans) that provides for interest based on the prime rate or LIBOR as described in the agreement. The Company is affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable by the Company under these credit facilities. At December 31, 2014, an aggregate principal amount of approximately $11,000,000 was outstanding under the Company's credit facilities with a weighted average interest rate of approximately 1.7%. If principal amounts outstanding under the Company's credit facilities remained at this level for an entire year and the interest rate increased or decreased, respectively, by 1% the Company would pay or save, respectively, an additional $110,000 in interest that year.

All foreign sales transactions by the Company are denominated in U.S. dollars. As such, the Company has shifted foreign currency exposure onto its foreign customers. As a result, if exchange rates move against foreign customers, the Company could experience difficulty collecting unsecured accounts receivable, the cancellation of existing orders or the loss of future orders. The foregoing could materially adversely affect the Company's business, financial condition and results of operations. We are also exposed to foreign currency risk relative to expenses incurred in Dominican Pesos ("RD$"), the local currency of the Company's production facility in the Dominican Republic. The result of a 10% strengthening in the U.S. dollar to our RD$ expenses would result in an annual increase in income from operations of approximately $600,000.

ITEM 4: Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives.

At the conclusion of the period ended December 31, 2014, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at December 31, 2014.

During the three months ended December 31, 2014, there were no changes in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

22

PART II: OTHER INFORMATION

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, 2014. There has been no material change in the risk factors previously disclosed in the Company’s Form 10-K for the year ended June 30, 2014 during the three months ended December 31, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publically Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs
October 1, 2014 - October 31, 2014		87,944	$	4.42		87,944		804,500
November 1, 2014 – November 30, 2014		61,650	$	4.44		61,650		742,850
December 1, 2014 – December 31, 2014		47,036	$	4.55		47,036		695,814
Total for the Quarter ended December 31, 2014		196,630	$	4.45		196,630		695,814

On September 16, 2014 the Company’s board of directors authorized the repurchase of up to 1 million of the approximately 19.4 million shares of the Company’s common stock then outstanding. The repurchase will 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.

Item 6. Exhibits

31.1	Certification Pursuant to Rule 13a-14(a)/15d-14(a) of Richard L. Soloway, Chairman of the Board and President
31.2	Certification Pursuant to Rule 13a-14(a)/15d-14(a) of Kevin S. Buchel, Senior Vice President of Operations and Finance
32.1	Section 1350 Certifications
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

23

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.

February 9, 2015

NAPCO SECURITY TECHNOLOGIES, INC.

(Registrant)

By:	/s/ RICHARD L. SOLOWAY
	Richard L. Soloway
	Chairman of the Board of Directors, President and Secretary
	(Chief Executive Officer)
By:	/s/ KEVIN S. BUCHEL
	Kevin S. Buchel
	Senior Vice President of Operations and Finance and Treasurer
	(Principal Financial and Accounting Officer)

24

EXHIBITS

Exhibit No.	Title
Ex-31.1	Certification Pursuant to Rule 13a-14(a)/15d-14(a) of Richard L. Soloway, Chairman of the Board and President
Ex-31.2	Certification Pursuant to Rule 13a-14(a)/15d-14(a) of Kevin S. Buchel, Senior Vice President of Operations and Finance
Ex-32.1	Section 1350 Certifications
Ex-101.INS	XBRL Instance Document
Ex-101.SCH	XBRL Taxonomy Extension Schema Document
Ex-101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
Ex-101.LAB	XBRL Taxonomy Extension Label Linkbase Document
Ex-101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
Ex-101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

EX-31.1

EXHIBIT 31.1

SECTION 302 CERTIFICATION

I, Richard Soloway, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Napco Security Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 9, 2015
	/s/RICHARD SOLOWAY
	Richard Soloway
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

SECTION 302 CERTIFICATION

I, Kevin S. Buchel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Napco Security Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 9, 2015
	/s/KEVIN S. BUCHEL
	Kevin S. Buchel
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Napco Security Technologies, Inc. (the “Company”) on Form 10-Q for the period ending December 31, 2014 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, RICHARD L. SOLOWAY, Chief Executive Officer of the Company, certify, that to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 9, 2015

/s/ RICHARD L. SOLOWAY

Richard L. Soloway, Chief Executive Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Napco Security Technologies, Inc. (the “Company”) on Form 10-Q for the period ending December 31, 2014 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, KEVIN S. BUCHEL, Chief Financial Officer of the Company, certify, that to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 9, 2015

/s/ KEVIN S. BUCHEL

Kevin S. Buchel, Chief Financial Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

401(k) Plan (Narrative) (Detail) (Napco Technologies 401 k Plan [Member], USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Napco Technologies 401 k Plan [Member]
Schedule of Deferred Compensation Plans [Line Items]
Deferred compensation plan expense	$ 41,000	$ 25,000	$ 67,000	$ 51,000

XML

Long-Term Debt (Detail) (USD $)	Dec. 31, 2014	Jun. 30, 2014
Debt Instrument [Line Items]
Total debt	$ 11,000,000	$ 11,800,000
Interest rate	1.70%	1.70%
Revolving line of credit [Member]
Debt Instrument [Line Items]
Outstanding	2,500,000	2,500,000
Interest rate	1.70%	1.70%
Term loans [Member]
Debt Instrument [Line Items]
Outstanding	$ 8,500,000	$ 9,300,000
Interest rate	1.70%	1.70%

XML

Nature of Business and Summary of Significant Accounting Policies - Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Jun. 30, 2014
Intangible Assets by Major Class [Line Items]
Intangible assets, cost	$ 16,040	$ 16,040
Finite-lived intangible assets, accumulated amortization	(6,821)	(6,488)
Finite-lived intangible assets, net	9,219	9,552
Customer relationships [Member]
Intangible Assets by Major Class [Line Items]
Intangible assets, cost	9,800	9,800
Finite-lived intangible assets, accumulated amortization	(6,511)	(6,203)
Finite-lived intangible assets, net	3,289	3,597
Non-compete agreement [Member]
Intangible Assets by Major Class [Line Items]
Intangible assets, cost	340	340
Finite-lived intangible assets, accumulated amortization	(310)	(285)
Finite-lived intangible assets, net	30	55
Trade Name [Member]
Intangible Assets by Major Class [Line Items]
Intangible assets, cost	5,900	5,900
Finite-lived intangible assets, accumulated amortization	0	0
Finite-lived intangible assets, net	$ 5,900	$ 5,900

XML

Geographical Data (Parenthetical) (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Jun. 30, 2014
Revenues from External Customers and Long-Lived Assets [Line Items]
Inventories	$ 22,238	$ 21,443
Fixed assets	6,306	6,394
Dominican Republic [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Inventories	10,477	10,216
Fixed assets	$ 3,425	$ 3,475

XML

Stock Options by Range of Exercise Prices (Detail) (USD $)	6 Months Ended
	Dec. 31, 2014
Employee 2012 Stock Option Plan [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options Outstanding, Number outstanding	112,500
Options Outstanding, Weighted average remaining contractual life	9 years 2 months 12 days
Options Outstanding, weighted average exercise price	$ 5.30
Options exercisable, Number exercisable	27,500
Options exercisable, Weighted average exercise price	$ 5.26
Employee 2012 Stock Option Plan [Member] | Exercise price range $ 4.88 - $ 6.31 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of exercise prices, lower limit	$ 4.88
Range of exercise prices, upper limit	$ 6.31
Options Outstanding, Number outstanding	112,500
Options Outstanding, Weighted average remaining contractual life	9 years 2 months 12 days
Options Outstanding, weighted average exercise price	$ 5.30
Options exercisable, Number exercisable	27,500
Options exercisable, Weighted average exercise price	$ 5.26
NonEmployee 2012 Stock Option Plan [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options Outstanding, Number outstanding	35,000
Options Outstanding, Weighted average remaining contractual life	9 years
Options Outstanding, weighted average exercise price	$ 4.73
Options exercisable, Number exercisable	12,000
Options exercisable, Weighted average exercise price	$ 4.80
NonEmployee 2012 Stock Option Plan [Member] | Exercise price range $4.37- $ 4.88 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of exercise prices, lower limit	$ 4.37
Range of exercise prices, upper limit	$ 4.88
Options Outstanding, Number outstanding	35,000
Options Outstanding, Weighted average remaining contractual life	9 years
Options Outstanding, weighted average exercise price	$ 4.73
Options exercisable, Number exercisable	12,000
Options exercisable, Weighted average exercise price	$ 4.80
2002 Employee Stock Option Plan [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options Outstanding, Number outstanding	264,750
Options Outstanding, Weighted average remaining contractual life	1 year 3 months 18 days
Options Outstanding, weighted average exercise price	$ 6.51
2002 Employee Stock Option Plan [Member] | Exercise price range $ 5.22 - $ 6.62 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of exercise prices, lower limit	$ 5.22
Range of exercise prices, upper limit	$ 6.62
Options Outstanding, Number outstanding	227,250
Options Outstanding, Weighted average remaining contractual life	1 year 3 months 18 days
Options Outstanding, weighted average exercise price	$ 5.75
2002 Employee Stock Option Plan [Member] | Exercise price range $11.16 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of exercise prices, lower limit	$ 11.16
Options Outstanding, Number outstanding	37,500
Options Outstanding, Weighted average remaining contractual life	1 year 2 months 12 days
Options Outstanding, weighted average exercise price	$ 11.16

XML

Property, Plant and Equipment

6 Months Ended

Dec. 31, 2014

Property, Plant, and Equipment

NOTE 4 – Property, Plant and Equipment

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

	December		June 30,
	31, 2014		2014		Useful Life in Years
Land	$	904	$	904	—
Buildings		8,911		8,911	30 to 40
Molds and dies		6,957		6,906	3 to 5
Furniture and fixtures		2,451		2,427	5 to 10
Machinery and equipment		20,100		19,974	7 to 10
Leasehold improvements		288		288	Shorter of the lease term or life of asset
		39,611		39,410
Less: accumulated depreciation and amortization		33,305		33,016
	$	6,306	$	6,394

Depreciation and amortization expense on property, plant, and equipment was $210,000 and $223,000 for the three months ended December 31, 2014 and 2013, respectively and $412,000 and $440,000 for the six months ended December 31, 2014 and 2013, respectively

XML

Property, Plant and Equipment (Narrative) (Detail) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Depreciation and amortization	$ 210,000	$ 223,000	$ 412,000	$ 440,000

XML

Inventories (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Jun. 30, 2014
Inventory [Line Items]
Component parts	$ 15,929	$ 15,268
Work-in-process	3,789	3,632
Finished product	6,375	6,110
Total Inventory	26,093	25,010
Current	22,238	21,443
Non-current	3,855	3,567
Total Inventory	$ 26,093	$ 25,010

XML

Property, Plant and Equipment (Detail) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2014	Jun. 30, 2014
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 39,611	$ 39,410
Less: accumulated depreciation and amortization	33,305	33,016
Property, plant and equipment, net	6,306	6,394
Land [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	904	904
Buildings [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	8,911	8,911
Buildings [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	30 years
Buildings [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	40 years
Molds and dies [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	6,957	6,906
Molds and dies [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	3 years
Molds and dies [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	5 years
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	2,451	2,427
Furniture and Fixtures [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	5 years
Furniture and Fixtures [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	10 years
Machinery and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	20,100	19,974
Machinery and Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	7 years
Machinery and Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	10 years
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 288	$ 288
Property, plant and equipment, useful life	Shorter of the lease term or life of asset

XML

Income Taxes (Narrative) (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Jun. 30, 2014
Income Taxes [Line Items]
Liability for Uncertain Tax Positions, Noncurrent	$ 190	$ 169

XML

Inventories

6 Months Ended

Dec. 31, 2014

Inventories

NOTE 3 - Inventories

Inventories, net of reserves are valued at lower of cost (first-in, first-out method) or market. The Company regularly reviews parts and finished goods inventories on hand and, when necessary, records a provision for excess or obsolete inventories. The Company also regularly reviews the period over which its inventories will be converted to sales. Any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current.

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

	December		June 30,
	31, 2014		2014
Component parts	$	15,929	$	15,268
Work-in-process		3,789		3,632
Finished product		6,375		6,110
	$	26,093	$	25,010
Classification of inventories, net of reserves:
Current	$	22,238	$	21,443
Non-current		3,855		3,567
	$	26,093	$	25,010

XML

Long-Term Debt (Narrative) (Detail) (USD $)	6 Months Ended
	Dec. 31, 2014
Term loan expiring June 2019 [Member]
Debt Instrument [Line Items]
Initial amount of loan	$ 6,000,000
Number of required loan repayments from inception	28
Quarterly principal repayment amount	75,000
Payoff amount at maturity	3,900,000
Debt Instrument, Frequency of Periodic Payment	quarterly
Term loan expiring June 2017 [Member]
Debt Instrument [Line Items]
Initial amount of loan	6,500,000
Number of required loan repayments from inception	20
Quarterly principal repayment amount	325,000
Debt Instrument, Frequency of Periodic Payment	quarterly
Third Amended and Restated Credit Agreement [Member]
Debt Instrument [Line Items]
Percentage of common stock of foreign subsidiaries pledged as collateral	65.00%
Third Amended and Restated Credit Agreement [Member] | Variable Interest Rate Option One [Member]
Debt Instrument [Line Items]
Debt Instrument, Description of Variable Rate Basis	prime
Third Amended and Restated Credit Agreement [Member] | Variable Interest Rate Option One [Member] | Minimum [Member]
Debt Instrument [Line Items]
Interest rate over the reference rate	1.50%
Debt Instrument, Description of Variable Rate Basis	LIBOR
Third Amended and Restated Credit Agreement [Member] | Variable Interest Rate Option One [Member] | Maximum [Member]
Debt Instrument [Line Items]
Interest rate over the reference rate	2.75%
Third Amended and Restated Credit Agreement [Member] | Variable Interest Rate Option Two [Member]
Debt Instrument [Line Items]
Interest rate over the reference rate	0.25%
Revolving line of credit expiring June 2017 [Member]
Debt Instrument [Line Items]
Revolving credit loan facility, maximum borrowing capacity	$ 11,000,000

XML

Commitments and Contingencies (Narrative) (Detail) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Employee Severance [Member]
Property Subject to or Available for Operating Lease [Line Items]
Number Of Agreements			1
Employment Contracts [Member]
Property Subject to or Available for Operating Lease [Line Items]
Number Of Agreements			2
Termination pay commitment rate applied to the average of the prior five calendar years compensation			299.00%
Employment Contracts [Member] | Chief executive officer [Member]
Property Subject to or Available for Operating Lease [Line Items]
Annual salary commitment			$ 587,000
Employment Contracts [Member] | Senior Vice President of Sales and Marketing [Member]
Property Subject to or Available for Operating Lease [Line Items]
Annual salary commitment			296,900
Land lease in Dominican Republic expiring 2092 [Member]
Property Subject to or Available for Operating Lease [Line Items]
Expiration Year			2092
Acreage	4		4
Annual minimum rent	288,000		288,000
Leased property and equipment, excluding foreign land [Member]
Property Subject to or Available for Operating Lease [Line Items]
Rent expense	$ 9,000	$ 9,000	$ 16,000	$ 18,000

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Jun. 30, 2014
CURRENT ASSETS
Cash and cash equivalents	$ 1,710	$ 2,483
Accounts receivable, net of reserves and allowances	15,352	16,904
Inventories	22,238	21,443
Prepaid expenses and other current assets	1,053	989
Income tax receivable	45	121
Deferred income taxes	781	739
Total Current Assets	41,179	42,679
Inventories - non-current	3,855	3,567
Deferred income taxes	965	1,005
Property, plant and equipment, net	6,306	6,394
Intangible assets, net	9,219	9,552
Other assets	156	167
TOTAL ASSETS	61,680	63,364
CURRENT LIABILITIES
Current maturities of long term debt	1,600	1,600
Accounts payable	3,604	4,082
Accrued expenses	1,570	1,737
Accrued salaries and wages	1,743	1,824
Total Current Liabilities	8,517	9,243
Long-term debt, net of current maturities	9,400	10,200
Accrued income taxes	190	169
Total Liabilities	18,107	19,612
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, par value $0.01 per share; 40,000,000 shares authorized; 21,049,243 and 21,049,243 shares issued; and 19,114,520 and 19,419,076 shares outstanding, respectively	210	210
Additional paid-in capital	16,133	16,032
Retained earnings	36,664	35,554
Stockholders' Equity before Treasury Stock, Total	53,007	51,796
Less: Treasury Stock, at cost (1,934,353 and 1,630,167 shares, respectively)	(9,434)	(8,044)
TOTAL STOCKHOLDERS' EQUITY	43,573	43,752
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 61,680	$ 63,364

XML

Nature of Business and Summary of Significant Accounting Policies

6 Months Ended

Dec. 31, 2014

Nature of Business and Summary of Significant Accounting Policies

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

Nature of Business:

Napco Security Technologies, Inc. and Subsidiaries (the "Company") is a diversified manufacturer of security products, encompassing access control systems, door security products, intrusion and fire alarm systems and video surveillance products for commercial and residential use. 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.

The Company's fiscal year begins on July 1 and ends on June 30. Historically, the end users of the Company's products want to install its products prior to the summer; therefore sales of its 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 is affected by the housing and construction markets.

Significant Accounting Policies:

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company, including these notes, have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations promulgated by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended June 30, 2014 and the notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on September 15, 2014. Results of consolidated operations for the interim periods are not necessarily indicative of a full year’s operating results. The unaudited condensed consolidated financial statements herein include the accounts of the Company and its wholly owned subsidiaries. All material inter-company accounts and transactions have been eliminated. Certain prior period amounts relating to credit card fees have been reclassified for consistency with the current period presentation. The reclassification did not have an impact on the Balance Sheets, Statement of Cash Flows or reported Net income (loss) for any period.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent gains and losses at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical estimates include management's judgments associated with reserves for sales returns and allowances, concentration of credit risk, inventory reserves, intangible assets and income taxes. Actual results could differ from those 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, certificates of deposits, current receivables and payables and certain other short-term financial instruments approximate their fair value as of December 31, 2014 due to their short-term maturities. Long-Term Debt: The carrying amount of the Company’s long-term debt, including the current portion, at December 31, 2014 in the amount of $11,000,000 approximates fair value.

Cash and Cash Equivalents

Cash and cash equivalents include approximately $460,000 of short-term time deposits at December 31, 2014 and June 30, 2014. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of December 31, 2014 and June 30, 2014. The Company has historically not experienced any credit losses with balances in excess of FDIC limits

Accounts Receivable

Accounts receivable is stated net of the reserves for doubtful accounts of $160,000 and $180,000 and for returns and other allowances of $1,040,000 and $1,005,000 as of December 31, 2014 and June 30, 2014, respectively. Our reserves for doubtful accounts and for returns and other allowances are subjective critical estimates that have a direct impact on reported net earnings. These reserves are based upon the evaluation of accounts receivable agings, specific exposures, sales levels and historical trends.

Inventories

Inventories are valued at the lower of cost or fair market value, with cost being determined on the first-in, first-out (FIFO) method. The reported net value of inventory includes finished saleable products, work-in-process and raw materials that will be sold or used in future periods. Inventory costs include raw materials, direct labor and overhead. The Company’s overhead expenses are applied based, in part, upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products. These proportions, the method of their application, and the resulting overhead included in ending inventory, are based in part on subjective estimates and actual results could differ from those estimates.

In addition, the Company records an inventory obsolescence reserve, which represents any excess of the cost of the inventory over its estimated market value, based on various product sales projections. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, requirements to support forecasted sales, and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand. In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events. There is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage.

The Company also regularly reviews the period over which its inventories will be converted to sales. Any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current.

Property, Plant, and Equipment

Property, plant, and equipment are carried at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred; costs of major renewals and improvements are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and accumulated depreciation accounts and the profit or loss on such disposition is reflected in income.

Depreciation is recorded over the estimated service lives of the related assets using primarily the straight-line method. Amortization of leasehold improvements is calculated by using the straight-line method over the estimated useful life of the asset or lease term, whichever is shorter.

Intangible Assets

Intangible assets determined to have indefinite lives are not amortized but are tested for impairment at least annually. Intangible assets with definite lives are amortized over their useful lives. Intangible assets are reviewed for impairment at least annually at the Company’s fiscal year end of June 30 or more often whenever there is an indication that the carrying amount may not be recovered.

The Company’s acquisition of substantially all of the assets and certain liabilities of G. Marks Hardware, Inc. (“Marks”) in August 2008 included intangible assets recorded at fair value on the date of acquisition. The intangible assets are amortized over their estimated useful lives of twenty years (customer relationships) and seven years (non-compete agreement). The Marks trade name was deemed to have an indefinite life.

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

	December 31, 2014						June 30, 2014
			Accumulated		Net book				Accumulated		Net book
	Cost		amortization		value		Cost		amortization		value
Customer relationships	$	9,800	$	(6,511)	$	3,289	$	9,800	$	(6,203)	$	3,597
Non-compete agreement		340		(310)		30		340		(285)		55
Trade name		5,900		—		5,900		5,900		—		5,900
	$	16,040	$	(6,821)	$	9,219	$	16,040	$	(6,488)	$	9,552

Amortization expense for intangible assets subject to amortization was approximately $167,000 and $195,000 for the three months ended December 31, 2014 and 2013, respectively. Amortization expense for intangible assets subject to amortization was approximately $333,000 and $391,000 for the six months ended December 31, 2014 and 2013, respectively. Amortization expense for each of the next five fiscal years is estimated to be as follows: 2015 - $667,000; 2016 - $529,000; 2017 - $441,000; 2018 - $371,000 and 2019 - $313,000. The weighted average amortization period for intangible assets was 13.5 years and 14.4 years at December 31, 2014 and 2013, respectively.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable. Impairment would be recorded in circumstances where undiscounted cash flows expected to be generated by an asset are less than the carrying value of that asset.

Revenue Recognition

The Company recognizes revenue when the following criteria are met: (i) persuasive evidence of an agreement exists, (ii) there is a fixed and determinable price for the Company's product, (iii) shipment and passage of title occurs, and (iv) collectability is reasonably assured. Revenues from product sales are recorded at the time the product is shipped or delivered to the customer pursuant to the terms of the sale. The Company reports its sales on a net sales basis, with net sales being computed by deducting from gross sales the amount of actual sales returns and other allowances and the amount of reserves established for anticipated sales returns and other allowances.

Sales Returns and Other Allowances

The Company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the Company’s past history. Estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers. Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns. Actual results could differ from those estimates. As a percentage of gross sales, sales returns, rebates and allowances were 7% and 6% for the three months ended December 31, 2014 and 2013, respectively. As a percentage of gross sales, sales returns, rebates and allowances were 8% and 7% for the six months ended December 31, 2014 and 2013, respectively.

Advertising and Promotional Costs

Advertising and promotional costs are included in "Selling, General and Administrative" expenses in the consolidated statements of operations and are expensed as incurred. Advertising expense for the three months ended December 31, 2014 and 2013 was $312,000 and $247,000, respectively. Advertising expense for the six months ended December 31, 2014 and 2013 was $856,000 and $612,000, respectively. The increase in Advertising and promotional costs was due primarily to increased expenditures on media advertising as compared to the same period a year ago.

Research and Development Costs

Research and development costs incurred by the Company are charged to expense as incurred and are included in "Cost of Sales" in the consolidated statements of operations. Company-sponsored research and development expense for the three months ended December 31, 2014 and 2013 was $1,335,000 and $1,252,000, respectively. Company-sponsored research and development expense for the six months ended December 31, 2014 and 2013 was $2,653,000 and $2,538,000, respectively.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis.

Net Income Per Share

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

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

	Net Income				Weighted Average Shares				Net Income per Share
	2014		2013		2014		2013		2014		2013
Basic EPS	$	951	$	368		19,188		19,408	$	0.05	$	0.02
Effect of Dilutive Securities:
Stock Options		—		—		1		36		—		—
Diluted EPS	$	951	$	368		19,189		19,444	$	0.05	$	0.02

Options to purchase 368,250 and 131,402 shares of common stock for the three months ended December 31, 2014 and 2013, respectively, were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive. These options were still outstanding at the end of the respective periods.

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

	Net Income				Weighted Average Shares				Net Income per Share
	2014		2013		2014		2013		2014		2013
Basic EPS	$	1,110	$	491		19,304		19,366	$	0.06	$	0.03
Effect of Dilutive Securities:
Stock Options		—		—		—		27		—		—
Diluted EPS	$	1,110	$	491		19,304		19,393	$	0.06	$	0.03

Options to purchase 256,875 and 199,759 shares of common stock for the six months ended December 31, 2014 and 2013, respectively, were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive. These options were still outstanding at the end of the respective periods.

Stock-Based Compensation

The Company has established two share incentive programs as discussed in Note 7.

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 $68,000 and $6,000 were recognized for three months ended December 31, 2014 and 2013, respectively. Stock-based compensation costs of $101,000 and $7,000 were recognized for six months ended December 31, 2014 and 2013, respectively. The effect on both Basic and Diluted Earnings per share was $0.00 for the three and six months ended December 31, 2014 and 2013.

Foreign Currency

All assets and liabilities of foreign subsidiaries are translated into U.S. Dollars at fiscal period-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal year. The realized and unrealized gains and losses associated with foreign currency translation, as well as related other comprehensive income, were not material for the three or six months ended December 31, 2014 and 2013.

Comprehensive Income

For the three and six months ended December 31, 2014 and 2013, the Company's operations did not give rise to material items includable in comprehensive income, which were not already included in net income. Accordingly, the Company's comprehensive income approximates its net income for all periods presented.

Segment Reporting

The Company’s reportable operating segments are determined based on the Company's management approach. The management approach is based on the way that the chief operating decision maker organizes the segments within an enterprise for making operating decisions and assessing performance. The Company's results of operations are reviewed by the chief operating decision maker on a consolidated basis and the Company operates in only one segment. The Company has presented required geographical data in Note 11, and no additional segment data has been presented.

Shipping and Handling Revenues and Costs

The Company records the amount billed to customers for shipping and handling in net sales ($130,000 and $121,000 in the three months ended December 31, 2014 and 2013, respectively, and $257,000 and $252,000 in the six months ended December 31, 2014 and 2013, respectively) and classifies the costs associated with these revenues in cost of sales ($240,000 and $221,000 in the three months ended December 31, 2014 and 2013, respectively, and $481,000 and $463,000 in the six months ended December 31, 2014 and 2013, respectively).

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual and interim periods beginning on or after December 15, 2016, and early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance. The Company is currently evaluating the impact of adopting this guidance.

In July 2013, the FASB issued authoritative guidance that requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss (“NOL”) carry-forward, a similar tax loss, or a tax credit carry-forward.  If either (i) an NOL carry-forward, a similar tax loss, or tax credit carry-forward is not available as of the reporting date under the governing tax law to settle taxes that would result from the disallowance of the tax position or (ii) the entity does not intend to use the deferred tax asset for this purpose (provided that the tax law permits a choice), an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset.  This guidance became effective for unrecognized tax benefits that exist as of the Company’s fiscal 2015 first quarter.  The guidance did not have an impact on the Company’s consolidated financial statements.

XML

Weighted Average Assumptions of Black-Scholes Option Pricing Model to Estimate Fair Value of Options Granted (Detail)	6 Months Ended
	Dec. 31, 2014
Employee 2012 Stock Option Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Risk-free interest rates	2.30%
Expected lives	10 years
Expected volatility	54.00%
Expected dividend yields	0.00%
Nonemployee 2012 Stock Option Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Risk-free interest rates	2.30%
Expected lives	10 years
Expected volatility	54.00%
Expected dividend yields	0.00%

XML

Stock Options (Tables)

6 Months Ended

Dec. 31, 2014

Employee Stock Option Plan 2002 [Member]

Schedule of Share-based Compensation, Stock Options, Activity

The following table reflects activity under the 2002 Employee plan for the six months ended December 31,:

	2014				2013
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		265,750	$	6.51		651,140	$	4.18
Granted		—		—		—		—
Terminated/Lapsed		(1,000)		6.02		(30,240)		1.74
Exercised		—		—		(326,800)		2.70
Outstanding, end of period		264,750	$	6.51		294,100	$	6.07
Exercisable, end of period		264,750	$	6.51		294,100	$	6.07
Weighted average fair value at grant date of options granted		n/a				n/a
Total intrinsic value of options exercised		n/a			$	854,000
Total intrinsic value of options outstanding	$	—			$	254,000
Total intrinsic value of options exercisable	$	—			$	254,000

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range

The following table summarizes information about stock options outstanding under the 2002 Employee Plan at December 31, 2014:

	Options outstanding and exercisable
Range of	Number		Weighted average		Weighted average
exercise prices	outstanding		remaining contractual life		exercise price
$ 5.22 - $ 6.62		227,250		1.3	$	5.75
$11.16		37,500		1.2		11.16
		264,750		1.3	$	6.51

Employee 2012 Stock Option Plan [Member]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The fair value of each option granted during fiscal 2014 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rates	2.3	%
Expected lives	10 years
Expected volatility	54	%
Expected dividend yields	0	%

Schedule of Share-based Compensation, Stock Options, Activity

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

	2014				2013
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		78,500	$	5.73		—	$	—
Granted		44,000		4.43		78,500		5.73
Terminated/Lapsed		(10,000)		4.88		—		—
Exercised		—		—		—		—
Outstanding, end of period		112,500	$	5.30		78,500	$	5.73
Exercisable, end of period		27,500	$	5.26		15,700	$	5.73
Weighted average fair value at grant date of options granted	$	2.82			$	3.84
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	13,000			$	44,000
Total intrinsic value of options exercisable	$	3,000			$	9,000

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at December 31, 2014:

	Options outstanding						Options exercisable
			Weighted average
Range of	Number		remaining		Weighted average		Number		Weighted average
exercise prices	outstanding		contractual life		exercise price		exercisable		exercise price
$ 4.88 - $ 6.31		112,500		9.2	$	5.30		27,500	$	5.26
		112,500		9.2	$	5.30		27,500	$	5.26

Non Employee 2012 Stock Option Plan [Member]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The fair value of each option granted during fiscal 2014 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rates	2.3	%
Expected lives	10 years
Expected volatility	54	%
Expected dividend yields	0	%

Schedule of Share-based Compensation, Stock Options, Activity

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

	2014				2013
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		25,000	$	4.88		—	$	—
Granted		10,000		4.37		25,000		4.88
Terminated/Lapsed		—		—		—		—
Exercised		—		—		—		—
Outstanding, end of period		35,000	$	4.73		25,000	$	4.88
Exercisable, end of period		12,000	$	4.80		5,000	$	4.88
Weighted average fair value at grant date of options granted	$	2.86			$	3.30
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	3,000			$	35,000
Total intrinsic value of options exercisable	$	1,000			$	7,000

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at December 31, 2014:

	Options outstanding						Options exercisable
			Weighted average		Weighted				Weighted
Range of	Number		remaining		average exercise		Number		average exercise
exercise prices	outstanding		contractual life		price		exercisable		price
$4.37 - $ 4.88		35,000		9.0	$	4.73		12,000	$	4.80
		35,000		9.0	$	4.73		12,000	$	4.80

XML

Stock Options (Detail) (USD $)	3 Months Ended	6 Months Ended
	Dec. 31, 2014	Dec. 31, 2014	Dec. 31, 2013
Employee 2012 Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, beginning of year		78,500	0
Granted	44,000	44,000	78,500
Terminated/Lapsed		(10,000)	0
Exercised		0	0
Outstanding, end of period	112,500	112,500	78,500
Exercisable, end of period	27,500	27,500	15,700
Weighted average fair value at grant date of options granted		$ 2.82	$ 3.84
Total intrinsic value of options exercised		$ 0	$ 0
Total intrinsic value of options outstanding	13,000	13,000	44,000
Total intrinsic value of options exercisable	3,000	3,000	9,000
Outstanding, beginning of period, weighted average exercise price		$ 5.73	$ 0
Granted, weighted average exercise price		$ 4.43	$ 5.73
Terminated/lapsed, weighted average exercise price		$ 4.88	$ 0
Exercised, weighted average exercise price		$ 0	$ 0
Outstanding, end of period, weighted average exercise price	$ 5.30	$ 5.30	$ 5.73
Exercisable, end of period, weighted average exercise price	$ 5.26	$ 5.26	$ 5.73
NonEmployee 2012 Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, beginning of year		25,000	0
Granted	10,000	10,000	25,000
Terminated/Lapsed		0	0
Exercised		0	0
Outstanding, end of period	35,000	35,000	25,000
Exercisable, end of period	12,000	12,000	5,000
Weighted average fair value at grant date of options granted		$ 2.86	$ 3.30
Total intrinsic value of options exercised		0	0
Total intrinsic value of options outstanding	3,000	3,000	35,000
Total intrinsic value of options exercisable	1,000	1,000	7,000
Outstanding, beginning of period, weighted average exercise price		$ 4.88	$ 0
Granted, weighted average exercise price		$ 4.37	$ 4.88
Terminated/lapsed, weighted average exercise price		$ 0	$ 0
Exercised, weighted average exercise price		$ 0	$ 0
Outstanding, end of period, weighted average exercise price	$ 4.73	$ 4.73	$ 4.88
Exercisable, end of period, weighted average exercise price	$ 4.80	$ 4.80	$ 4.88
Employee Stock Option Plan 2002 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, beginning of year		265,750	651,140
Granted		0	0
Terminated/Lapsed		(1,000)	(30,240)
Exercised		0	(326,800)
Outstanding, end of period	264,750	264,750	294,100
Exercisable, end of period	264,750	264,750	294,100
Weighted average fair value at grant date of options granted		$ 0	$ 0
Total intrinsic value of options exercised		0	854,000
Total intrinsic value of options outstanding	0	0	254,000
Total intrinsic value of options exercisable	$ 0	$ 0	$ 254,000
Outstanding, beginning of period, weighted average exercise price		$ 6.51	$ 4.18
Granted, weighted average exercise price		$ 0	$ 0
Terminated/lapsed, weighted average exercise price		$ 6.02	$ 1.74
Exercised, weighted average exercise price		$ 0	$ 2.70
Outstanding, end of period, weighted average exercise price	$ 6.51	$ 6.51	$ 6.07
Exercisable, end of period, weighted average exercise price	$ 6.51	$ 6.51	$ 6.07

XML

Nature of Business and Summary of Significant Accounting Policies (Narrative) (Detail) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Jun. 30, 2014
Significant Accounting Policies [Line Items]
Carrying amount of long-term debt, including current portion	$ 11,000,000		$ 11,000,000		$ 11,800,000
Short-term time deposits	460,000		460,000		460,000
Intangible assets amortization expense	167,000	195,000	333,000	391,000
Estimated amortization expense-2015	667,000		667,000
Estimated amortization expense-2016	529,000		529,000
Estimated amortization expense-2017	441,000		441,000
Estimated amortization expense-2018	371,000		371,000
Estimated amortization expense-2019	313,000		313,000
Weighted average amortization period for acquired intangible assets			13 years 6 months	14 years 4 months 24 days
Antidilutive options outstanding excluded from diluted EPS computations	368,250	131,402	256,875	199,759
Stock-based compensation costs	68,000	6,000	101,000	7,000
Sales Returns And Allowances Percentage	7.00%	6.00%	8.00%	7.00%
Stock-based compensation costs, effect on EPS	$ 0.00	$ 0.00	$ 0.00	$ 0.00
Selling, General and Administrative Expenses [Member]
Significant Accounting Policies [Line Items]
Advertising and promotion costs	312,000	247,000	856,000	612,000
Sales revenue, net [Member]
Significant Accounting Policies [Line Items]
Shipping and handling revenue	130,000	121,000	257,000	252,000
Cost of sales [Member]
Significant Accounting Policies [Line Items]
Research and development costs	1,335,000	1,252,000	2,653,000	2,538,000
Shipping and handling expense	240,000	221,000	481,000	463,000
Allowance for doubtful accounts current [Member]
Significant Accounting Policies [Line Items]
Valuation allowances and reserves, balance	160,000		160,000		180,000
Returns and other allowances [Member]
Significant Accounting Policies [Line Items]
Valuation allowances and reserves, balance	$ 1,040,000		$ 1,040,000		$ 1,005,000
G. Marks Hardware, Inc. [Member] | Customer relationships [Member]
Significant Accounting Policies [Line Items]
Period of amortization			20 years
G. Marks Hardware, Inc. [Member] | Non-compete agreement [Member]
Significant Accounting Policies [Line Items]
Period of amortization			7 years

XML

Business and Credit Concentrations

6 Months Ended

Dec. 31, 2014

Business and Credit Concentrations

NOTE 2 - Business and Credit Concentrations

The Company had two customers with accounts receivable balance that aggregated 23% of the Company’s accounts receivable at December 31, 2014. The Company had one customer with an accounts receivable balance that comprised 12% of the Company’s accounts receivable at June 30, 2014. Sales to any one customer did not exceed 10% of net sales in any of the past two fiscal years.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Dec. 31, 2014	Jun. 30, 2014
Common Stock, par value	$ 0.01	$ 0.01
Common Stock, shares authorized	40,000,000	40,000,000
Common Stock, shares issued	21,049,243	21,049,243
Common Stock, shares outstanding	19,114,520	19,419,076
Treasury Stock, shares	1,934,353	1,630,167

XML

Nature of Business and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Dec. 31, 2014

Nature of Business

Nature of Business:

Napco Security Technologies, Inc. and Subsidiaries (the "Company") is a diversified manufacturer of security products, encompassing access control systems, door security products, intrusion and fire alarm systems and video surveillance products for commercial and residential use. 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.

The Company's fiscal year begins on July 1 and ends on June 30. Historically, the end users of the Company's products want to install its products prior to the summer; therefore sales of its 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 is affected by the housing and construction markets.

Basis of Presentation

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company, including these notes, have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations promulgated by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended June 30, 2014 and the notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on September 15, 2014. Results of consolidated operations for the interim periods are not necessarily indicative of a full year’s operating results. The unaudited condensed consolidated financial statements herein include the accounts of the Company and its wholly owned subsidiaries. All material inter-company accounts and transactions have been eliminated. Certain prior period amounts relating to credit card fees have been reclassified for consistency with the current period presentation. The reclassification did not have an impact on the Balance Sheets, Statement of Cash Flows or reported Net income (loss) for any period.

Accounting Estimates

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent gains and losses at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical estimates include management's judgments associated with reserves for sales returns and allowances, concentration of credit risk, inventory reserves, intangible assets and income taxes. Actual results could differ from those estimates.

Fair Value of Financial Instruments

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, certificates of deposits, current receivables and payables and certain other short-term financial instruments approximate their fair value as of December 31, 2014 due to their short-term maturities. Long-Term Debt: The carrying amount of the Company’s long-term debt, including the current portion, at December 31, 2014 in the amount of $11,000,000 approximates fair value.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents include approximately $460,000 of short-term time deposits at December 31, 2014 and June 30, 2014. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company has cash balances in banks in excess of the maximum amount insured by the FDIC and other international agencies as of December 31, 2014 and June 30, 2014. The Company has historically not experienced any credit losses with balances in excess of FDIC limits

Accounts Receivable

Accounts Receivable

Accounts receivable is stated net of the reserves for doubtful accounts of $160,000 and $180,000 and for returns and other allowances of $1,040,000 and $1,005,000 as of December 31, 2014 and June 30, 2014, respectively. Our reserves for doubtful accounts and for returns and other allowances are subjective critical estimates that have a direct impact on reported net earnings. These reserves are based upon the evaluation of accounts receivable agings, specific exposures, sales levels and historical trends.

Inventories

Inventories

Inventories are valued at the lower of cost or fair market value, with cost being determined on the first-in, first-out (FIFO) method. The reported net value of inventory includes finished saleable products, work-in-process and raw materials that will be sold or used in future periods. Inventory costs include raw materials, direct labor and overhead. The Company’s overhead expenses are applied based, in part, upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products. These proportions, the method of their application, and the resulting overhead included in ending inventory, are based in part on subjective estimates and actual results could differ from those estimates.

In addition, the Company records an inventory obsolescence reserve, which represents any excess of the cost of the inventory over its estimated market value, based on various product sales projections. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, requirements to support forecasted sales, and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand. In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events. There is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage.

The Company also regularly reviews the period over which its inventories will be converted to sales. Any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current.

Property, Plant, and Equipment

Property, Plant, and Equipment

Property, plant, and equipment are carried at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred; costs of major renewals and improvements are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and accumulated depreciation accounts and the profit or loss on such disposition is reflected in income.

Depreciation is recorded over the estimated service lives of the related assets using primarily the straight-line method. Amortization of leasehold improvements is calculated by using the straight-line method over the estimated useful life of the asset or lease term, whichever is shorter.

Intangible Assets

Intangible Assets

Intangible assets determined to have indefinite lives are not amortized but are tested for impairment at least annually. Intangible assets with definite lives are amortized over their useful lives. Intangible assets are reviewed for impairment at least annually at the Company’s fiscal year end of June 30 or more often whenever there is an indication that the carrying amount may not be recovered.

The Company’s acquisition of substantially all of the assets and certain liabilities of G. Marks Hardware, Inc. (“Marks”) in August 2008 included intangible assets recorded at fair value on the date of acquisition. The intangible assets are amortized over their estimated useful lives of twenty years (customer relationships) and seven years (non-compete agreement). The Marks trade name was deemed to have an indefinite life.

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

	December 31, 2014						June 30, 2014
			Accumulated		Net book				Accumulated		Net book
	Cost		amortization		value		Cost		amortization		value
Customer relationships	$	9,800	$	(6,511)	$	3,289	$	9,800	$	(6,203)	$	3,597
Non-compete agreement		340		(310)		30		340		(285)		55
Trade name		5,900		—		5,900		5,900		—		5,900
	$	16,040	$	(6,821)	$	9,219	$	16,040	$	(6,488)	$	9,552

Amortization expense for intangible assets subject to amortization was approximately $167,000 and $195,000 for the three months ended December 31, 2014 and 2013, respectively. Amortization expense for intangible assets subject to amortization was approximately $333,000 and $391,000 for the six months ended December 31, 2014 and 2013, respectively. Amortization expense for each of the next five fiscal years is estimated to be as follows: 2015 - $667,000; 2016 - $529,000; 2017 - $441,000; 2018 - $371,000 and 2019 - $313,000. The weighted average amortization period for intangible assets was 13.5 years and 14.4 years at December 31, 2014 and 2013, respectively.

Long-Lived Assets

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable. Impairment would be recorded in circumstances where undiscounted cash flows expected to be generated by an asset are less than the carrying value of that asset.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue when the following criteria are met: (i) persuasive evidence of an agreement exists, (ii) there is a fixed and determinable price for the Company's product, (iii) shipment and passage of title occurs, and (iv) collectability is reasonably assured. Revenues from product sales are recorded at the time the product is shipped or delivered to the customer pursuant to the terms of the sale. The Company reports its sales on a net sales basis, with net sales being computed by deducting from gross sales the amount of actual sales returns and other allowances and the amount of reserves established for anticipated sales returns and other allowances.

Sales Returns and Other Allowances

Sales Returns and Other Allowances

The Company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the Company’s past history. Estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers. Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns. Actual results could differ from those estimates. As a percentage of gross sales, sales returns, rebates and allowances were 7% and 6% for the three months ended December 31, 2014 and 2013, respectively. As a percentage of gross sales, sales returns, rebates and allowances were 8% and 7% for the six months ended December 31, 2014 and 2013, respectively.

Advertising and Promotional Costs

Advertising and Promotional Costs

Advertising and promotional costs are included in "Selling, General and Administrative" expenses in the consolidated statements of operations and are expensed as incurred. Advertising expense for the three months ended December 31, 2014 and 2013 was $312,000 and $247,000, respectively. Advertising expense for the six months ended December 31, 2014 and 2013 was $856,000 and $612,000, respectively. The increase in Advertising and promotional costs was due primarily to increased expenditures on media advertising as compared to the same period a year ago.

Research and Development Costs

Research and Development Costs

Research and development costs incurred by the Company are charged to expense as incurred and are included in "Cost of Sales" in the consolidated statements of operations. Company-sponsored research and development expense for the three months ended December 31, 2014 and 2013 was $1,335,000 and $1,252,000, respectively. Company-sponsored research and development expense for the six months ended December 31, 2014 and 2013 was $2,653,000 and $2,538,000, respectively.

Income Taxes

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis.

Net Income (Loss) Per Share

Net Income Per Share

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

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

	Net Income				Weighted Average Shares				Net Income per Share
	2014		2013		2014		2013		2014		2013
Basic EPS	$	951	$	368		19,188		19,408	$	0.05	$	0.02
Effect of Dilutive Securities:
Stock Options		—		—		1		36		—		—
Diluted EPS	$	951	$	368		19,189		19,444	$	0.05	$	0.02

Options to purchase 368,250 and 131,402 shares of common stock for the three months ended December 31, 2014 and 2013, respectively, were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive. These options were still outstanding at the end of the respective periods.

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

	Net Income				Weighted Average Shares				Net Income per Share
	2014		2013		2014		2013		2014		2013
Basic EPS	$	1,110	$	491		19,304		19,366	$	0.06	$	0.03
Effect of Dilutive Securities:
Stock Options		—		—		—		27		—		—
Diluted EPS	$	1,110	$	491		19,304		19,393	$	0.06	$	0.03

Options to purchase 256,875 and 199,759 shares of common stock for the six months ended December 31, 2014 and 2013, respectively, were not included in the computation of Diluted EPS because their inclusion would be anti-dilutive. These options were still outstanding at the end of the respective periods.

Stock-Based Compensation

Stock-Based Compensation

The Company has established two share incentive programs as discussed in Note 7.

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 $68,000 and $6,000 were recognized for three months ended December 31, 2014 and 2013, respectively. Stock-based compensation costs of $101,000 and $7,000 were recognized for six months ended December 31, 2014 and 2013, respectively. The effect on both Basic and Diluted Earnings per share was $0.00 for the three and six months ended December 31, 2014 and 2013.

Foreign Currency

Foreign Currency

All assets and liabilities of foreign subsidiaries are translated into U.S. Dollars at fiscal period-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal year. The realized and unrealized gains and losses associated with foreign currency translation, as well as related other comprehensive income, were not material for the three or six months ended December 31, 2014 and 2013.

Comprehensive Income

Comprehensive Income

For the three and six months ended December 31, 2014 and 2013, 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

Segment Reporting

The Company’s reportable operating segments are determined based on the Company's management approach. The management approach is based on the way that the chief operating decision maker organizes the segments within an enterprise for making operating decisions and assessing performance. The Company's results of operations are reviewed by the chief operating decision maker on a consolidated basis and the Company operates in only one segment. The Company has presented required geographical data in Note 11, and no additional segment data has been presented.

Shipping and Handling Revenues and Costs

Shipping and Handling Revenues and Costs

The Company records the amount billed to customers for shipping and handling in net sales ($130,000 and $121,000 in the three months ended December 31, 2014 and 2013, respectively, and $257,000 and $252,000 in the six months ended December 31, 2014 and 2013, respectively) and classifies the costs associated with these revenues in cost of sales ($240,000 and $221,000 in the three months ended December 31, 2014 and 2013, respectively, and $481,000 and $463,000 in the six months ended December 31, 2014 and 2013, respectively).

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual and interim periods beginning on or after December 15, 2016, and early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance. The Company is currently evaluating the impact of adopting this guidance.

In July 2013, the FASB issued authoritative guidance that requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss (“NOL”) carry-forward, a similar tax loss, or a tax credit carry-forward.  If either (i) an NOL carry-forward, a similar tax loss, or tax credit carry-forward is not available as of the reporting date under the governing tax law to settle taxes that would result from the disallowance of the tax position or (ii) the entity does not intend to use the deferred tax asset for this purpose (provided that the tax law permits a choice), an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset.  This guidance became effective for unrecognized tax benefits that exist as of the Company’s fiscal 2015 first quarter.  The guidance did not have an impact on the Company’s consolidated financial statements.

XML

Document And Entity Information	6 Months Ended
	Dec. 31, 2014	Feb. 06, 2015
Document Information [Line Items]
Entity Registrant Name	NAPCO SECURITY TECHNOLOGIES, INC
Entity Central Index Key	0000069633
Current Fiscal Year End Date	--06-30
Entity Filer Category	Smaller Reporting Company
Trading Symbol	NSSC
Entity Common Stock, Shares Outstanding		19,075,236
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 31, 2014
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2015

XML

Nature of Business and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Dec. 31, 2014

Schedule of intangible assets

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

	December 31, 2014						June 30, 2014
			Accumulated		Net book				Accumulated		Net book
	Cost		amortization		value		Cost		amortization		value
Customer relationships	$	9,800	$	(6,511)	$	3,289	$	9,800	$	(6,203)	$	3,597
Non-compete agreement		340		(310)		30		340		(285)		55
Trade name		5,900		—		5,900		5,900		—		5,900
	$	16,040	$	(6,821)	$	9,219	$	16,040	$	(6,488)	$	9,552

Schedule of Earnings Per Share Reconciliation

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

	Net Income				Weighted Average Shares				Net Income per Share
	2014		2013		2014		2013		2014		2013
Basic EPS	$	951	$	368		19,188		19,408	$	0.05	$	0.02
Effect of Dilutive Securities:
Stock Options		—		—		1		36		—		—
Diluted EPS	$	951	$	368		19,189		19,444	$	0.05	$	0.02

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

	Net Income				Weighted Average Shares				Net Income per Share
	2014		2013		2014		2013		2014		2013
Basic EPS	$	1,110	$	491		19,304		19,366	$	0.06	$	0.03
Effect of Dilutive Securities:
Stock Options		—		—		—		27		—		—
Diluted EPS	$	1,110	$	491		19,304		19,393	$	0.06	$	0.03

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				6 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2014		Dec. 31, 2013
Net sales	$ 19,571	[1]	$ 18,353	[1]	$ 36,907	[1]	$ 35,592	[1]
Cost of sales	13,468		13,272		25,549		25,472
Gross Profit	6,103		5,081		11,358		10,120
Selling, general, and administrative expenses	5,007		4,577		10,016		9,376
Operating Income	1,096		504		1,342		744
Other expense (income):
Interest expense, net	54		80		109		179
Other, net	3		4		(2)		7
Income before Income Taxes	1,039		420		1,235		558
Income tax expense	88		52		125		67
Net Income	$ 951		$ 368		$ 1,110		$ 491
Net Income per share:
Basic (in dollars per share)	$ 0.05		$ 0.02		$ 0.06		$ 0.03
Diluted (in dollars per share)	$ 0.05		$ 0.02		$ 0.06		$ 0.03
Weighted average number of shares outstanding:
Basic (in shares)	19,188,000		19,408,000		19,304,000		19,366,000
Diluted (in shares)	19,189,000		19,444,000		19,304,000		19,393,000

[1] All of the Company's sales originate in the United States and are shipped primarily from the Company's facilities in the United States. There were no sales into any one foreign country in excess of 10% of total Net Sales.

XML

Stock Options

6 Months Ended

Dec. 31, 2014

Stock Options

NOTE 7 - 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 December 31, 2014 and 2013, the Company recorded non-cash compensation expense of $67,000 ($.00 per basic and diluted share) and $6,000 ($.00 per basic and diluted share), respectively, relating to stock-based compensation. For the six months ended December 31, 2014 and 2013, the Company recorded non-cash compensation expense of $101,000 ($.01 per basic and diluted share) and $7,000 ($.00 per basic and diluted share), respectively, relating to stock-based compensation.

2012 Employee Stock Option Plan

In December 2012, the stockholders approved the 2012 Employee Stock Option Plan (the 2012 Employee Plan). The 2012 Employee Plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 950,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options, which are intended to qualify as incentive stock options (ISOs), to valued employees. Any plan participant who is granted ISOs and possesses more than 10% of the voting rights of the Company's outstanding common stock must be granted an option with a price of at least 110% of the fair market value on the date of grant.

Under the 2012 Employee Plan, stock options may be granted to valued employees with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable, in whole or in part, at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a “change in control” as defined in the plan. At December 31, 2014, 112,500 stock options were granted, 27,500 stock options were exercisable and 837,500 stock options were available for grant under this plan.

The fair value of each option granted during fiscal 2014 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rates	2.3	%
Expected lives	10 years
Expected volatility	54	%
Expected dividend yields	0	%

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

	2014				2013
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		78,500	$	5.73		—	$	—
Granted		44,000		4.43		78,500		5.73
Terminated/Lapsed		(10,000)		4.88		—		—
Exercised		—		—		—		—
Outstanding, end of period		112,500	$	5.30		78,500	$	5.73
Exercisable, end of period		27,500	$	5.26		15,700	$	5.73
Weighted average fair value at grant date of options granted	$	2.82			$	3.84
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	13,000			$	44,000
Total intrinsic value of options exercisable	$	3,000			$	9,000

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at December 31, 2014:

	Options outstanding						Options exercisable
			Weighted average
Range of	Number		remaining		Weighted average		Number		Weighted average
exercise prices	outstanding		contractual life		exercise price		exercisable		exercise price
$ 4.88 - $ 6.31		112,500		9.2	$	5.30		27,500	$	5.26
		112,500		9.2	$	5.30		27,500	$	5.26

As of December 31, 2014, there was $260,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan. 44,000 options were granted during the three and six months ended December 31, 2014. The total fair value of the options vesting during the three and six months ended December 31, 2014 and 2013 under this plan was $25,000 and $37,000, respectively and $41,000 and $60,000, respectively.

2012 Non-Employee Stock Option Plan

In December 2012, the stockholders approved the 2012 Non-Employee Stock Option Plan (the 2012 Non-Employee Plan). This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 50,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options to non-employee directors and consultants to the Company and its subsidiaries.

Under the 2012 Non-Employee Plan, stock options may be granted with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable in whole or in part at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a “change in control” as defined in the plan. At December 31, 2014, 35,000 stock options were granted, 12,000 stock options were exercisable and 15,000 stock options were available for grant under this plan.

The fair value of each option granted during fiscal 2014 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Risk-free interest rates	2.3	%
Expected lives	10 years
Expected volatility	54	%
Expected dividend yields	0	%

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

	2014				2013
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		25,000	$	4.88		—	$	—
Granted		10,000		4.37		25,000		4.88
Terminated/Lapsed		—		—		—		—
Exercised		—		—		—		—
Outstanding, end of period		35,000	$	4.73		25,000	$	4.88
Exercisable, end of period		12,000	$	4.80		5,000	$	4.88
Weighted average fair value at grant date of options granted	$	2.86			$	3.30
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	3,000			$	35,000
Total intrinsic value of options exercisable	$	1,000			$	7,000

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at December 31, 2014:

	Options outstanding						Options exercisable
			Weighted average		Weighted				Weighted
Range of	Number		remaining		average exercise		Number		average exercise
exercise prices	outstanding		contractual life		price		exercisable		price
$4.37 - $ 4.88		35,000		9.0	$	4.73		12,000	$	4.80
		35,000		9.0	$	4.73		12,000	$	4.80

As of December 31, 2014, there was $72,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan. 10,000 options were granted during the three and six months ended December 31, 2014. The total fair value of the options vesting during each of the three and six month periods ended December 31, 2014 and 2013 under this plan was $6,000 and $17,000, respectively and $22,000 and $17,000, respectively.

2002 Employee Stock Option Plan

In December 2002, the stockholders approved the 2002 Employee Stock Option Plan (the 2002 Employee Plan). This plan expired in October 2012. This plan authorized the granting of awards, the exercise of which would allow up to an aggregate of 1,836,000 shares of the Company's common stock to be acquired by the holders of such awards. Under this plan, the Company may have granted stock options, which were intended to qualify as incentive stock options (ISOs), to key employees. Any plan participant who was granted ISOs and possessed more than 10% of the voting rights of the Company's outstanding common stock must have been granted an option with a price of at least 110% of the fair market value on the date of grant.

Under the 2002 Employee Plan, stock options have been granted to key employees with a term of 10 years at an exercise price equal to the fair market value on the date of grant and are exercisable in whole or in part at 20% per year from the date of grant. At December 31, 2014, 1,471,480 stock options had been granted, 264,750 stock options were exercisable and no further stock options were available for grant under this plan after the plans expiration in October 2012.

The following table reflects activity under the 2002 Employee plan for the six months ended December 31,:

	2014				2013
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		265,750	$	6.51		651,140	$	4.18
Granted		—		—		—		—
Terminated/Lapsed		(1,000)		6.02		(30,240)		1.74
Exercised		—		—		(326,800)		2.70
Outstanding, end of period		264,750	$	6.51		294,100	$	6.07
Exercisable, end of period		264,750	$	6.51		294,100	$	6.07
Weighted average fair value at grant date of options granted		n/a				n/a
Total intrinsic value of options exercised		n/a			$	854,000
Total intrinsic value of options outstanding	$	—			$	254,000
Total intrinsic value of options exercisable	$	—			$	254,000

0 and 326,800 stock options were exercised during the six months ended December 31, 2014 and 2013, respectively. 324,100 of the 326,800 stock options exercised during the six months ended December 31, 2013 were settled by exchanging 164,859 shares of the Company’s common stock of which 85,170 was retired upon receipt. Cash received from option exercises was $0 and $5,000 for the six months ended December 31, 2014 and 2013, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $0 for each of these periods.

The following table summarizes information about stock options outstanding under the 2002 Employee Plan at December 31, 2014:

	Options outstanding and exercisable
Range of	Number		Weighted average		Weighted average
exercise prices	outstanding		remaining contractual life		exercise price
$ 5.22 - $ 6.62		227,250		1.3	$	5.75
$11.16		37,500		1.2		11.16
		264,750		1.3	$	6.51

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Long-Term Debt

6 Months Ended

Dec. 31, 2014

Long Term Debt

NOTE 6 - Long-Term Debt

As of December 31, 2014, long-term debt consisted of a revolving credit facility of $11,000,000 (the “Revolving Credit Facility”) which expires in June 2017 and two term loans, one for $6,000,000 which expires in June 2019, and one for $6,500,000 which expires in June 2017 (the “Term Loans”). Repayment of the Term Loans commenced on September 30, 2012. The $6,000,000 Term Loan is being repaid with 28 equal, quarterly payments of $75,000 and the remaining balance of $3,900,000 due on or before the expiration date. The $6,500,000 Term Loan is being repaid in 20 equal, quarterly payments of $325,000.

Outstanding balances and interest rates as of December 31, 2014 and June 30, 2014 are as follows:

	December 31, 2014					June 30, 2014
	Outstanding		Interest Rate			Outstanding		Interest Rate
Revolving line of credit	$	2,500		1.7	%	$	2,500		1.7	%
Term loans		8,500		1.7	%		9,300		1.7	%
Total debt	$	11,000		1.7	%	$	11,800		1.7	%

The Revolving Credit Facility and Term Loans (collectively the “Agreement”) also provides for a LIBOR-based interest rate option of LIBOR plus 1.5% to 2.75%, depending on the ratio of outstanding debt to EBITDA, which is to be measured and adjusted quarterly, a prime rate-based option of the prime rate plus 0.25% and other terms and conditions as more fully described in the Agreement. In addition, the Agreement provides for availability under the Revolving Credit Facility to be limited to the lesser of $11,000,000 or the result of a borrowing base formula based upon the Company’s Accounts Receivables and Inventory values net of certain deductions. The Company’s obligations under the Agreement continue to be secured by all of its assets, including but not limited to, deposit accounts, accounts receivable, inventory, the Company’s corporate headquarters in Amityville, NY, equipment and fixtures and intangible assets. In addition, the Company’s wholly-owned subsidiaries, with the exception of the Company’s foreign subsidiaries, have issued guarantees and pledges of all of their assets to secure the Company’s obligations under the Agreement. All of the outstanding common stock of the Company’s domestic subsidiaries and 65% of the common stock of the Company’s foreign subsidiaries has been pledged to secure the Company’s obligations under the Agreement.

The Agreement contains various restrictions and covenants including, among others, restrictions on payment of dividends, restrictions on borrowings and compliance with certain financial ratios, as defined in the Agreement.

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Geographical Data (Tables)

6 Months Ended

Dec. 31, 2014

Schedule Of Revenue From External Customers And Identifiable Assets By Geographical Areas

Financial Information Relating to Domestic and Foreign Operations

	Three months ended December 31,				Six months ended December 31,
	2014		2013		2014		2013
	(in thousands)				(in thousands)
Sales to external customers(1):
Domestic	$	18,876	$	17,593	$	35,448	$	33,887
Foreign		695		760		1,459		1,705
Total Net Sales	$	19,571	$	18,353	$	36,907	$	35,592

	December 31,
Identifiable assets:	2014		June 30, 2014
United States	$	47,553	$	49,529
Dominican Republic (2)		14,127		13,835
Total Identifiable Assets	$	61,680	$	63,364

(1) All of the Company's sales originate in the United States and are shipped primarily from the Company's facilities in the United States. There were no sales into any one foreign country in excess of 10% of total Net Sales.

(2) Consists primarily of inventories (December 31, 2014 = $10,477; June 30, 2014 = $10,216) and fixed assets (December 31, 2014 = $3,425; June 30, 2014 = $3,475) located at the Company's principal manufacturing facility in the Dominican Republic.

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Inventories (Tables)

6 Months Ended

Dec. 31, 2014

Inventory

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

	December		June 30,
	31, 2014		2014
Component parts	$	15,929	$	15,268
Work-in-process		3,789		3,632
Finished product		6,375		6,110
	$	26,093	$	25,010
Classification of inventories, net of reserves:
Current	$	22,238	$	21,443
Non-current		3,855		3,567
	$	26,093	$	25,010

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Commitments and Contingencies

6 Months Ended

Dec. 31, 2014

Commitments and Contingencies

NOTE 10 - Commitments and Contingencies

Leases

The Company is committed under various operating leases, not including the land lease discussed below, which do not extend beyond fiscal 2016.

Rent expense, with the exception of the land lease referred to below, totaled approximately $9,000 and $9,000 for the three months ended December 31, 2014 and 2013, respectively and $16,000 and $18,000 for the six months ended December 31, 2014 and 2013, respectively.

Land Lease

On April 26, 1993, one of the Company's foreign subsidiaries entered into a 99 year lease, expiring in 2092, for approximately four acres of land in the Dominican Republic at an annual cost of $288,000, on which the Company's principal production facility is located.

Litigation

In the normal course of business, the Company is a party to claims and/or litigation. Management believes that the settlement of such claims and/or litigation, considered in the aggregate, will not have a material adverse effect on the Company's financial position and results of operations.

Employment Agreements

As of December 31, 2014, the Company was obligated under two employment agreements and one severance agreement. The employment agreements are with the Company’s CEO and Senior Vice President of Sales and Marketing (“the SVP”). The employment agreement with the CEO provides for an annual salary of $587,000, as adjusted for inflation; incentive compensation as may be approved by the Board of Directors from time to time and a termination payment in an amount up to 299% of the average of the prior five calendar year's compensation, subject to certain limitations, as defined in the agreement. The employment agreement renews annually in August unless either party gives the other notice of non-renewal at least six months prior to the end of the applicable term. The employment agreement with the SVP expires in October 2016 and provides for an annual salary of $296,900, a bonus arrangement for fiscal 2015 and, if terminated by the Company without cause, severance of nine months’ salary and continued company-sponsored health insurance for six months from the date of termination. The severance agreement provides for payments equal to nine months of salary and six months of health insurance in the event of a non-voluntary termination of employment without cause.

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Stockholders' Equity Transactions

6 Months Ended

Dec. 31, 2014

Stockholders' Equity Transactions

NOTE 8 – Stockholders’ Equity Transactions

On September 16, 2014 the Company’s board of directors authorized the repurchase of up to 1 million of the approximately 19.4 million shares of the Company’s common stock outstanding. The repurchase will be made from time to time in the open market or in privately negotiated transactions subject to market conditions and the market price of the common stock. Relative to the Loan Agreement described in Note 6, the Company’s lender gave its consent to this stock repurchase plan. During the six months ended December 31, 2014 the Company repurchased 304,186 shares of its outstanding common stock for a weighted average price of $4.55 per share. These repurchased shares are included in the Company’s Treasury Stock as of December 31, 2014.

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401(k) Plan

6 Months Ended

Dec. 31, 2014

401(k) Plan

NOTE 9 - 401(k) Plan

The Company maintains a 401(k) plan (“the Plan”) that covers all U.S. non-union employees with one or more years of service and is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code. Company contributions to this plan are discretionary and totaled $41,000 and $25,000 for the three months ended December 31, 2014 and 2013, respectively and $67,000 and $51,000 for the six months ended December 31, 2014 and 2013, respectively.

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Geographical Data

6 Months Ended

Dec. 31, 2014

Geographical Data

NOTE 11 - Geographical Data

The Company is engaged in one major line of business: the development, manufacture, and distribution of access control systems, door security products, intrusion and fire alarm systems and video surveillance products for commercial and residential use. 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

	Three months ended December 31,				Six months ended December 31,
	2014		2013		2014		2013
	(in thousands)				(in thousands)
Sales to external customers(1):
Domestic	$	18,876	$	17,593	$	35,448	$	33,887
Foreign		695		760		1,459		1,705
Total Net Sales	$	19,571	$	18,353	$	36,907	$	35,592

	December 31,
Identifiable assets:	2014		June 30, 2014
United States	$	47,553	$	49,529
Dominican Republic (2)		14,127		13,835
Total Identifiable Assets	$	61,680	$	63,364

(1) All of the Company's sales originate in the United States and are shipped primarily from the Company's facilities in the United States. There were no sales into any one foreign country in excess of 10% of total Net Sales.

(2) Consists primarily of inventories (December 31, 2014 = $10,477; June 30, 2014 = $10,216) and fixed assets (December 31, 2014 = $3,425; June 30, 2014 = $3,475) located at the Company's principal manufacturing facility in the Dominican Republic.

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Stock Options (Narrative) (Detail) (USD $)	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Jun. 30, 2014	Jun. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Cash received from option exercises			$ 0	$ 5,000
Allocated Share Based Compensation Expense	68,000	6,000	101,000	7,000
Share based Compensation Cost Effect On Earnings Per Share Basic And Diluted	$ 0.00	$ 0.00	$ 0.00	$ 0.00
Employee 2012 Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized for issuance under the plan	950,000		950,000
Percentage Applied To Market Price To Set Grant Price For Grantee Owning Ten Percent Or More Of Entity Common Stock Outstanding			110.00%
Term of stock option awards			10 years
Annual rate at which share-based compensation awards vest			20.00%
Number of stock options, granted	44,000		44,000	78,500
Number of stock options, exercisable	27,500	15,700	27,500	15,700
Number of stock options available for grant	837,500		837,500
Unearned stock-based compensation cost related to non-vested awards	260,000		260,000
Fair value of stock options that vested during the period	25,000	37,000	41,000	60,000
Number of shares outstanding, end of period	112,500	78,500	112,500	78,500	78,500	0
Number of stock options, exercised			0	0
NonEmployee 2012 Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized for issuance under the plan	50,000		50,000
Term of stock option awards			10 years
Annual rate at which share-based compensation awards vest			20.00%
Number of stock options, granted	10,000		10,000	25,000
Number of stock options, exercisable	12,000	5,000	12,000	5,000
Number of stock options available for grant	15,000		15,000
Unearned stock-based compensation cost related to non-vested awards	72,000		72,000
Fair value of stock options that vested during the period	6,000	17,000	22,000	17,000
Number of shares outstanding, end of period	35,000	25,000	35,000	25,000	25,000	0
Number of stock options, exercised			0	0
2002 Employee Stock Option Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized for issuance under the plan	1,836,000		1,836,000
Percentage Applied To Market Price To Set Grant Price For Grantee Owning Ten Percent Or More Of Entity Common Stock Outstanding			110.00%
Term of stock option awards			10 years
Annual rate at which share-based compensation awards vest			20.00%
Number of stock options, exercisable	264,750		264,750
Tax benefit from stock option exercise			$ 0	$ 0
Number of shares outstanding, end of period	1,471,480		1,471,480
Number of stock options, exercised			0	326,800
Stock Issued During Period, Shares, New Issues				324,100
Conversion of Stock, Shares Issued				164,859
Common Stock Retired				85,170

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Long-Term Debt (Tables)

6 Months Ended

Dec. 31, 2014

Schedule Of Debt Instruments

Outstanding balances and interest rates as of December 31, 2014 and June 30, 2014 are as follows:

	December 31, 2014					June 30, 2014
	Outstanding		Interest Rate			Outstanding		Interest Rate
Revolving line of credit	$	2,500		1.7	%	$	2,500		1.7	%
Term loans		8,500		1.7	%		9,300		1.7	%
Total debt	$	11,000		1.7	%	$	11,800		1.7	%

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Nature of Business and Summary of Significant Accounting Policies - Earnings Per Share (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2013
Schedule of Weighted Average Number of Diluted Shares Outstanding [Line Items]
Weighted average shares, basic EPS	19,188,000	19,408,000	19,304,000	19,366,000
Number of dilutive stock options	1,000	36,000	0	27,000
Weighted average shares, diluted EPS	19,189,000	19,444,000	19,304,000	19,393,000
Net Income (Loss) Available to Common Stockholders, Basic, Total	$ 951	$ 368	$ 1,110	$ 491
Net Income (Loss) Available to Common Stockholders, Diluted, Total	$ 951	$ 368	$ 1,110	$ 491
Earnings Per Share Basic	$ 0.05	$ 0.02	$ 0.06	$ 0.03
Earnings Per Share Diluted	$ 0.05	$ 0.02	$ 0.06	$ 0.03

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Geographical Data (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2014		Dec. 31, 2013		Jun. 30, 2014
Revenues from External Customers and Long-Lived Assets [Line Items]
Total Net Sales	$ 19,571	[1]	$ 18,353	[1]	$ 36,907	[1]	$ 35,592	[1]
Total Identifiable Assets	61,680				61,680				63,364
Domestic [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	18,876	[1]	17,593	[1]	35,448	[1]	33,887	[1]
Foreign [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	695	[1]	760	[1]	1,459	[1]	1,705	[1]
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total Identifiable Assets	47,553				47,553				49,529
Dominican Republic [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total Identifiable Assets	$ 14,127	[2]			$ 14,127	[2]			$ 13,835	[2]

[1] All of the Company's sales originate in the United States and are shipped primarily from the Company's facilities in the United States. There were no sales into any one foreign country in excess of 10% of total Net Sales.

[2] Consists primarily of inventories (December 31, 2014 = $10,477; June 30, 2014 = $10,216) and fixed assets (December 31, 2014 = $3,425; June 30, 2014 = $3,475) located at the Company's principal manufacturing facility in the Dominican Republic.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$ 1,110	$ 491
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	750	837
Provision for doubtful accounts	(20)	10
Change in inventory obsolescence reserve	0	125
Deferred income taxes	(2)	(54)
Stock based compensation expense	101	7
Changes in operating assets and liabilities:
Accounts receivable	1,572	4,497
Inventories	(1,083)	(1,232)
Prepaid expenses and other current assets	(64)	(150)
Income tax receivable	76	64
Other assets	5	0
Accounts payable, accrued expenses and accrued income taxes	(705)	(499)
Net Cash Provided by Operating Activities	1,740	4,096
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment	(323)	(366)
Net Cash Used in Investing Activities	(323)	(366)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt	(800)	(3,300)
Cash paid for purchase of treasury stock	(1,390)	(285)
Proceeds from exercise of stock options	0	5
Net Cash Used in Financing Activities	(2,190)	(3,580)
Net Increase in Cash and Cash Equivalents	(773)	150
CASH AND CASH EQUIVALENTS - Beginning	2,483	3,229
CASH AND CASH EQUIVALENTS - Ending	1,710	3,379
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net	110	240
Income taxes paid	30	24
NON-CASH FINANCING ACTIVITIES:
Shares surrendered and held in treasury for common stock options exercised	$ 0	$ 28
Shares surrendered and cancelled for shares for common stock options exercised	0	424

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Income Taxes

6 Months Ended

Dec. 31, 2014

Income Taxes

NOTE 5 - Income Taxes

The provision for income taxes represents Federal, foreign, and state and local income taxes. The effective rate differs from statutory rates due to the effect of state and local income taxes, tax rates in foreign jurisdictions, tax benefit of R&D credits and certain nondeductible expenses. Our effective tax rate will change from quarter to quarter based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, and state and local income taxes. 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.

The Company does not expect that our unrecognized tax benefits will significantly change within the next twelve months. We file a consolidated U.S. income tax return and tax returns in certain state and local and foreign jurisdictions. As of December 31, 2014 we remain subject to examination in all tax jurisdictions for all relevant jurisdictional statutes for fiscal years 2008 and thereafter.

The Company has identified its U.S. Federal income tax return and its State return in New York as its major tax jurisdictions. As of December 31, 2014 and June 30, 2014 the Company has a long-term accrued income tax liability of $190,000 and $169,000, respectively.

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Business and Credit Concentrations (Narrative) (Detail)	Dec. 31, 2014	Jun. 30, 2014
Concentration Risk [Line Items]
Percentage that a major customer's balance is to total accounts receivable	23.00%	12.00%
Percentage that the sum of significant customers balances are to total accounts receivable number of customers	2	1

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Stockholders' Equity Transactions (Narrative) (Detail) (USD $)	6 Months Ended
	Dec. 31, 2014	Sep. 16, 2014	Jun. 30, 2014
Stockholders Equity Note [Line Items]
Stock Repurchase Program, Number of Shares Authorized to be Repurchased		1,000,000
Common Stock Shares Outstanding	19,114,520	19,400,000	19,419,076
Treasury Stock, Shares, Acquired	304,186
Treasury Stock Acquired, Average Cost Per Share	$ 4.55

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Property, Plant and Equipment (Tables)

6 Months Ended

Dec. 31, 2014

Property, Plant and Equipment

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

	December		June 30,
	31, 2014		2014		Useful Life in Years
Land	$	904	$	904	—
Buildings		8,911		8,911	30 to 40
Molds and dies		6,957		6,906	3 to 5
Furniture and fixtures		2,451		2,427	5 to 10
Machinery and equipment		20,100		19,974	7 to 10
Leasehold improvements		288		288	Shorter of the lease term or life of asset
		39,611		39,410
Less: accumulated depreciation and amortization		33,305		33,016
	$	6,306	$	6,394