Financial Analysis

NOTE 13 - Commitments and Contingencies Leases Our lease obligation consists of a 99-year lease, entered into by one of the Companys foreign subsidiaries, for approximately four acres of land in the Dominican Republic on which the Companys principal production facility is located. The lease, which commenced on April 26, 1993 and expires in 2092, initially had an annual base rent of approximately $235,000 plus $53,000 in annual service charges. On September 14, 2022, a lease modification was executed which provides for an annual base rent of $235,000 plus $105,000 in annual service charges. The service charges increase 2% annually over the remaining life of the lease. The modification resulted in a remeasurement of the operating lease asset and liability and the effect was a reduction to the asset and liability of $1.3 million. Operating leases are included in operating lease right-of-use assets, accrued expenses and operating lease liabilities, non-current on our condensed consolidated balance sheets. For the three months ended December 31, 2025 and 2024 cash payments against operating lease liabilities totaled $87,000 and $115,000, respectively. For the six months ended December 31, 2025 and 2024 cash payments against operating lease liabilities totaled $173,000 and $172,000, respectively. Supplemental balance sheet information related to operating leases was as follows: Weighted-average remaining lease term 66 Years Weighted-average discount rate 6.25 % The following is a s …

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Following is the disaggregation of revenues based on major product lines (in thousands): Three months ended December 31, Six months ended December 31, 2025 2024 2025 2024 Major Product Lines: Intrusion and access alarm products $ 8,373 $ 7,556 $ 17,028 $ 16,619 Door locking devices 15,950 14,169 33,034 28,023 Services 23,849 21,208 47,278 42,294 Total Revenues $ 48,172 $ 42,933 $ 97,340 $ 86,936 …

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NOTE 10 - Stock Options The Company recognized stock-based compensation of $185,000 and $386,000 for the three months ended December 31, 2025 and 2024, respectively and recognized stock-based compensation of $494,000 and $757,000 for the six months ended December 31, 2025 and 2024, respectively. Stock-based compensation is included in Selling, General and Administrative expense in the consolidated statements of income. The Company has five stock option plans, two of the plans are available to grant stock options to employees (Employee Plans), and three of the plans are available to issue stock options to non-employee directors and consultants (Non-Employee Plans). The Employee Plans provide for the Company to grant stock options, which are intended to qualify as incentive stock options (ISOs) or non-incentive stock options. Plan participants who are granted ISOs and possess more than 10% of the voting rights of the Companys outstanding common stock must be granted options with an exercise price of at least 110% of the fair market value on the date of grant. Options granted under the Employee Plans have a term of up to 10 years, from date of grant, at an exercise price equal to or greater than the fair market value on the date of grant. The Employee Plans provide a cash-less exercise option for the participants, and options granted vest in full upon a change in control as defined in the plans. The Non-Employee Plans provide for the Company to grant stock options with a term of …

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NOTE 4 Fair Value Measurement Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants. The Company is required to classify certain assets and liabilities based on the following fair value hierarchy: Level 1: Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions or estimation methodologies could have a significant effect on the estimated fair value amounts. The following table presents the Companys assets that were measured at fair value on a recurring basis at December 31, 2025 and June 30, 2025, respectively (in thousands): Level 1 Level 2 Level 3 Total Decem …

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"NOTE 8 - Income Taxes The income tax provision is calculated using an estimated annual effective tax rate based upon estimates of annual income, permanent items, statutory tax rates and planned tax strategies in the various jurisdictions in which the Company operates, except that certain discrete items such as the resolution of uncertain tax positions and stock-based accounting income tax benefits are treated separately. Income tax expense included on our accompanying consolidated statements of income is as follows: Three months ended December 31, Six months ended December 31, 2025 2024 2025 2024 Provision for income taxes (1) $ 2,236 $ 1,625 $ 4,706 $ 3,440 Effective tax rate 14.2% 13.4% 15.5% 13.7% (1) Net discrete income tax expense (benefit) $0 and ($44,000) and $342,000 and ($27,000) , are included in the provision for income taxes for the three and six months ended December 31, 2025 and 2024, respectively. The difference between the U.S. statutory tax rate of 21% and the effective tax rate in both periods is primarily due to lower tax rates in foreign jurisdictions and the related effect of global intangible low-taxed income (GILTI), tax benefit of R&D credits, offset by state and local income taxes and certain nondeductible expenses income. On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (""OBBBA""). The OBBBA preserves the 21% U.S. Federal statutory tax rate and makes a favorable change to the business interest expense limitation. …

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NOTE 9 - Debt The Company has available a $20 million revolving credit line (the Line) with its primary bank, HSBC Bank USA National Association (HSBC), which expires on February 9, 2029. Borrowings on the Line bear interest at the Secured Overnight Financing Rate ( SOFR ) benchmark rate plus 1.2645% to 1.3645%, depending on the Fixed Charge Coverage Ratio (as defined), which is to be measured and adjusted quarterly. As of December 31, 2025 and June 30, 2025, the Company has no outstanding borrowings on the Line. The Line is secured by substantially all the Companys domestic assets, including but not limited to, deposit accounts, accounts receivable, inventory, equipment and fixtures and intangible assets. In addition, the Companys wholly owned subsidiaries, except for the Companys foreign subsidiaries, have issued guarantees and pledges of all their assets to secure the Companys obligations under the Line. All the outstanding common stock of the Companys domestic subsidiaries and 65% of the common stock of the Companys foreign subsidiaries have been pledged to secure the Companys obligations under the Line. The Line contains various restrictions and covenants including, but not limited to, compliance with certain financial rations, restrictions on payment of dividends and restrictions on borrowings. …

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Recent Accounting Pronouncements Not Yet Adopted In October 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SECs Disclosure Update and Simplification Initiative , which modifies the disclosure or presentation requirements of a variety of Topics in the Codification. Among the various codification amendments, Topic 470 Debt is applicable to the Company which requires the disclosure of amounts, terms and weighted-average interest rates of unused lines of credit. The effective date is either the date on which the SECs removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirement by that date, with early adoption prohibited. The adoption of this new standard will not have a material impact on our financial statements and related disclosures. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures , which requires on an annual basis to (1) disclose specific categories in the rate reconciliation, (2) provide additional information for reconciling items that meet a quantitative threshold, and (3) income taxes paid disaggregated by jurisdiction. This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that this guidance may have on its fi …

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NOTE 12 - 401(k) Plan The Company maintains a 401(k) plan (the Plan) that covers all U.S. employees and is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code. Company contributions to this plan are discretionary and totaled $74,000 and $69,000 for the three months ended December 31, 2025 and 2024, respectively and totaled $144,000 and $138,000 for the six months ended December 31, 2025 and 2024, respectively. …

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NOTE 2 Revenue Recognition and Contracts with Customers The Company is engaged in the development, manufacture, and distribution of security products, encompassing access control systems, door security products, intrusion and fire alarm systems, alarm communication services, and video surveillance products for commercial and residential use. The Company also provides wireless communication service, on a monthly basis, to dealers and installers of intrusion and fire alarm systems. These products and services are used for commercial, residential, institutional, industrial and governmental applications, and are sold primarily to independent distributors, dealers and installers of security equipment. Sales to unaffiliated customers are primarily shipped from the United States. As of December 31, 2025 and June 30, 2025, the Company included refund liabilities of approximately $3,707,000 and $4,790,000, respectively, in current liabilities. As of December 31, 2025 and June 30, 2025, the Company included return-related assets of approximately $1,003,000 and $1,152,000, respectively, in other current assets. As a percentage of gross revenue, returns, rebates and allowances were 4% for both the three months ended December 31, 2025 and 2024, respectively. As a percentage of gross revenue, returns, rebates and allowances were 4% and 7% for the six months ended December 31, 2025 and 2024, respectively. The Company disaggregates revenue from contracts with customers into major product lin …

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NOTE 14 Segment and Geographical Data Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker. We have one operating and reportable segment. The Companys CODM, (the President and Chief Operating Officer) evaluates performance of the Company and makes decisions regarding the allocation of resources based on total Company results. The measure of segment assets is reported on the balance sheet as total consolidated assets. The consolidated net income is the measure of segment profit that is most consistent with U.S. GAAP. Segment profit is used in developing the overall strategy and during the annual budget process, as well as considered in budget-to-actual variances on a monthly basis when making decisions about the allocation of operating and capital resources. The CODM is regularly provided with not only the consolidated expenses as noted on the face of the income statement, but also the significant segment expenses as below: Three months ended December 31, Six months ended December 31, 2025 2024 2025 2024 (in thousands) (in thousands) Net Revenue $ 48,172 $ 42,933 $ 97,340 $ 86,936 Less: Cost of revenue 19,934 18,444 41,256 37,831 Compensation-related expenses (1) 7,657 7,001 14,821 14,019 Commission expenses 1,595 1,462 3,410 2,959 Marketing, advertising and other promotional expenses 916 916 1,852 1,807 Research and development (excluding compensation related b …

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NOTE 15 - Subsequent Events The Company has evaluated subsequent events occurring after the end of the period covered by the condensed consolidated financial statements for events requiring recording or disclosure in the condensed consolidated financial statements. On January 27, 2026, the Company received a termination letter from the SEC concluding the investigation without further action. See Note 13. On January 29, 2026, the Companys Board of Directors declared a cash dividend of $.15 per share payable on April 3, 2026, to stockholders of record on March 12, 2026. On January 29, 2026, the Companys Board of Directors appointed a Chief Revenue Officer for the Company. …

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