UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                -----------------

                                    FORM 10-K

                                   (Mark One)

     [X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 For the fiscal year ended June 30, 2008

                                       or

     [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 For the Transition period from ______ to ______

                         Commission File Number 0-10004

                                -----------------

                          NAPCO SECURITY SYSTEMS, INC.
             (Exact name of Registrant as specified in its charter)

                Delaware                                     11-2277818
    (State or other jurisdiction of                (I.R.S. Employer I.D. Number)
     incorporation or organization)

333 Bayview Avenue, Amityville, New York                       11701
(Address of principal executive offices)                     (Zip Code)

       Registrant's telephone number, including area code: (631) 842-9400

Securities registered pursuant to Section 12(b) of the Act: Common Stock, par
                                                           value $.01 per share
                                                           (Title of Each Class)

        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [_] No [X]

Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [_] No [X]

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 Exchange Act of 1934 during
the preceding 12 months (or for such 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

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. (Check one):

Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_]
Smaller reporting company [_]

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [_] No [X]

As of December 31, 2007, the aggregate market value of the common stock of
Registrant held by non-affiliates based upon the last sale price of the stock on
such date was $81,898,250.

As of September 29, 2008, 19,095,713 shares of common stock of Registrant were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part III incorporates information by reference from the Registrant's
definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with the solicitation of proxies for the Registrant's
2008 Annual Meeting of Stockholders.




                                     PART I
                                     ------

ITEM 1:  BUSINESS.

NAPCO Security Systems, Inc. ("NAPCO" or the "Company") was incorporated in
December 1971 in the State of Delaware. Its executive offices are located at 333
Bayview Ave, Amityville NY 11701. Its telephone number is (631) 842-9400.

The Company is a diversified manufacturer of security products, encompassing
intrusion and fire alarms, building access control systems and electronic
locking devices. 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. On August 18, 2008, the Company acquired substantially all of the
assets and business of G. Marks Hardware, Inc. ("Marks") for $25 million, the
repayment of $1 million of bank debt and the assumption of certain current
liabilities. The Marks business involves the manufacturing and distribution of
door-locking devices.

Website Access to Company Reports

Copies of our filings under the Securities Exchange Act of 1934 (including
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to these reports) are available free of charge on
our website (www.napcosecurity.com) on the same day they are electronically
filed with the Securities and Exchange Commission.

Products

Access Control Systems. Access control systems consist of one or more of the
following: various types of identification readers (e.g. card readers, hand
scanners, etc.), a control panel, a PC-based computer and electronically
activated door-locking devices. When an identification card or other identifying
information is entered into the reader, the information is transmitted to the
control panel/PC which then validates the data and determines whether to grant
access or not by electronically deactivating the door locking device. An
electronic log is kept which records various types of data regarding access
activity.

The Company designs, engineers, manufactures and markets the software and
control panels discussed above. It also buys and resells various identification
readers, PC-based computers and various peripheral equipment for access control
systems.

Alarm Systems. Alarm systems usually consist of various detectors, a control
panel, a digital keypad and signaling equipment. When a break-in occurs, an
intrusion detector senses the intrusion and activates a control panel via
hard-wired or wireless transmission that sets off the signaling equipment and,
in most cases, causes a bell or siren to sound. Communication equipment such as
a digital communicator may be used to transmit the alarm signal to a central
station or another person selected by a customer.

The Company manufactures and markets the following products for alarm systems:

     Automatic Communicators. When a control panel is activated by a signal from
     an intrusion detector, it activates a communicator that can automatically
     dial one or more pre-designated telephone numbers. If programmed to do so,
     a digital communicator dials the telephone number of a central monitoring
     station and communicates in computer language to a digital communicator
     receiver, which prints out an alarm message.

     Control Panels. A control panel is the "brain" of an alarm system. When
     activated by any one of the various types of intrusion detectors, it can
     activate an audible alarm and/or various types of communication devices.
     For marketing purposes, the Company refers to its control panels by the
     trade name, generally "Gemini(TM)" and "Magnum Alert(TM)" followed by a
     numerical designation.

     Combination Control Panels/Digital Communicators and Digital Keypad
     Systems. A combination control panel, digital communicator and a digital
     keypad (a plate with push button numbers as on a telephone, which
     eliminates the need for mechanical keys) has continued to grow rapidly in
     terms of dealer and consumer preference. Benefits of the combination format
     include the cost efficiency resulting from a single microcomputer function,
     as well as the reliability and ease of installation gained from the
     simplicity and sophistication of micro-computer technology.

                                                                               2


     Door Security Devices. The Company manufactures a variety of exit alarm
     locks including simple dead bolt locks, door alarms and
     microprocessor-based electronic door locks with push button and card reader
     operation.

     Fire Alarm Control Panel. Multi-zone fire alarm control panels, which
     accommodate an optional digital communicator for reporting to a central
     station, are also manufactured by the Company.

     Area Detectors. The Company's area detectors are both passive infrared heat
     detectors and combination microwave/passive infrared detectors that are
     linked to alarm control panels. Passive infrared heat detectors respond to
     the change in heat patterns caused by an intruder moving within a protected
     area. Combination units respond to both changes in heat patterns and
     changes in microwave patterns occurring at the same time.

Peripheral Equipment

The Company also markets peripheral and related equipment manufactured by other
companies. Revenues from peripheral equipment have not been significant.

Research and Development

The Company's business involves a high technology element. During the fiscal
years ended June 30, 2008, 2007, and 2006, the Company expended approximately
$5,500,000, $5,319,000, and $5,109,000, respectively, on Company-sponsored
research and development activities conducted by its engineering department to
develop and improve the Products. The Company intends to continue to conduct a
significant portion of its future research and development activities
internally.

Employees

As of June 30, 2008, the Company had approximately 817 full-time employees.

Marketing

The Company's staff of 46 sales and marketing support employees located at the
Company's Amityville, United Kingdom and Dubai offices sells and markets the
Products primarily to independent distributors and wholesalers of security alarm
and security hardware equipment. Management estimates that these channels of
distribution represented approximately 63% and 65% of the Company's total sales
for the fiscal years ended June 30, 2008 and 2007, respectively. The remaining
revenues are primarily from alarm installers and governmental institutions. The
Company's sales representatives periodically contact existing and potential
customers to introduce new products and create demand for those as well as other
Company Products. These sales representatives, together with the Company's
technical personnel, provide training and other services to wholesalers and
distributors so that they can better service the needs of their customers. In
addition to direct sales efforts, the Company advertises in technical trade
publications and participates in trade shows in major United States and European
cities. Some of the Company's products are marketed under the "private label" of
certain customers.

In the ordinary course of the Company's business the Company grants extended
payment terms to certain customers. Those customers have materially complied
with the extended payment terms. For further discussion on Accounts Receivable
and Concentration of Credit Risk see disclosures included in Item 7.

Competition

The security alarm products industry is highly competitive. The Company's
primary competitors are comprised of approximately 20 other companies that
manufacture and market security equipment to distributors, dealers, central
stations and original equipment manufacturers. The Company believes that no one
of these competitors is dominant in the industry. Certain of these companies
have substantially greater financial and other resources than the Company.

                                                                               3


The Company competes primarily on the basis of the features, quality,
reliability and pricing of, and the incorporation of the latest innovative and
technological advances into, its Products. The Company also competes by offering
technical support services to its customers. In addition, the Company competes
on the basis of its expertise, its proven products, its reputation and its
ability to provide Products to customers on a timely basis. The inability of the
Company to compete with respect to any one or more of the aforementioned factors
could have an adverse impact on the Company's business. Relatively low-priced
"do-it-yourself" alarm system products have become available in recent years and
are available to the public at retail stores. The principal components in the
Company's products are integrated circuits, printed circuit boards,
microprocessors, sheet metal, plastic resin, machined and cast metal components.
The Company believes that these products compete with the Company only to a
limited extent because they appeal primarily to the "do-it-yourself" segment of
the market. Purchasers of such systems do not receive professional consultation,
installation, service or the sophistication that the Company's Products provide.

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 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. To a lesser degree,
sales in Europe are also adversely impacted in the Company's first fiscal
quarter because of European vacation patterns, i.e., many distributors and
installers are closed for the month of August. In addition, demand is affected
by the housing and construction markets.

Raw Materials

The Company prepares specifications for component parts used in the Products and
purchases the components from outside sources or fabricates the components
itself. These components, if standard, are generally readily available; if
specially designed for the Company, there is usually more than one alternative
source of supply available to the Company on a competitive basis. The Company
generally maintains inventories of all critical components. The Company for the
most part is not dependent on any one source for its raw materials.

Sales Backlog

In general, orders for the Products are processed by the Company from inventory.
A sales backlog of approximately $1,750,000 and $965,000 existed as of June 30,
2008 and 2007, respectively.

Government Regulation

The Company's telephone dialers, microwave transmitting devices utilized in its
motion detectors and any new communication equipment that may be introduced from
time to time by the Company must comply with standards promulgated by the
Federal Communications Commission ("FCC") in the United States and similar
agencies in other countries where the Company offers such products, specifying
permitted frequency bands of operation, permitted power output and periods of
operation, as well as compatibility with telephone lines. Each new Product that
is subject to such regulation must be tested for compliance with FCC standards
or the standards of such similar governmental agencies. Test reports are
submitted to the FCC or such similar agencies for approval. Cost of compliance
with these regulations has not been material.

Patents and Trademarks

The Company has been granted several patents and trademarks relating to the
Products. While the Company obtains patents and trademarks as it deems
appropriate, the Company does not believe that its current or future success is
dependent on its patents or trademarks.

Foreign Sales

The revenues and identifiable assets attributable to the Company's domestic and
foreign operations for its last three fiscal years, are summarized in the
following table:

                                                                               4



                                                                                                 
                         Financial Information Relating to Domestic and Foreign Operations
                         -----------------------------------------------------------------
                                                        2008                      2007                    2006
                                                       -------                   -------                  -------
                                                                             (in thousands)
Sales to external customers(1):
         Domestic                                      $56,122                   $56,810                  $58,549
         Foreign                                        12,245                     9,392                   10,999
                                                       -------                   -------                  -------
         Total Net Sales                               $68,367                   $66,202                  $69,548
                                                       =======                   =======                  =======

Identifiable assets:
         United States                                 $50,056                   $47,636                  $46,651
         Dominican Republic (2)                         19,841                    21,246                   18,924
         Other foreign countries                         6,826                     7,903                    5,623
                                                       -------                   -------                  -------
         Total Identifiable Assets                     $76,723                   $76,785                  $71,198
                                                       =======                   =======                  =======


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

(2) Consists primarily of inventories ($14,754,000) and fixed assets
($4,970,000) located at the Company's principal manufacturing facility in the
Dominican Republic.

ITEM 1A:  RISK FACTORS.

The risks described below are among those that could materially and adversely
affect the Company's business, financial condition or results of operations.
These risks could cause actual results to differ materially from historical
experience and from results predicted by any forward-looking statements related
to conditions or events that may occur in the future.

Our Business Could Be Materially Adversely Affected as a Result of General
--------------------------------------------------------------------------
Economic and Market Conditions
------------------------------

We are subject to the effects of general economic and market conditions. If
these conditions deteriorate, our business, results of operations or financial
condition could be materially adversely affected.

Our Business Could Be Materially Adversely Affected as a Result of Housing
--------------------------------------------------------------------------
Market Conditions
-----------------

We are subject to the effects of housing market conditions. If these conditions
deteriorate, resulting in the decline in new housing starts, existing home sales
or existing home renovations, our business, results of operations or financial
condition could be materially adversely affected, particularly in our intrusion
product lines.

Our Business Could Be Materially Adversely Affected as a Result of Lessening
----------------------------------------------------------------------------
Demand in the Security Market
-----------------------------

Our revenue and profitability depend on the overall demand for our products.
Delays or reductions in spending, domestically or internationally, for
electronic security systems could materially adversely affect demand for our
products, which could result in decreased revenues or earnings.

The Markets We Serve Are Highly Competitive and We May Be Unable to Compete
---------------------------------------------------------------------------
Effectively
-----------

We compete with approximately 20 other companies that manufacture and market
security equipment to distributors, dealers, control stations and original
equipment manufacturers. Some of these companies may have substantially greater
financial and other resources, than the Company. The Company competes primarily
on the basis of the features, quality, reliability and pricing of, and the
incorporation of the latest innovative and technological advances into, its
products. The Company also competes by offering technical support services to
its customers. In addition, the Company competes on the basis of its expertise,
its proven products, its reputation and its ability to provide products to
customers on a timely basis. The inability of the Company to compete with
respect to any one or more of the aforementioned factors could have an adverse
impact on the Company's business.

Our Business Could be Materially Adversely Affected as a result of Offering
---------------------------------------------------------------------------
Extended Payment Terms to Customers
-----------------------------------

We regularly grant credit terms beyond 30 days to our customers. These terms are
offered in an effort to keep a full line of our products in-stock at our
customers locations. The longer terms that are granted, the more risk is
inherent in collection of those receivables. We believe that our Bad Debt
reserves are adequate to account for this inherent risk.

                                                                               5


Competitors May Develop New Technologies or Products in Advance of Us
---------------------------------------------------------------------

Our business may be materially adversely affected by the announcement or
introduction of new products and services by our competitors, and the
implementation of effective marketing or sales strategies by our competitors.
There can be no assurance that competitors will not develop products that are
superior to the Company's products. Further, there can be no assurance that the
Company will not experience additional price competition, and that such
competition may not adversely affect the Company's position and results of
operations.

The Company's Products are Subject to Technological Changes from Time to Time,
------------------------------------------------------------------------------
Which may Result in Increased Research and Developments Expenditures to Attract
-------------------------------------------------------------------------------
or Retain Customers
-------------------

The industry in which the Company operates is characterized by constantly
improved products. Future success will depend, in part, on our ability to
continue to develop and market products and product enhancements
cost-effectively, which will require continued expenditures for product
engineering, sales and marketing. The Company's research and development
expenditures, which were $5,500,000 and $5,319,000 for 2008 and 2007,
respectively, are principally targeted at enhancing existing products, and to a
lesser extent at developing new ones. If the Company cannot modify its products
to meet its customers' changing needs, we may lose sales.

We Rely On Distributors To Sell Our Products And Any Adverse Change In Our
--------------------------------------------------------------------------
Relationship With Our Distributors Could Result In A Loss Of Revenue And Harm
-----------------------------------------------------------------------------
Our Business.
-------------

We distribute our products primarily through independent distributors and
wholesalers of security alarm and security hardware equipment. Our distributors
and wholesalers also sell our competitors' products, and if they favor our
competitors' products for any reason, they may fail to market our products as
effectively or to devote resources necessary to provide effective sales, which
would cause our results to suffer. In addition, the financial health of these
distributors and wholesalers and our continuing relationships with them are
important to our success. Some of these distributors and wholesalers may be
unable to withstand adverse changes in business conditions. Our business could
be seriously harmed if the financial condition of some of these distributors and
wholesalers substantially weakens.

Members of Management and Certain Directors Beneficially Own a Substantial
--------------------------------------------------------------------------
Portion of the Company's Common Stock and May Be in a Position to Determine the
-------------------------------------------------------------------------------
Outcome of Corporate Elections
------------------------------

Richard L. Soloway, our Chief Executive Officer, members of management and the
Board of Directors beneficially own 31.4% of the currently outstanding shares of
Common Stock. By virtue of such ownership and their positions with Napco, they
may have the practical ability to determine the election of all directors and
control the outcome of substantially all matters submitted to Napco's
stockholders.

In addition, Napco has a staggered Board of Directors. Such concentration of
ownership and the staggered Board could have the effect of making it more
difficult for a third party to acquire, or discourage a third party from seeking
to acquire, control of Napco.

We Are Dependent Upon the Efforts of Richard L. Soloway, Our Chief Executive
----------------------------------------------------------------------------
Officer
-------

The success of the Company is largely dependent on the efforts of Richard L.
Soloway, Chief Executive Officer. The loss of his services could have a material
adverse effect on the Company's business and prospects. There is currently no
succession plan.

Our Business Could Be Materially Adversely Affected by an Increase in the
-------------------------------------------------------------------------
Exchange Rate of the Dominican Peso
-----------------------------------

We are exposed to foreign currency risks due to our significant operations in
the Dominican Republic. We have significant operations in the Dominican Republic
which are denominated in Dominican pesos. We are subject to the risk that
currency exchange rates between the United States and the Dominican Republic
will fluctuate, potentially resulting in an increase in some of our expenses
when US dollars are transferred to Dominican pesos to pay these expenses.

                                                                               6


The Company's Debt Repayments Relating to the Recent Acquisition of Marks
-------------------------------------------------------------------------
Require Substantially Higher Cashflows
--------------------------------------

The Marks acquisition requires quarterly principal debt repayments of
approximately $893,000, plus interest, that are in addition to the Company's
historical cash-flow requirements. A significant decline in the Company's
cashflows could put at risk the Company's ability to repay this debt as well as
to failing to meet certain financial covenants within the Revolving Credit
Agreement and the Term Loan.

ITEM 1B:  UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 2:  PROPERTIES.

The Company owns executive offices and production and warehousing facilities at
333 Bayview Avenue, Amityville, New York. This facility consists of a
fully-utilized 90,000 square foot building on a six acre plot. This six-acre
plot provides the Company with space for expansion of office, manufacturing and
storage capacities. The Company is planning on expanding this facility to
replace the 35,000 square foot leased building as discussed below. The Company
intends on moving the operations of its Marks acquisition into this expanded
facility upon completion of construction of this extension. The Company believes
that the move should be completed within approximately one year.

The Company leases a building of approximately 35,000 square feet in Amityville,
NY. This facility provides all of the administrative, production and warehousing
space for the Company's recent Marks acquisition. The lease commenced in August
2008, expires in August 2009 and provides for extensions thereafter.

The Company's foreign subsidiary located in the Dominican Republic, NAPCO/Alarm
Lock Grupo International, S.A. (formerly known as NSS Caribe, S.A.), owns a
building of approximately 167,000 square feet of production and warehousing
space in the Dominican Republic. That subsidiary also leases the land associated
with this building under a 99-year lease expiring in the year 2092. As of June
30, 2008, a majority of the Company's products were manufactured at this
facility, utilizing U.S. quality control standards.

The Company's foreign subsidiary located in the United Kingdom, Napco Group
Europe Ltd, leases office space of approximately 167 square feet. This lease
expired in May 2008 at which time the Company obtained a month-by-month
extension as it prepares to move its offices to another location of similar size
and at similar terms and conditions.

The Company's joint venture located in the United Arab Emirates leases office
and warehouse space of approximately 1,100 square feet. This lease expires in
February 2009 and provides for an annual renewal at substantially the same terms
and conditions.

Management believes that these facilities are more than adequate to meet the
needs of the Company in the foreseeable future.

ITEM 3:  LEGAL PROCEEDINGS.

There are no pending or threatened material legal proceedings to which NAPCO or
its subsidiaries or any of their property is subject.

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.

ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not Applicable

                                                                               7


                                     PART II
                                     -------

ITEM 5:  MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
          AND ISSUER PURCHASES OF EQUITY SECURITIES.

Principal Market

NAPCO's Common Stock is traded on the NASDAQ Stock Market, Global Market System,
under the symbol NSSC.

The tables set forth below reflect the range of high and low sales of the Common
Stock in each quarter of the past two fiscal years as reported by the NASDAQ
Global Market System.


                                                                                           
                                                           Quarter Ended Fiscal 2008
                                                           -------------------------
Common Stock                    Sept. 30                Dec. 31                March 31                June 30
                                --------                -------                --------                -------

High                             $ 6.94                 $6.25                   $6.45                  $5.00
Low                              $ 5.35                 $4.83                   $4.65                  $4.45

                                                           Quarter Ended Fiscal 2007
                                                           -------------------------
Common Stock                    Sept. 30                Dec. 31                March 31                June 30
                                --------                -------                --------                -------

High                             $10.80                 $6.67                   $6.05                  $6.35
Low                              $ 5.96                 $5.38                   $4.62                  $5.33


Approximate Number of Security Holders

The number of holders of record of NAPCO's Common Stock as of September 25, 2008
was 128 (such number does not include beneficial owners of stock held in nominee
name).

Dividend Information

NAPCO has declared no cash dividends during the past two years with respect to
its Common Stock, and the Company does not anticipate paying any cash dividends
in the foreseeable future. Any cash dividends must be approved by the Company's
lenders.

Equity Compensation Plan Information as of June 30, 2008


                                                                                           
                                                                                              NUMBER OF SECURITIES
                                                                                            REMAINING AVAILABLE FOR
                                           NUMBER OF SECURITIES TO     WEIGHTED AVERAGE         FUTURE ISSUANCE
                                           BE ISSUED UPON EXERCISE     EXERCISE PRICE OF     (EXCLUDING SECURITIES
                                           OF OUTSTANDING OPTIONS     OUTSTANDING OPTIONS   REFLECTED IN COLUMN (a)
             PLAN CATEGORY                           (a)                      (b)                     (c)

Equity compensation plans approved by             1,323,480                  $2.80                  488,520
security holders:
Equity compensation plans not approved               __                       __                       __
by security holders:
                                          -------------------------- ---------------------- -------------------------
Total                                             1,323,480                  $2.80                  488,520
                                          ========================== ====================== =========================


                                                                               8


ITEM 6:  SELECTED FINANCIAL DATA.

The table below summarizes selected financial information. For further
information, refer to the audited consolidated financial statements and the
notes thereto beginning on page FS-1 of this report.


                                                                                               
                                                                  Fiscal Year Ended and June 30
                                              ----------------------------------------------------------------------------
                                                          (In thousands, except share and per share data)
                                                     2008          2007(1)         2006(1)       2005(1)(2)      2004(1)(2)
                                                     ----          -------         -------       ----------      ---------
Statement of earnings data:
---------------------------
Net Sales                                     $     68,367    $     66,202    $     69,548    $     65,229    $     58,093
Gross Profit                                        20,412          23,998          26,956          24,641          20,107
Income from Operations                               3,137           6,501           9,523           8,910           6,065
Net Income                                           3,718           4,217           6,119           5,629           3,335
Cash Flow Data:
Net cash flows provided by (used in)                 3,784          (3,674)           (168)          7,205           6,275
operating activities
Net cash flows used in investing                    (1,045)         (1,294)         (1,679)           (658)           (681)
activities
Net cash flows (used in) provided by                (1,722)          3,978           3,407          (6,165)         (6,592)
financing activities

Per Share Data:
---------------
Net earnings per common share:
   Basic                                      $        .19    $        .21    $        .31    $        .29    $        .19
   Diluted                                    $        .19    $        .20    $        .30    $        .28    $        .17
Weighted average common shares outstanding:
   Basic                                        19,263,000      19,961,000      19,785,000      19,265,000      17,906,000
   Diluted                                      19,802,000      20,599,000      20,605,000      20,284,000      19,119,000
Cash Dividends declared per common            $        .00    $        .00    $        .00    $        .00    $        .00
share (3)

Balance sheet data (4):
-----------------------
Working capital                               $     41,293    $     40,527    $     36,321    $     31,017    $     28,992
Total assets                                        76,723          76,785          71,198          59,907          56,672
Long-term debt                                      12,400          10,900           4,700           1,950           6,400
Stockholders' equity                                53,542          53,257          50,850          43,678          37,904


(1)   Certain expenses in Cost of sales have been reclassified to Selling,
      general and administrative expense to conform with the current years
      presentation.
(2)   Share and per share data have been restated to reflect the effect of a 2:1
      stock split effective April 2004, a 20% stock dividend effective November
      2004, a 3:2 stock split effective December 2005 and a 3:2 stock split
      effective June 2006.
(3)   The Company has never paid a dividend on its common stock. It is the
      policy of the Board of Directors to retain earnings for use in the
      Company's business. Any dividends must be approved by the Company's
      primary lenders.
(4)   Working capital is calculated by deducting Current Liabilities from
      Current Assets.

                                                                               9


ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

Overview

The Company is a diversified manufacturer of security products, encompassing
intrusion and fire alarms, building access control systems and electronic
locking devices. 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 18% of our revenues
for fiscal year 2008 and 14% of revenues for fiscal year 2007.

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.

On August 18, 2008, the Company acquired substantially all of the assets and
business of G. Marks Hardware, Inc. ("Marks") for $25 million, the repayment of
$1 million of bank debt and the assumption of certain current liabilities. The
Marks business involves the manufacturing and distribution of door-locking
devices.

The security products market is characterized by constant incremental innovation
in product design and manufacturing technologies. Generally, the Company devotes
7-8% of revenues to research and development (R&D) on an annual basis. Products
resulting from our R&D investments in fiscal 2008 did not 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

The post-September 11 era has generally been characterized by increased demand
for electronic security products and services. The Company believes the security
equipment market is likely to continue to exhibit healthy growth, particularly
in industrial sectors, due to ongoing concerns over the adequacy of security
safeguards. The Company's business is also affected by the housing markets.

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 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. To a lesser degree,
sales in Europe are also adversely impacted in the Company's first fiscal
quarter because of European vacation patterns, i.e., many distributors and
installers are closed for the month of August. In addition, demand is affected
by the housing and construction markets.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in conformity with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses reported in those financial statements. These
judgments can be subjective and complex, and consequently actual results could
differ from those estimates. Our most critical accounting policies relate to
revenue recognition; concentration of credit risk; inventories; goodwill; and
income taxes.

                                                                              10


Revenue Recognition

Revenues from merchandise sales are recorded at the time the product is shipped
or delivered to the customer pursuant to the terms of sale. We report our sales
levels on a net sales basis, which is computed by deducting from gross sales the
amount of actual returns received and an amount established for anticipated
returns and other allowances.

Our sales return accrual is a subjective critical estimate that has a direct
impact on reported net sales and income. This accrual is calculated based on a
history of gross sales and actual sales returns, as well as management's
estimate of anticipated returns and allowances. As a percentage of gross sales,
sales returns, rebates and allowances were 6%, 8% and 7% in fiscal 2008, 2007
and 2006, respectively.

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 balances that aggregated
34% and 38% of the Company's accounts receivable at June 30, 2008 and 2007,
respectively. Sales to neither of these customers exceeded 10% of net sales in
any of the past three fiscal years.

In the ordinary course of business, we have established a reserve for doubtful
accounts and customer deductions in the amount of $405,000 and $365,000 as of
June 30, 2008 and 2007, 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 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 approximations 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. For the fiscal years 2008, 2007 and 2006,
charges/(recoveries) and balances in these reserves amounted to $0 and
$1,200,000, $213,000 and $1,200,000; $(531,000) and $987,000, respectively. 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.

Goodwill

The Company accounts for Goodwill in accordance with Statement of Financial
Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. These statements established accounting
and reporting standards for acquired goodwill and other intangible assets.
Specifically, the standards address how acquired intangible assets should be
accounted for both at the time of acquisition and after they have been
recognized in the financial statements. In accordance with SFAS No. 142,
intangible assets, including purchased goodwill, must be evaluated for
impairment. Those intangible assets that are classified as goodwill or as other
intangibles with indefinite lives are not amortized.

                                                                              11


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 an impairment, the Company measures the amount of
impairment loss by comparing the implied fair value of goodwill with the
carrying amount of that goodwill. The Company has performed its annual
impairment evaluation required by this standard and determined that its goodwill
is not impaired.

Income Taxes

The Company adopted the provisions of FIN 48 as of July 1, 2007. As a result the
Company increased its accrued income tax liability by $715,000, from $1,836,000
to $2,551,000, to provide for additional reserves for uncertain income tax
positions, relating to fiscal years 2004 through 2007. The increase in the
accrued income tax liability of $715,000 was offset in part by a $230,000
increase to a deferred income tax asset, resulting in a net reduction to
retained earnings of $485,000 (representing the cumulative effect of adopting
FIN 48).

During the year ended June 30, 2008 the Company decreased its reserve for
uncertain income tax positions by $ 1,888,000. As of June 30, 2008 the Company
has a long-term accrued income tax liability of $ 249,000. The Company's
practice is to recognize interest and penalties related to income tax matters in
income tax expense and accrued income taxes. As of June 30, 2008, the Company
had accrued interest totaling $45,000 and $194,000 of unrecognized net tax
benefits (including the related accrued interest and net of the related deferred
income tax benefit of $100,000) that, if recognized, would favorably affect the
company's effective income tax rate in any future period.

For the year ended June 30, 2008, the company recognized a net benefit to income
tax expense of $2,127,000 ($2,257,000 liability reversal including interest,
less the related $130,000 reversal of deferred tax asset). This benefit relates
predominantly to the Company's domestication election, for which the statute of
limitations expired during the third quarter.

The difference between the statutory U.S. Federal income tax rate and the
Company's effective tax rate as reflected in the consolidated statements of
income for fiscal 2008 is as follows (dollars in thousands):

                                                               % of
                                                              Pre-tax
                                              Amount          Income
                                             --------        --------

Tax at Federal statutory rate                $   785           34.0%
Increases (decreases) in
   taxes resulting from:
   Meals and entertainment                        59            2.6%
      State income taxes, net of
         Federal income tax benefit              (16)          (0.7)%
   Foreign source income and taxes              (258)         (11.1)%
   Stock based compensation expense               66            2.9%
   Alternative Minimum Tax
         Credit utilization                       --             --
   Tax reserve reversal                       (2,127)         (92.1)%
   Other, net                                     83            3.6%
                                             --------        --------

Provision for income taxes                   $(1,408)         (61.0)%
                                             ========        ========

                                                                              12


Liquidity and Capital Resources

The Company's cash on hand combined with proceeds from operating and financing
activities during fiscal 2008 were adequate to meet the Company's capital
expenditure needs and long-term debt obligations. The Company's primary internal
source of liquidity is the cash flow generated from operations. The primary
source of financing related to borrowings under an $25,000,000 secured revolving
credit facility. The Company expects that cash generated from operations and
cash available under the Company's bank line of credit will be adequate to meet
its short-term liquidity requirements. As of June 30, 2008, the Company's unused
sources of funds consisted principally of $2,765,000 in cash and approximately
$12,600,000, which represents the unused portion of its secured revolving credit
facility.

The Company is a party to an amended and restated secured revolving credit
agreement with its primary bank, pursuant to which borrowing capacity as of June
30, 2008 was $25,000,000. Amounts under the amended revolving credit agreement
are secured by all the accounts receivable, inventory and certain other assets
of the Company, including a first and second mortgage on the Company's
headquarters in Amityville, New York and common stock of certain of the
Company's subsidiaries. As of June 30, 2008 the Company was not in compliance
with the covenant relating to Tangible Net Worth required under the $25,000,000
facility which was in effect as of June 30, 2008. The Company has received the
appropriate waiver from its bank during September 2008.

On August 18, 2008, the Company and its banks amended and restated the revolving
credit agreement described above. The amended facility is $50,000,000 and
provides for a $25,000,000 revolving credit line as well as a $25,000,000 term
portion of which the entire $25,000,000 was utilized to finance the asset
purchase agreement as described in Note 12 to the accompanying Consolidated
Financial Statements. The amended revolving credit agreement and term loan is
secured by all the accounts receivable, inventory, the Company's headquarters in
Amityville, New York and certain other assets of Napco Security Systems, Inc.
and the common stock of three of the Company's subsidiaries. The agreements bear
interest at either the Prime Rate or an alternate rate based on LIBOR as
described in the agreement. As of June 30, 2008 the interest rate on the
outstanding portion of the facility was 4.1%. The August amendment extended the
revolving credit agreement to August 2012. Any outstanding borrowings are to be
repaid or refinanced on or before that time. The term loan is to be repaid in 19
quarterly installments of $893,000 each commencing in December 2007 and a final
payment of $8,033,000 due in August 2013. 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 agreement.

Management believes that current working capital, cash flows from operations and
its revolving credit agreement will be sufficient to fund the Company's
operations through at least the first quarter of fiscal 2010.

The Company takes into consideration a number of factors in measuring its
liquidity, including the ratios set forth below:

                                2008                2007              2006
                                ----                ----              ----
   Current Ratio              5.7 to 1            5.3 to 1          4.1 to 1
   Sales to Receivables       2.7 to 1            2.6 to 1          2.8 to 1
   Total debt to equity       .23 to 1            .20 to 1          .09 to 1

As of June 30, 2008, the Company had no material commitments for capital
expenditures or inventory purchases other than purchase orders issued in the
normal course of business. On April 26, 1993, the Company's foreign subsidiary
entered into a 99-year land lease of approximately 4 acres of land in the
Dominican Republic, at an annual cost of approximately $288,000.

On August 18, 2008, Napco Security Systems, Inc. (the "Company") pursuant to an
Asset Purchase Agreement with G. Marks Hardware, Inc. ("Marks") of Amityville,
New York, acquired substantially all of the assets and business of Marks for $25
million, the repayment of $1 million of bank debt and the assumption of current
liabilities as described more fully in the Asset Purchase Agreement. The Marks
business involves the manufacturing and distribution of door-locking devices.
The Company funded the acquisition with a term loan from its lenders as
described above.

The acquisition described above will be accounted for as a purchase and was
valued based on management's estimate of the fair value of the assets acquired
and liabilities assumed. The estimates of fair value are preliminary and subject
to adjustment for a period of up to one year from the date of acquisition, and
any such adjustments are not expected to be material. Costs in excess of
identifiable net assets acquired will be allocated to goodwill in the first
quarter of fiscal 2009.

Working Capital. Working capital increased by $766,000 to $41,293,000 at June
30, 2008 from $40,527,000 at June 30, 2007. The increase in working capital was
primarily the result of the increase in long-term debt as partially offset by
the decrease in inventories. Working capital is calculated by deducting Current
Liabilities from Current Assets.

                                                                              13


Accounts Receivable. Accounts Receivable increased by $244,000 to $25,823,000 at
June 30, 2008 from $25,579,000 at June 30, 2007. This increase resulted
primarily from the higher net sales during the fourth quarter of fiscal 2008 as
compared to the fourth quarter of fiscal 2007.

Inventories. Inventories decreased by $951,000 to $27,272,000 at June 30, 2008
as compared to $28,223,000 at June 30, 2007. The decrease in inventory levels
was primarily the result of the Company having high inventory levels at the end
of fiscal 2007, which it utilized to fill sales orders in fiscal 2008.

Accounts Payable and Accrued Expenses. Accounts payable and accrued expenses
decreased by $581,000 to $8,733,000 as of June 30, 2008 as compared to
$9,314,000 at June 30, 2007. This decrease is primarily due to decreased
purchases of raw materials during the month of June 2008 as compared to June
2007, which was part of the Company's program to reduce its inventory levels
from the increased levels at mid-year as previously discussed.

Off-Balance Sheet Arrangements

The Company does not maintain any off-balance sheet arrangements.

Contractual Obligations

The following table summarizes the Company's contractual obligations by fiscal
year:


                                                                               
                                                              Payments due by period
                                      -------------------------------------------------------------------
                                                    Less than 1                               More than 5
      Contractual obligations            Total         year        1-3 years     3-5 years       years
      -----------------------         -----------   -----------   -----------   -----------   -----------

Long-term debt obligations            $37,400,000   $ 2,679,000   $ 7,144,000   $19,544,000   $ 8,033,000

Land lease (86 years remaining) (1)    24,192,000       288,000       576,000       576,000    22,752,000

Operating lease obligations               586,000       420,000       162,000         4,000            --

Other long-term obligations
(employment agreements) (1)             1,753,000     1,105,000       648,000            --            --
                                      -----------   -----------   -----------   -----------   -----------

Total                                 $63,931,000   $ 4,492,000   $ 8,530,000   $20,124,000   $30,785,000
                                      ===========   ===========   ===========   ===========   ===========


(1) see footnote 10 to the consolidated financial statements.

                                                                              14


Results of Operations

Fiscal 2008 Compared to Fiscal 2007

                                      Fiscal year ended June 30,
                                      --------------------------
                                                                    % Increase/
                                         2008        2007           (decrease)
                                         ----        ----           -----------
Net sales                             $ 68,367     $ 66,202            3.3%
Gross profit                            20,412       23,998          (14.9)%
Gross profit as a % of net sales          29.9%        36.2%          (6.3)%
Selling, general and administrative     17,275       17,497           (1.3)%
Income from operations                   3,137        6,501          (51.7)%
Interest expense, net                      819          637           28.6%
Other expense, net                          42           17          147.1%
Provision (benefit)for income taxes     (1,408)       1,922         (173.3)%
Net income                               3,718        4,217           11.8%

Net sales in fiscal 2008 increased by 3.3% to $68,367,000 from $66,202,000 in
fiscal 2007. The increase in sales was due primarily to increases in the
Company's international sales ($2,853,000) as partially offset by a decrease in
domestic intrusion detection and access control products ($510,000).
International sales has increased primarily as a result of improved sales
efforts and customer relations. Management believes its sales of intrusion
products continues to be impacted by the slowdown in the U.S. housing market.

The Company's gross profit decreased $3,586,000 to $20,412,000 or 29.9% of net
sales in fiscal 2008 as compared to $23,998,000 or 36.2% of net sales in fiscal
2007. The decrease in gross profit in both absolute dollars and as a percentage
of net sales was due primarily to the recognition of increased overhead expenses
that had been capitalized in ending inventory at June 30, 2007. As these
products were sold during fiscal 2008, the Company recognized the higher expense
of these costs which resulted in a lower gross profit in the current period. In
addition, a higher proportion of the Company's sales were to its international
customers. Sales to these customers typically have lower gross margins than
sales to its domestic customers because the selling prices in these markets are
lower than those in the U.S. market.

Selling, general and administrative expenses as a percentage of net sales
decreased to 25.3% in fiscal 2008 from 26.4% in fiscal 2007. Selling, general
and administrative expenses for fiscal 2008 remained relatively constant at
$17,275,000 from $17,497,000 in fiscal 2007. The decrease as a percentage of net
sales resulted primarily from the Company's incremental sales in fiscal 2008
being to its international customers. Sales to these customers typically have
lower variable selling expenses associated with them as compared to sales to the
Company's domestic customers.

Interest expense for fiscal 2008 increased by $182,000 to $819,000 from $637,000
for the same period a year ago. The increase in interest expense is primarily
the result of the increase in outstanding debt.

Other expenses increased slightly to $42,000 in fiscal 2008 as compared to
$17,000 in fiscal 2007.

The Company's provision for income taxes for fiscal 2008 decreased by $3,330,000
to a benefit of $1,408,000 as compared to a provision of $1,922,000 for the same
period a year ago. The decrease in provision for income taxes resulted primarily
from the Company recognizing a net tax benefit to income tax expense of
$2,131,000 as described in Note 5 to the Consolidated financial statements. In
addition, in December 2007 the Company completed a corporate restructuring for
which new offshore companies were formed. As a result, the Company's effective
rate for fiscal 2008, prior to the effect of the $2,127,000 benefit described
above, was 31%, which reflected this restructuring.

Net income for fiscal 2008 decreased by $499,000 to $3,718,000 as compared to
$4,217,000 in fiscal 2007. This resulted primarily from the decrease in Gross
profit of $3,586,000 as partially offset by the $2,127,000 tax accrual reversal,
both of which are discussed above.

                                                                              15


Fiscal 2007 Compared to Fiscal 2006

                                      Fiscal year ended June 30,
                                      --------------------------
                                                                    % Increase/
                                         2007        2006           (decrease)
                                         ----        ----           ----------
Net sales                              $66,202      $69,548           (4.8)%
Gross profit                            23,998       26,956          (11.0)%
Gross profit as a % of net sales          36.2%        38.8%          (2.6)%
Selling, general and administrative     17,497       17,433            0.4%
Income from operations                   6,501        9,523          (31.7)%
Interest expense, net                      637          258          146.9%
Other expense, net                          17           14           21.4%
Provision for income taxes               1,922        3,264          (41.1)%
Net income                               4,217        6,119          (31.1)%

Net Sales. Net sales in fiscal 2007 decreased by 4.8% to $66,202,000 from
$69,548,000 in fiscal 2006. The decrease in sales was primarily due to decreased
sales of the Company's burglar alarm products ($6,407,000), which management
believes was impacted by the slowdown in the U.S. housing market and reduced
demand in the Company's European market, as partially offset by increased sales
of door-locking and access control products ($2,290,000).

Gross Profit. The Company's gross profit decreased $2,958,000 to $23,998,000 or
36.2% of net sales in fiscal 2007 as compared to $26,956,000 or 38.8% of net
sales in fiscal 2006. The decrease in gross profit in both absolute dollars and
as a percentage of net sales was due primarily to the decreased overhead
absorption resulting in the Company's reduction in its production levels in the
second half of fiscal 2007 which was due to the decrease in net sales during the
year.

Selling, general and administrative expenses as a percentage of net sales
increased to 26.4% in fiscal 2007 from 25.1% in fiscal 2006. Selling, general
and administrative expenses for fiscal 2007 increased by $64,000 to $17,497,000
from $17,433,000 in fiscal 2006. These increases are due primarily to increases
in certain salesman compensation expenses ($497,000) as partially offset by
decreases in the Company's executive compensation costs ($206,000),
Sarbanes-Oxley compliance costs ($107,000) and bad debt expense ($125,000).

Interest expense for fiscal 2007 increased by $379,000 to $637,000 from $258,000
for the same period a year ago. The increase in interest expense is primarily
the result of the increase in outstanding debt and an increase in interest rates
available to the Company during fiscal 2007.

Other Expenses. Other expenses remained relatively constant at $17,000 in fiscal
2007 as compared to $14,000 in fiscal 2006.

Stock Dividend and Stock Split

On May 10, 2006 the Company's Board of Directors approved a 3-for-2 stock split
of its common stock, to be paid in the form of a 50% stock dividend to
stockholders of record on May 24, 2006. The Company delivered the shares on June
7, 2006. Upon completion of the split, the total number of shares of common
stock outstanding increased from approximately 13,300,000 to approximately
19,950,000.

In November 2005 the Company's Board of Directors approved a 3-for-2 split of
its common stock, payable in the form of a 50% stock dividend to stockholders of
record on December 14, 2005. The additional shares were distributed on December
28, 2005. Upon completion of the split, the total number of shares of common
stock outstanding increased from approximately 8,795,000 to approximately
13,192,000.

All share and per share amounts (except par value) have been retroactively
adjusted to reflect the stock splits and dividend. There was no net effect on
total stockholders' equity as a result of these transactions.

                                                                              16


Forward-looking Information

This Annual Report on Form 10-K 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 continue growing 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, adverse tax
consequences of offshore operations, distribution problems, unforeseen
environmental liabilities and the uncertain military, political and economic
conditions in the world. The Company's Risk Factors are discussed in more detail
in Item 1A.


ITEM 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's principal financial instrument is long-term debt (consisting of a
revolving credit facility) that provides for interest at a spread below the
prime rate. The Company is affected by market risk exposure primarily through
the effect of changes in interest rates on amounts payable by the Company under
this credit facility. At June 30, 2008, an aggregate principal amount of
approximately $12,400,000 was outstanding under the Company's credit facility
with a weighted average interest rate of approximately 4.1%. If principal
amounts outstanding under the Company's credit facility remained at this
year-end level for an entire year and the prime rate increased or decreased,
respectively, by 1% the Company would pay or save, respectively, an additional
$124,000 in interest that year.

A significant number of foreign sales transactions by the Company are
denominated in U.S. dollars. As such, the Company has shifted foreign currency
exposure onto many of 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. In addition, the
Company transacts certain sales in Europe in British Pounds Sterling, therefore
exposing itself to a certain amount of foreign currency risk. Management
believes that the amount of this exposure is immaterial. 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 decrease in income from operations of
approximately $314,000.

                                                                              17


ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

a. Financial Statements: Financial statements required pursuant to this Item are
presented on pages FS-1 through FS-25 of this report as follows:

                  NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES

                                                                           Page
                                                                           ----

Management Report on Internal Controls Over Financial Reporting            FS-1

Report of Independent Registererd Public Accounting Firm on
Internal Control Over Financial Reporting                                  FS-2

Report of Independent Registered Public Accounting Firm                    FS-3

Consolidated Financial Statements:

        Consolidated Balance Sheets as of June 30, 2008 and 2007           FS-4

        Consolidated Statements of Income for the Fiscal Years Ended       FS-6
        June 30, 2008, 2007 and 2006

        Consolidated Statements of Stockholders' Equity for the Fiscal     FS-7
        Years Ended June 30, 2008, 2007 and 2006

        Consolidated Statements of Cash Flows for the Fiscal Years Ended   FS-8
        June 30, 2008, 2007 and 2006

        Notes to Consolidated Financial Statements, June 30, 2008          FS-9

Schedules:

II.  Valuation and Qualifying Accounts                                     FS-21

b.   Supplementary Financial Data                                          FS-22


MANAGEMENT REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

Management is responsible for the preparation of Napco Security Systems, Inc.
(Napco Security Systems) consolidated financial statements and related
information. Management uses its best judgment to ensure that the consolidated
financial statements present fairly, in all material respects, Napco Security
Systems consolidated financial position and results of operations in conformity
with generally accepted accounting principles.

The financial statements have been audited by an independent registered public
accounting firm in accordance with the standards of the Public Company
Accounting Oversight Board. Their report expresses the independent accountant's
judgment as to the fairness of management's reported operating results, cash
flows and financial position. This judgment is based on the procedures described
in the second paragraph of their report.

Napco Security Systems management is responsible for establishing and
maintaining adequate internal control over financial reporting. Under the
supervision of management, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in Internal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission published in 1992 and subsequent
guidance prepared specifically for smaller public companies.

                                                                              18


A material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the registrant's annual or interim financial
statements will not be prevented or detected on a timely basis. As a result of
our evaluation, management identified material weaknesses in our internal
controls over financial reporting, as of June 30, 2008. To address these
weaknesses described below, we performed additional analysis and performed other
procedures to ensure the consolidated financial statements were prepared in
accordance with generally accepted accounting principles. Accordingly,
management believes that the consolidated financial statements included in this
Annual Report on Form 10-K, fairly present, in all material respects, our
financial condition, results of operations and cash flows for the periods
presented in accordance with generally accepted accounting principles.

We identified the following material weaknesses relating to internal control of
inventory and our interim reporting:

1. Costing of inventory: Management's key controls over detecting inaccuracies
in costing were not operating effectively. Management has certain controls in
place to detect significant costing inaccuracies, however certain of these were
not performed because management had time constraints associated with the
efforts involved with its acquisition, an event that is not typical during the
financial reporting process. As part of its remediation efforts, management
plans on revising its inventory controls to ensure that the proper procedures
are carried out in future periods.

2. Interim reporting: Management did not have controls in place to sufficiently
refine its method for adjusting the estimates involved in quantifying cost of
goods sold and inventory amounts based on changes in the business and new
variables. This caused the recognition of expenses in cost of sales for the
three interim periods to be understated, thus reporting an undue proportion of
these expenses during the fourth quarter. Because the estimates used causing
these understatements are only used for interim reporting, as of this Annual
Report on 10-K, total expenses are recorded correctly. Management intends to
develop new controls that will permit it to identify new variables and changes
in the business when they occur in order to estimate its interim inventory and
cost of sales.

Previously Reported Material Weaknesses
All other material weaknesses previously noted in our past filings have been
remediated and the results of management's current year assessment have
confirmed that remediation efforts put in place by management have sufficiently
reduced or eliminated the risk of misstatement associated with these former
material weaknesses. During the fourth quarter of 2008, management implemented
internal controls to addresses the material weakness related to the valuation of
inventory. With respect to its overhead estimation methodology, while the
technique used to make this estimate has not changed, the amount of the costs
used in the estimate has significantly decreased since the prior year and is
expected to continue to decrease. Thus, management does not believe that its use
of this estimation technique continues to have a material impact on its
financial information. Furthermore, management incorporated additional reviews
of obsolete and slow moving parts by additional members of management.

Management also prepared a draft obsolescence review prior to the end of the
year to facilitate the formal year-end review. Management now conducts weekly
meetings to update the status of obsolete or slow moving parts. Management has
previously disclosed its remediation efforts of the material weakness related to
the classification of inventory, and this weakness has been fully remediated. We
will continue to monitor the effectiveness of our internal controls and
procedures on an ongoing basis and will take further actions, as appropriate.

Notwithstanding the above, management believes that the consolidated financial
statements included in this Annual Report on Form 10-K, fairly present, in all
material respects, our financial condition, results of operations and cash flows
for the periods presented in accordance with generally accepted accounting
principles.

There have not been any other changes in our internal control over financial
reporting that occurred during our first fiscal quarter that have materially
affected or are reasonably likely to affect our internal control over financial
reporting.

Marcum & Kliegman LLP, an independent registered public accounting firm, that
audited our consolidated financial statements included in this Annual Report on
Form 10-K, has issued an attestation report on management's assessment of Napco
Security System's internal control over financial reporting.

The Board of Directors of Napco Security Systems has an Audit Committee
comprised of three non-management directors. The Committee meets periodically
with financial management and the independent auditors to review accounting,
control, audit and financial reporting matters. Marcum & Kliegman have full and
free access to the Audit Committee, with and without the presence of management.

                                                                              19


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING

To the Audit Committee of the
Board of Directors and Stockholders
of NAPCO Security Systems, Inc.

We have audited NAPCO Security Systems, Inc. and Subsidiaries' (the "Company")
internal control over financial reporting as of June 30, 2008, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying "Management Report on Internal Control
over Financial Reporting". Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

                                                                              20


Because of the inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that degree of compliance with
the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company's annual or interim
financial statements will not be prevented or detected on a timely basis. The
following material weaknesses have been identified and included in management's
annual report on internal control over financial reporting:

     (1)  With respect to inventory valuation, management's controls were not
          operating effectively to ensure that it is recording inventory at the
          correct cost. This resulted in component part costing errors and
          overhead calculation errors.

     (2)  Management uses certain estimates with respect to the calculation of
          inventory and cost of sales during the interim periods. These
          estimations were not effective

These material weaknesses were considered in determining the nature, timing and
extent of audit tests applied in our audit of the fiscal 2008 consolidated
financial statements and financial statement schedule, and this report does not
affect our report dated September 30, 2008.

In our opinion, because of the effect of the material weaknesses described above
on the achievement of the objectives of the control criteria, NAPCO Security
Systems, Inc. and Subsidiaries has not maintained effective internal control
over financial reporting as of June 30, 2008, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets as
of June 30, 2008 and 2007, and the related consolidated statements of income,
stockholders' equity and cash flows of NAPCO Security Systems, Inc. and
Subsidiaries for each of the three years in the period ended June 30, 2008, and
our report dated September 30, 2008 expressed an unqualified opinion.


Marcum & Kliegman LLP
Melville, NY
September 30, 2008


                                                                              21


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------

To the Audit Committee of the Board of Directors and Stockholders of NAPCO
Security Systems, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of NAPCO Security
Systems, Inc. and Subsidiaries (the "Company") as of June 30, 2008 and 2007, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 2008. Our audits
also included the financial statement schedule as of and for the years ended
June 30, 2008, 2007 and 2006 listed in the index at item 15. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NAPCO Security Systems, Inc.
and Subsidiaries, as of June 30, 2008 and 2007, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2008 in conformity with generally accepted accounting principles in the
United States. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole presents fairly, in all material aspects, the information set forth
therein.

As discussed in Note 5 to the consolidated financial statements, the Company
changed its method of accounting for uncertain tax positions in accordance with
FASB Interpretation 48 "Accounting for Uncertainty in Income Taxes - an
Integration of FASB Statement No. 109" on July 1, 2007.


Melville, New York
September 30, 2008


                                                                              22


                  NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                             June 30, 2008 and 2007
                                 (In Thousands)

                                     ASSETS


                                                            2008           2007
                                                           -------       -------

CURRENT ASSETS
  Cash and cash equivalents                                $ 2,765       $ 1,748
  Accounts receivable, net of reserves                      25,823        25,579
  Inventories                                               19,548        20,389
  Prepaid expenses and other current assets                  1,121         1,171
  Deferred income taxes                                        769         1,050
                                                           -------       -------
     Total Current Assets                                   50,026        49,937

  Inventories - non-current, net                             7,724         7,834
  Property, plant and equipment, net                         8,989         9,135
  Goodwill, net                                              9,686         9,686
  Other assets                                                 298           193
                                                           -------       -------

     TOTAL ASSETS                                          $76,723       $76,785
                                                           =======       =======


          See accompanying notes to consolidated financial statements.

                                                                              23



                                                                                     
                                  NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
                                           CONSOLIDATED BALANCE SHEETS

                                             June 30, 2008 and 2007
                                        (In Thousands, Except Share Data)

                                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                  2008         2007
                                                                                --------    --------
CURRENT LIABILITIES
   Accounts payable                                                             $  4,857   $   5,045
   Accrued expenses                                                                1,333       1,638
   Accrued salaries and wages                                                      2,543       2,631
   Accrued income taxes                                                               --          96
                                                                                --------    --------
      Total Current Liabilities                                                    8,733       9,410

   Long-term debt                                                                 12,400      10,900
   Accrued income taxes                                                              294       1,836
   Deferred income taxes                                                           1,607       1,235
   Minority interest in subsidiary                                                   147         147
                                                                                --------    --------

      Total Liabilities                                                           23,181      23,528
                                                                                --------    --------

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
   Common stock, par value $0.01 per share; 40,000,000 shares authorized;
      20,092,473 and 20,090,313 shares issued; 19,092,473 and
      19,665,141 shares outstanding, respectively                                    201         201
   Additional paid-in capital                                                     13,424      13,147
   Retained earnings                                                              45,532      42,299
                                                                                --------    --------
                                                                                  59,157      55,647
   Less: Treasury Stock, at cost (1,000,000 and 425,172 shares, respectively)     (5,615)     (2,390)
                                                                                --------    --------

      TOTAL STOCKHOLDERS' EQUITY                                                  53,542      53,257
                                                                                --------    --------


      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $ 76,723    $ 76,785
                                                                                ========    ========



          See accompanying notes to consolidated financial statements.

                                                                              24



                                                                            
                                  NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF INCOME

                                    Years Ended June 30, 2008, 2007, and 2006
                                 (In Thousands, Except Share and Per Share Data)


                                                         2008            2007            2006
                                                     ------------    ------------    ------------

Net sales                                            $     68,367    $     66,202    $     69,548
Cost of sales                                              47,955          42,204          42,592
                                                     ------------    ------------    ------------

      Gross Profit                                         20,412          23,998          26,956

Selling, general, and administrative expenses              17,275          17,497          17,433
                                                     ------------    ------------    ------------

      Operating Income                                      3,137           6,501           9,523
                                                     ------------    ------------    ------------

Other expense:
   Interest expense, net                                     (819)           (637)           (258)
   Other, net                                                 (42)            (17)            (14)
                                                     ------------    ------------    ------------

                                                             (861)           (654)           (272)
                                                     ------------    ------------    ------------

Income Before Minority Interest and Income Taxes            2,276           5,847           9,251
Minority interest in loss of subsidiary                        34             292             132
                                                     ------------    ------------    ------------

Income Before (Benefit) Provision for Income Taxes          2,310           6,139           9,383
(Benefit) Provision for income taxes                       (1,408)          1,922           3,264
                                                     ------------    ------------    ------------

      Net Income                                     $      3,718    $      4,217    $      6,119
                                                     ============    ============    ============

Earnings per share:
   Basic                                             $       0.19    $       0.21    $       0.31
   Diluted                                           $       0.19    $       0.20    $       0.30

Weighted average number of shares outstanding:
   Basic                                               19,263,000      19,961,000      19,785,000
   Diluted                                             19,802,000      20,599,000      20,605,000



          See accompanying notes to consolidated financial statements.

                                                                              25



                                                                                                              
                                  NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                    Years Ended June 30, 2008, 2007 and 2006
                                        (In Thousands, Except Share Data)

                                             Common stock
                                         -----------------------                    Treasury Stock
                                           Number                  Additional   -----------------------
                                          of Shares                 Paid-in       Number                     Retained
                                           Issued      Amount       Capital     of Shares       Amount       Earnings       Total
                                         ----------   ----------   ----------   ----------    ----------    ----------   ----------
BALANCE - June 30, 2005                  19,474,173          195       11,520           --            --        31,963       43,678
   Exercise of employee stock options       476,280            5          442           --            --            --          447

   Tax benefit in connection with
      exercise of stock options                  --           --          210           --            --            --          210
   Non-cash stock-based
      compensation expense                       --           --          396           --            --            --          396
   Net income                                    --           --           --           --            --         6,119        6,119
                                         ----------   ----------   ----------   ----------    ----------    ----------   ----------

BALANCE - June 30, 2006                  19,950,453          200       12,568           --            --        38,082       50,850

   Exercise of employee stock options       139,860            1          167           --            --            --          168
   Non-cash stock-based
      compensation expense                       --           --          412           --            --            --          412
   Repurchase of Treasury shares                 --           --           --     (425,172)       (2,390)           --       (2,390)
   Net income                                    --           --           --           --            --         4,217        4,217
                                         ----------   ----------   ----------   ----------    ----------    ----------   ----------

BALANCE - June 30, 2007                  20,090,313          201       13,147     (425,172)       (2,390)       42,299       53,257

   Exercise of employee stock options         2,160           --            3           --            --            --            3
   Non-cash stock-based
      compensation expense                       --           --          274           --            --            --          274
   Repurchase of Treasury shares                 --           --           --     (574,828)       (3,225)           --       (3,225)
   FIN48 adjustment to retained earnings         --           --           --           --            --          (485)        (485)
   Net income                                    --           --           --           --            --         3,718        3,718
                                         ----------   ----------   ----------   ----------    ----------    ----------   ----------


BALANCE - June 30, 2008                  20,092,473   $      201   $   13,424   (1,000,000)   $   (5,615)   $   45,532   $   53,542
                                         ==========   ==========   ==========   ==========    ==========    ==========   ==========



          See accompanying notes to consolidated financial statements.

                                                                              26



                                                                                        
                                       NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Years Ended June 30, 2008, 2007, and 2006 (In Thousands)

                                                                             2008       2007       2006
                                                                            -------    -------    -------
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                              $ 3,718   $  4,217    $ 6,119
   Adjustments to reconcile net income to net cash Provided by (used in)
    operating activities:
      Depreciation and amortization                                          1,191      1,201      1,192
      Charge (Recovery) to obsolescence reserve                                 --        213       (531)
    (Recovery) Provision for doubtful accounts                                  40        (55)        40
      Deferred income taxes                                                    653       (170)       131
      Excess tax benefit from exercise of stock options                         --         --       (210)
      Non-cash stock based compensation expense                                274        412        396

   Changes in operating assets and liabilities:
      Accounts receivable                                                     (284)      (371)    (3,294)
      Inventories                                                              951     (5,770)    (5,893)
      Prepaid expenses and other current assets                                 52       (416)        44
      Other assets                                                            (106)       (43)        42
      Accounts payable, accrued expenses, accrued salaries and
         wages, accrued income taxes and minority interest                  (2,705)    (2,893)     1,795
                                                                           -------    -------    -------

   Net Cash Provided by (Used in) Operating Activities                       3,784     (3,674)      (168)
                                                                           -------    -------    -------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of property, plant, and equipment                              (1,045)    (1,294)    (1,679)
                                                                           -------    -------    -------

CASH FLOWS FROM FINANCING ACTIVITIES
   Cash paid for purchase of Treasury Stock                                 (3,225)    (2,390)        --
   Principal payments on long-term debt                                     (3,500)    (1,100)        --
   Proceeds from long-term debt                                              5,000      7,300      2,750
   Proceeds from exercise of employee stock options                              3        168        447
   Excess tax benefit from exercise
         of stock options                                                       --         --        210
   Loan costs paid                                                              --         --         --
                                                                           -------    -------    -------

            Net Cash (Used In) Provided By Financing Activities             (1,722)     3,978      3,407
                                                                           -------    -------    -------

            Net Increase (Decrease) In Cash and
               Cash Equivalents                                              1,017       (990)     1,560

CASH AND CASH EQUIVALENTS - Beginning                                        1,748      2,738      1,178
                                                                           -------    -------    -------

CASH AND CASH EQUIVALENTS - Ending                                         $ 2,765    $ 1,748    $ 2,738
                                                                           =======    =======    =======

SUPPLEMENTAL CASH FLOW INFORMATION

   Interest paid, net                                                      $   776    $   520    $   228
   Income taxes paid                                                       $   108    $ 4,280    $ 2,573

NON-CASH INVESTING ACTIVITIES:

   Adjustment to Retained earnings relating to adoption of FIN 48          $  (485)   $    --    $    --
                                                                           =======    =======    =======



          See accompanying notes to consolidated financial statements.

                                                                              27


                  NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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


Nature of Business

Napco Security Systems, Inc. and subsidiaries (the "Company") is a diversified
manufacturer of security products, encompassing intrusion and fire alarms,
building access control systems and electronic locking devices. 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.

Principles of Consolidation

The consolidated financial statements include the accounts of Napco Security
Systems, Inc. and all of its wholly-owned subsidiaries. The Company has also
consolidated a 51%-owned joint venture. The 49% interest, held by a third party,
is reflected as minority interest. All inter-company balances and transactions
have been eliminated in consolidation.

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 revenue recognition, concentration of credit risk, inventories,
goodwill and income taxes. Actual results could differ from those estimates.
Gross profit for the fourth quarter of fiscal 2008 was adversely affected by the
recognition of certain material and factory expenses in the fourth quarter that
should have been charged to cost of goods sold during the first nine months of
fiscal 2008. This was due to certain inaccuracies in the estimates used for
interim reporting in quantifying cost of goods sold and inventory amounts based
on changes in the business.

Cash and Cash Equivalents

Cash and cash equivalents include approximately $1,753,000 and $195,000 of
short-term time deposits at June 30, 2008 and 2007, respectively. 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
June 30, 2008 and 2007.

Accounts Receivable

Accounts receivable is stated net of the reserves for doubtful accounts of
$405,000 and $365,000 and for returns and other allowances of $1,130,000 and
$1,385,000 as of June 30, 2008 and June 30, 2007, 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 approximations and actual results
could differ from those estimates.

                                                                              28


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. For the fiscal years 2008, 2007 and 2006,
charges/(recoveries) and balances in these reserves amounted to $0 and
$1,200,000, $213,000 and $1,200,000; $(531,000) and $987,000, respectively. 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.

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.

Goodwill

The Company accounts for goodwill in accordance with Statement of Financial
Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. These statements established accounting
and reporting standards for acquired goodwill and other intangible assets.
Specifically, the standards address how acquired intangible assets should be
accounted for both at the time of acquisition and after they have been
recognized in the financial statements. In accordance with SFAS No. 142,
purchased goodwill must be evaluated for impairment on an annual basis. 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 an impairment, the Company measures the amount of
impairment loss by comparing the implied fair value of goodwill with the
carrying amount of that goodwill. The Company has performed its annual
impairment evaluation required by this standard and determined that the goodwill
is not impaired.

Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
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. An 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

In accordance with SEC Staff Accounting Bulletin Topic 13, 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) collectibility is reasonably assured. Revenues from
merchandise 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
levels 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.

                                                                              29


Sales Returns and Other Allowances

The Company analyzes sales returns in accordance with SFAS No. 48 "Revenue
Recognition When Right of Return Exists". The Company 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.

Advertising and Promotional Costs

Advertising and promotional costs are included in "Selling, General and
Administrative" expenses in the consolidated statements of income and are
expensed as incurred. Advertising expense for the fiscal years ended June 30,
2008, 2007 and 2006 was $1,256,000, $1,374,000 and $1,318,000, respectively.

Research and Development Costs

Research and development costs incurred by the Company are charged to expense in
the year incurred. Company-sponsored research and development costs of
$5,500,000, $5,319,000 and $5,109,000 were charged to expense for the fiscal
years ended June 30, 2008, 2007 and 2006, respectively, and are included in
"Cost of Sales" in the consolidated statements of income.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," as amended. This statement establishes financial
accounting and reporting standards for the effects of income taxes that result
from an enterprise's activities during the current and preceding years. It
requires an asset and liability approach for financial accounting and reporting
of income taxes.

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. ("FIN") 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with SFAS No. 109. FIN 48 prescribes a
two-step evaluation process for tax positions taken, or expected to be taken, in
a tax return. The first step is recognition and the second is measurement. FIN
48 also provides guidance on derecognition, measurement, classification,
disclosures, transition and accounting for interim periods. In May 2007, the
FASB issued FASB Staff Position ("FSP") No. FIN 48-1, "Definition of Settlement
in FASB Interpretation No. 48, an amendment of FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes" ("FSP No. FIN 48-1"). FSP No. FIN
48-1 provides guidance on how to determine whether a tax position is effectively
settled for the purpose of recognizing previously unrecognized tax benefits. The
Company adopted the provisions of FIN 48, as amended, effective July 1, 2007.
See Note 5.

Stock Dividend and Stock Split

On May 10, 2006 the Company's Board of Directors approved a 3-for-2 stock split
of its common stock, to be paid in the form of a 50% stock dividend to
stockholders of record on May 24, 2006. The Company delivered the shares on June
7, 2006. Upon completion of the split, the total number of shares of common
stock outstanding increased from approximately 13,300,000 to approximately
19,950,000.

On November 29, 2005 the Company's Board of Directors approved a 3-for-2 split
of its common stock, payable in the form of a 50% stock dividend to stockholders
of record on December 14, 2005. The additional shares were distributed on
December 28, 2005. Upon completion of the split, the total number of shares of
common stock outstanding increased from approximately 8,795,000 to approximately
13,192,000.

All share and per share amounts (except par value) have been retroactively
adjusted to reflect the stock splits and dividend. There was no net effect on
total stockholders' equity as a result of these transactions.

                                                                              30


Earnings Per Share

The Company follows the provisions of SFAS No. 128, Earnings 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. SFAS No. 128 requires the presentation
of both Basic EPS and Diluted EPS on the face of the consolidated statements of
income.

The following provides a reconciliation of information used in calculating the
per share amounts for the fiscal years ended June 30 (in thousands, except per
share data):


                                                                         
                                 Net income          Weighted Average Shares       Net income per share
                          ------------------------   ------------------------   ----------------------------
                           2008     2007     2006     2008     2007     2006      2008      2007      2006
                          ------   ------   ------   ------   ------   ------   --------   ------   --------
Basic EPS:                $3,718   $4,217   $6,119   19,263   19,961   19,785   $   0.19   $ 0.21   $   0.31
Effect of Dilutive
   Securities: Employee
   Stock options              --       --       --      539      638      820         --    (.01)      (0.01)
                          ------   ------   ------   ------   ------   ------   --------   ------   --------

Diluted EPS:              $3,718   $4,217   $6,119   19,802   20,599   20,605   $   0.19   $ 0.20   $   0.30
                          ======   ======   ======   ======   ======   ======   ========   ======   ========



Options to purchase 187,700, 87,674 and 37,500 shares of common stock for the
three fiscal years ended June 30, 2008, 2007 and 2006, respectively, were not
included in the computation of Diluted EPS because the exercise prices exceeded
the average market price of the common shares for the respective periods and,
accordingly, 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.

Effective July 1, 2005, the Company adopted SFAS No. 123(R), "Share-Based
Payment" ("SFAS No. 123(R)"). This statement replaces SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123") and supersedes APB No. 25. SFAS
No. 123(R) requires that all stock-based compensation be recognized as an
expense in the financial statements and that such cost be measured at the fair
value of the award. This statement was adopted using the modified prospective
method of application, which required the Company to recognize compensation
expense on a prospective basis. Therefore, prior period financial statements
have not been restated. Under this method, in addition to reflecting
compensation expense for new share-based awards, expense is also recognized to
reflect the remaining service period of awards that had been included in
pro-forma disclosures in prior periods. SFAS No. 123(R) also requires that
excess tax benefits related to stock option exercises be reflected as financing
cash inflows instead of operating cash inflows.

Stock-based compensation costs of $274,000, $412,000 and $396,000 were
recognized for fiscal years 2008, 2007 and 2006, respectively. The effect on
both Basic and Diluted Earnings per share was $0.01 for fiscal year 2008, $0.02
for fiscal year 2007 and $0.02 for fiscal year 2006.

Foreign Currency

All assets and liabilities of foreign subsidiaries are translated into U.S.
Dollars at fiscal year-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 years ended June 30, 2008.

Comprehensive Income

The Company follows the provisions of SFAS No. 130, Reporting Comprehensive
Income, which established rules for the reporting of comprehensive income and
its components. For the fiscal years ended June 30, 2008, 2007 and 2006, 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.

                                                                              31


Segment Reporting

The Company follows the provisions of SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. Pursuant to this pronouncement, the
reportable operating segments are determined based on the Company's management
approach. The management approach, as defined by SFAS No. 131, 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.

Fair Value of Financial Instruments

The Company calculates the fair value of financial instruments and includes this
additional information in the notes to the financial statements where the fair
value is different than the book value of those financial instruments. When the
fair value approximates book value, no additional disclosure is made. The
Company uses quoted market prices whenever available to calculate these fair
values. When quoted market prices are not available, the Company uses standard
pricing models for various types of financial instruments which take into
account the present value of estimated future cash flows. At June 30, 2008 and
2007, management of the Company believes the carrying value of all financial
instruments approximated fair value.

Shipping and Handling Revenues and Costs

Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and
Handling Revenues and Costs requires that all shipping and handling billed to
customers should be reported as revenue and the costs associated with these
revenues may be classified as either cost of sales, or selling, general, and
administrative costs, with footnote disclosure as to classification of these
costs. The Company records the amount billed to customers in net sales ($584,000
and $490,000 in fiscal years 2008 and 2007, respectively) and classifies the
costs associated with these revenues in cost of sales ($882,000 and $912,000 in
fiscal years 2008 and 2007, respectively).

New Accounting Pronouncements

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles". This Statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). This Statement is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles. The Board does not expect that this
Statement will result in a change in current practice. However, transition
provisions have been provided in the unusual circumstance that the application
of the provisions of this Statement results in a change in practice.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No. 133.
This statement changes the disclosure requirements for derivative instruments
and hedging activities. Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial performance, and
cash flows. SFAS No. 161 is effective for fiscal years and interim periods
beginning after November 15, 2008. The Company's adoption of SFAS No. 161 is not
expected to have a material effect on its condensed consolidated financial
statements.

In February 2008, the FASB issued FASB Staff Position ("FSP") No. FAS 157-1,
"Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13." This FSP amends SFAS
No. 157 to exclude certain leasing transactions accounted for under previously
existing accounting guidance. However, this scope exception does not apply to
assets acquired and liabilities assumed in a business combination, regardless of
whether those assets and liabilities are related to leases.

                                                                              32


In February 2008, the FASB issued FSP No. FAS 157-2, "Effective Date of FASB
Statement No. 157". This FSP delays the effective date of SFAS No. 157, "Fair
Value Measurements", for non-financial assets and non-financial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). This FSP defers the
effective date of SFAS No. 157 to fiscal years beginning after November 15,
2008, and interim periods within those fiscal years for items within the scope
of this FSP.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS No. 141(R)"). SFAS No. 141(R) replaces SFAS No. 141,
"Business Combinations," however, it retains the fundamental requirements of the
former Statement that the acquisition method of accounting (previously referred
to as the purchase method) be used for all business combinations and for an
acquirer to be identified for each business. SFAS No. 141(R) defines the
acquirer as the entity that obtains control of one or more businesses in the
business combination and establishes the acquisition date as the date that the
acquirer achieves control. Among other requirements, SFAS No. 141(R) requires
the acquiring entity in a business combination to recognize the identifiable
assets acquired, liabilities assumed and any non-controlling interest in the
acquiree at their acquisition-date fair values, with limited exceptions;
acquisition-related costs generally will be expensed as incurred. SFAS No.
141(R) requires certain financial statement disclosures to enable users to
evaluate and understand the nature and financial effects of the business
combination. SFAS No. 141(R) must be applied prospectively to business
combinations that are consummated beginning in the Company's fiscal 2010. The
Company's adoption of SFAS No. 141(R) is not expected to have a material effect
on its condensed consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements, an Amendment of ARB No. 51" ("SFAS No. 160")
to establish accounting and reporting standards for the non-controlling interest
in a subsidiary and for the deconsolidation of a subsidiary. Among other
requirements, SFAS No. 160 clarifies that a non-controlling interest in a
subsidiary, which is sometimes referred to as minority interest, is to be
reported as a separate component of equity in the consolidated financial
statements. SFAS No. 160 also requires consolidated net income to include the
amounts attributable to both the parent and the non-controlling interest and to
disclose those amounts on the face of the consolidated statement of income. SFAS
No. 160 must be applied prospectively for fiscal years, and interim periods
within those fiscal years, beginning in the Company's fiscal 2010, except for
the presentation and disclosure requirements, which will be applied
retrospectively for all periods. The Company's adoption of SFAS No. 160 is not
expected to have a material effect on its condensed consolidated financial
statements.

In December 2007, the U.S. Securities and Exchange Commission issued Staff
Accounting Bulletin No. 110 ("SAB 110"). This staff accounting bulletin ("SAB")
expresses the views of the staff regarding the use of a "simplified" method, as
discussed in SAB No. 107 ("SAB 107"), in developing an estimate of expected term
of "plain vanilla" share options in accordance with SFAS No. 123 (revised 2004),
Share-Based Payment. In particular, the staff indicated in SAB 107 that it will
accept a company's election to use the simplified method, regardless of whether
the company has sufficient information to make more refined estimates of
expected term. At the time SAB 107 was issued, the staff believed that more
detailed external information about employee exercise behavior (e.g., employee
exercise patterns by industry and/or other categories of companies) would, over
time, become readily available to companies. Therefore, the staff stated in SAB
107 that it would not expect a company to use the simplified method for share
option grants after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available by
December 31, 2007. Accordingly, the staff will continue to accept, under certain
circumstances, the use of the simplified method beyond December 31, 2007. The
Company's adoption of SAB 111 is not expected to have a material effect on its
condensed consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. Most of the provisions of this Statement
apply only to entities that elect the fair value option. However, the amendment
to SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", applies to all entities with available-for-sale and trading
securities. Some requirements apply differently to entities that do not report
net income. SFAS No. 159 will become effective for the Company in its fiscal
year ending June 30, 2009. The Company's adoption of SFAS No. 159 is not
expected to have a material effect on its condensed consolidated financial
statements.

                                                                              33


In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". SFAS
No. 157 provides guidance for using fair value to measure assets and
liabilities. In addition, this statement defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. Where applicable, this statement simplifies and codifies related
guidance within generally accepted accounting principles. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company's
adoption of SFAS No. 157 is not expected to have a material effect on its
condensed consolidated financial statements.


Reclassification.

Certain expenses in Cost of sales for 2007 and 2006 have been reclassified to
Selling, general and administrative expenses and certain amounts in current
inventory in 2007 were reclassified to non-current inventory to conform with the
current years presentation.

NOTE 2 - Business and Credit Concentrations
-------------------------------------------

The Company had two customers with accounts receivable balances that aggregated
34% and 38% of the Company's accounts receivable at June 30, 2008 and 2007,
respectively. Sales to neither of these customers exceeded 10% of net sales in
any of the past three 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.

Inventories, net of reserves consist of the following:

                                                        June 30,
                                              -----------------------------
                                                 2008               2007
                                              ---------          ----------
                                                     (In thousands)

         Component parts                      $  12,924          $   15,139
         Work-in-process                          4,114               3,139
         Finished product                        10,234               9,945
                                              ---------          ----------

                                              $  27,272          $   28,223
                                              =========          ==========

Classification of inventories, net of reserves:

         Current                              $  19,548          $   20,389
         Non-current                              7,724               7,834
                                              ---------          ----------

                                              $  27,272          $   28,223
                                              =========          ==========

                                                                              34


NOTE 4 - Property, Plant, and Equipment
---------------------------------------

Property, plant and equipment consist of the following:


                                                                                
                                                        June 30,
                                              -----------------------------
                                                2008                2007              Useful Life In years
                                              ---------          ----------     ------------------------------------------
                                                      (In thousands)

         Land                                 $     904          $      904                 --
         Buildings                                8,911               8,911              30 to 40
         Molds and dies                           4,995               4,925               3 to 5
         Furniture and fixtures                   1,652               1,630               5 to 10
         Machinery and equipment                 16,116              15,163               7 to 10
         Leasehold improvements                     190                 190     Shorter of the lease term or life of asset
                                              ---------           ---------
                                                 32,768              31,723
         Less: accumulated depreciation
                  and amortization               23,779              22,588
                                              ---------           ---------

                                              $   8,989          $    9,135
                                              =========          ==========


Depreciation and amortization expense on property, plant, and equipment was
approximately $1,193,000, $1,201,000 and $1,174,000 in fiscal 2008, 2007 and
2006, respectively.


NOTE 5 - Income Taxes
---------------------

The (Benefit) provision for income taxes consists of the following:

                                                   For the Years Ended June 30,
                                                 -------------------------------
                                                   2008        2007        2006
                                                 -------     -------     -------
                                                          (In thousands)

Current income taxes:
   Federal                                       $(2,291)    $ 2,069     $ 3,107
   State                                              (8)         15          15
   Foreign                                             8           8          11
                                                 -------     -------     -------
                                                  (2,291)      2,092       3,133

Deferred income tax expense (benefit)                883        (170)        131
                                                 -------     -------     -------

(Benefit) provision for income taxes             $(1,408)    $ 1,922     $ 3,264
                                                 =======     =======     =======

The difference between the statutory U.S. Federal income tax rate and the
Company's effective tax rate as reflected in the consolidated statements of
income is as follows (dollars in thousands):


                                                                                    
                                                               For the Years Ended June 30,
                                                 ----------------------------------------------------------
                                                          2008              2007                2006
                                                 ------------------  -----------------   ------------------
                                                              % of               % of                 % of
                                                            Pre-tax             Pre-tax             Pre-tax
                                                  Amount    Income    Amount    Income   Amount      Income
                                                 -------    -------  -------    ------   -------    -------

Tax at Federal statutory rate                    $   785      34.0%  $ 2,087      34.0%  $ 3,190      34.0%
Increases (decreases) in taxes resulting from:
   Meals and entertainment                            59       2.6%       60       1.0%       62        .7%
      State income taxes, net of
         Federal income tax benefit                  (16)     (0.7)%      10        .2%       10        .1%
   Foreign source income and taxes                  (258)    (11.1)%      (5)      (.1)%      (7)      (.1)%
   Stock based compensation expense                   66       2.9%       99       1.6%       96       1.0%
   Alternative Minimum Tax
         Credit utilization                           --      --          --      --          43        .5%
   Tax reserve reversal                           (2,127)    (92.1)%    (407)     (6.6)%      --        --
   Other, net                                         83       3.6%       78       1.2      (130)     (1.4)%
                                                 -------     -----   -------      ----   -------      ----

(Benefit) provision for income taxes             $(1,408)    (61.0)% $ 1,922      31.3%  $ 3,264      34.8%
                                                 =======     =====   =======      ====   =======      ====


                                                                              35


Deferred tax assets and deferred tax liabilities at June 30, 2008 and 2007 are
as follows (in thousands):

                                              Current             Long-Term
                                       Deferred Tax Assets   Deferred Tax Assets
                                           (Liabilities)        (Liabilities)
                                        -----------------    ------------------
                                          2008      2007      2008        2007
                                        -------   -------    -------    -------

Accounts receivable                     $    26   $    26    $    --    $    --
Inventories                                 470       770        273        646
Accrued liabilities                         273       254         --         --
State net operating loss carryforward        --       480         --         --
Stock based compensation expense             --        --        107         80
Goodwill                                     --        --     (1,311)    (1,140)
Property, plant and equipment                --        --       (775)      (821)
FIN 48 Adjustment                             0         0         99          0
                                        -------   -------    -------    -------

                                            769     1,530     (1,607)    (1,235)
Valuation allowance                          --      (480)        --         --
                                        -------   -------    -------    -------

   Net deferred taxes                   $   769   $ 1,050    $(1,607)   $(1,235)
                                        =======   =======    =======    =======

The Company adopted the provisions of FIN 48 as of July 1, 2007. The Company has
identified its U.S. Federal income tax return and its State return in New York
as its major tax jurisdictions. As a result the Company increased its accrued
income tax liability by $715,000, from $1,836,000 to $2,551,000, to provide for
additional reserves for uncertain income tax positions for U.S. Federal and
State income tax purposes. The fiscal 2005 and forward years are still open for
examination. The increase in the accrued income tax liability of $715,000 was
offset in part by a $230,000 increase to a deferred income tax asset, resulting
in a net reduction to retained earnings of $485,000 (representing the cumulative
effect of adopting FIN 48).

During the year ending June 30, 2008 the Company decreased its reserve for
uncertain income tax positions by $ 1,888,000. As of June 30, 2008 the Company
has a long-term accrued income tax liability of $ 249,000. The Company's
practice is to recognize interest and penalties related to income tax matters in
income tax expense and accrued income taxes. As of June 30, 2008, the Company
had accrued interest totaling $454,000 and $1,954,000 of unrecognized net tax
benefits (including the related accrued interest and net of the related deferred
income tax benefit of $100,000) that, if recognized, would favorably affect the
company's effective income tax rate in any future period.

For the year ended June 30, 2008, the company recognized a net benefit to income
tax expense of $2,127,000 ($2,257,000 liability reversal including interest,
less the related $130,000 reversal of deferred tax asset). This benefit relates
predominantly to the company's domestication election, for which the statute of
limitations expired during the third quarter.


                                                                                     
                                                                       Tax       Interest        Total
                                                                  ------------- ------------- -------------

Balance of gross unrecognized tax benefits as of July 1, 2007     $   2,137,000 $   414,000      $2,551,000

Reductions to unrecognized tax benefits as a result of a lapse
  of the applicable statute of limitations                           (1,888,000)   (369,000)     (2,257,000)
                                                                  ------------- ------------- -------------

Balance of gross unrecognized tax benefits as of June 30, 2008    $     249,000 $    45,000        $294,000
                                                                  ============= ============= =============


During the quarter ended December 31, 2007 the Company completed a corporate
restructuring for which new offshore companies were formed (Napco DR, S.A. and
Napco Americas). These newly formed wholly-owned subsidiaries are included in
the Company's condensed consolidated financial statements. The existing US-based
companies ("Napco US") and these newly formed offshore companies entered into
technology licenses and research and development cost sharing agreements. Napco
DR. S.A. purchased the majority of the operating assets previously held by the
existing Dominican subsidiary. Napco DR, S.A. is doing business in a Free Zone
Park in the Dominican Republic and as such is not subject to Dominican corporate
income taxes.

                                                                              36


Napco US plans to permanently reinvest a substantial portion of its foreign
earnings and as such has not provided US corporate taxes on the permanently
reinvested earnings. As of June 30, 2008, the Company had not provided Federal
income taxes on approximately $645,000 of undistributed earnings of foreign
subsidiaries. The determination and estimation of the future income tax
consequences in all relevant taxing jurisdictions involves the application of
highly complex tax laws in the countries involved particularly in the United
States, and is based on the tax profile of the Company in the year of earnings
repatriation. Accordingly, it is not practicable to determine the amount of tax
associated with such undistributed earnings.

As of June 30, 2008 the Company generated a US tax loss of approximately
$204,000 which is available to be carried back to the fiscal year ended June 30,
2006.

NOTE 6 - Long-Term Debt
-----------------------

As of June 30, 2008, Long-term debt consists of a revolving credit loan facility
of $25,000,000 with outstanding borrowings of $12,400,000 at June 30, 2008 and
$10,900,000 at June 30, 2007. As of June 30, 2008 the Company was not in
compliance with the covenant relating to Tangible Net Worth required under the
$25,000,000 facility which was in effect as of June 30, 2008. The Company has
received the appropriate waiver from its bank.

On August 18, 2008, the Company and its banks amended and restated the revolving
credit agreement described above. The amended facility is $50,000,000 and
provides for a $25,000,000 revolving credit line as well as a $25,000,000 term
portion of which the entire $25,000,000 was utilized to finance the asset
purchase agreement as described in Note 12. The amended revolving credit
agreement and term loan is secured by all the accounts receivable, inventory,
the Company's headquarters in Amityville, New York and certain other assets of
Napco Security Systems, Inc. and the common stock of three of the Company's
subsidiaries. The agreements bear interest at either the Prime Rate or an
alternate rate based on LIBOR as described in the agreement. As of June 30, 2008
the interest rate on the outstanding portion of the facility was 4.1%. The
August amendment extended the revolving credit agreement to August 2012. Any
outstanding borrowings are to be repaid or refinanced on or before that time.
The term loan is to be repaid in 19 quarterly installments of $893,000 each
commencing in December 2008 and a final payment of $8,033,000 due in August
2013. 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 agreement.


NOTE 7 - Stock Options
----------------------

In December 2002, the stockholders approved the 2002 Employee Stock Option Plan
(the 2002 Plan). The 2002 Plan authorizes 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 the 2002 Plan,
the Company may grant stock options, which are intended to qualify as incentive
stock options (ISOs), to key 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 2002 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 June 30, 2008, 1,371,480 stock options were granted, 464,520 stock
options were available for grant, and 1,153,948 stock options were exercisable
under this plan.

The fair value of each option granted during fiscal 2008 and 2007 were estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:

                                         2008                  2007
                                      ----------            -----------
Risk-free interest rates                 4.65%                4.7%
Expected lives                         10 years              7.15 years
Expected volatility                        59%                 59%
Expected dividend yields                    0%                  0%

                                                                              37


The following table reflects activity under the 1992 and 2002 Plans for the
fiscal years ended June 30,:


                                                                             
                                           2008                  2007                    2006
                                   ----------------------  ---------------------  ---------------------
                                                Weighted                Weighted               Weighted
                                                average                 average                 average
                                                exercise                exercise               exercise
                                    Options       price     Options      price     Options      price
                                   ----------    --------  ---------    --------  ---------    --------

Outstanding at beginning of year    1,255,640    $   2.41  1,333,050    $   2.41  1,544,940    $   1.62
Granted                                40,000        5.69     66,500        6.25    161,250        7.67
Exercised                              (2,160)       1.62   (139,860)       1.21   (346,680)       1.00
Forfeited                                  --       --        (4,050)       1.62    (24,300)       1.62
Cancelled/lapsed                           --       --            --       --        (2,160)        .72
                                   ----------    --------  ---------    --------  ---------    --------
Outstanding at end of year          1,293,480    $   2.84  1,255,640    $   2.41  1,333,050    $   2.41
                                   ==========    ========  =========    ========  =========    ========

Exercisable at end of year          1,153,948    $   2.43  1,048,288    $   2.24    940,098    $   1.95
                                   ==========    ========  =========    ========  =========    ========

Weighted average fair value at
   grant date of options granted   $     3.62             $     3.88             $     6.69
Total intrinsic value of
   options exercised               $    8,000             $   73,000             $  191,000
Total intrinsic value of
   Options outstanding             $1,506,000
Total intrinsic value of
   Options exercisable             $1,081,000



Cash received from option exercises for fiscal years 2008, 2007 and 2006 was
$2,000, $168,000 and $447,000, respectively. The actual tax benefit realized for
the tax deductions from option exercises totaled $0, $0 and $210,000 for fiscal
years 2008, 2007 and 2006, respectively.

The following table summarizes information about stock options outstanding under
the 2002 Plan at June 30, 2008:

                          Options outstanding            Options exercisable
                   ----------------------------------  ----------------------
                                  Weighted
                     Number        average   Weighted    Number      Weighted
                   outstanding    remaining   average  exercisable   average
Range of exercise  at June 30,   contractual exercise  at June 30,   exercise
      prices          2008          life      price       2008         price
-----------------  -----------   --------------------  -----------   --------
$0.72 to $ 4.00     1,065,730         5.1   $    1.89  1,030,598     $    1.89
$4.01 to $ 7.50       190,250         9.5        5.70    100,850          5.70
$7.51 to $11.16        37,500         7.7       11.16     22,500         11.16
                    ---------       -----   ---------  ---------     ---------

                    1,293,480         5.5   $    2.75  1,153,948     $    2.41
                    =========       =====   =========  =========     =========

As of June 30, 2008, there was $451,000 of total unearned stock-based
compensation cost related to non-vested share-based compensation arrangements
granted under the 2002 Plan. That cost is expected to be recognized over a
weighted average period of 7 years. The total fair value of the options vested
during fiscal 2008 under the 2002 Plan was $255,000.

In September 2000, the stockholders approved a 10 year extension of the already
existing 1990 non-employee stock option plan (the 2000 Plan) to encourage
non-employee directors and consultants of the Company to invest in the Company's
stock. The 2000 Plan provided for the granting of non-qualified stock options,
the exercise of which would allow up to an aggregate of 270,000 shares of the
Company's common stock to be acquired by the holders of the stock options. The
2000 Plan provided that the option price will not be less than 100% of the fair
market value of the stock at the date of grant. Options were exercisable at 20%
per year and expire five years after the date of grant. Compensation cost is
recognized for the fair value of the options granted to non-employee directors
and consultants as of the date of grant. $19,000 of compensation expense was
recorded for stock options granted to directors under the 2000 Plan. There are
24,000 options available for future grants under the 2000 Plan.

                                                                              38


The following table reflects activity under the 2000 Plan for the fiscal years
ended June 30,:


                                                                               
                                            2008                     2007                   2006
                                      --------------------   --------------------  ----------------------
                                                  Weighted              Weighted                   Weighted
                                                  average                average                   average
                                                  exercise               exercise                 exercise
                                      Options       price    Options      price     Options         price
                                      -------     --------   -------     --------   -------      --------

Outstanding at beginning of year       30,000     $   5.03        --     $     --   129,600      $   1.15
Granted                                    --           --    30,000         5.03        --            --
Exercised                                  --           --        --           --  (129,600)         1.15
Forfeited                                  --           --        --           --        --            --
Cancelled/lapsed                           --           --        --           --        --            --
                                       ------     --------    ------     --------   -------      --------
Outstanding at end of year             30,000     $   5.03    30,000     $   5.03        --      $     --
                                       ======     ========    ======     ========   =======      ========

Exercisable at end of year             12,000     $   5.03     6,000         5.03        --      $     --
                                       ======     ========    ======     ========   =======      ========

Weighted average fair value at
   grant date of options granted          n/a                $  3.16                    n/a
Total intrinsic value of
   options exercised                      n/a                    n/a                $42,000
Total intrinsic value of
   Options outstanding                $95,000
Total intrinsic value of
   Options exercisable                $38,000



As of June 30, 2008, there was $51,000 of total unearned stock-based
compensation cost related to non-vested share-based compensation arrangements
granted under the 2000 Plan. That cost is expected to be recognized over a
weighted average period of 3 years.

NOTE 8 - Treasury Stock
-----------------------

On March 16, 2007, the Company announced that its Board of Directors authorized
the repurchase of up to one million (1,000,000) shares of its common stock. As
of June 30, 2008, the Company has repurchased all 1,000,000 of these shares at a
weighted average price of $5.62 per share.

NOTE 9 - 401(k) Plan
--------------------

The Company maintains a 401(k) plan covering all U.S. employees with one or more
years of service. The plan is qualified under Sections 401(a) and 401(k) of the
Internal Revenue Code. The Company provides for matching contributions of 50% of
the first 2% of employee contributions. Company contributions to the plan
totaled approximately $95,000, $91,000, and $89,000 for the fiscal years ended
2008, 2007 and 2006, respectively.

                                                                              39


NOTE 10 - Commitments and Contingencies
---------------------------------------

Leases

The Company is committed under various operating leases, which do not extend
beyond fiscal 2012.

Minimum lease payments through the expiration dates of these leases, with the
exception of the land leases referred to below, are as follows:

Year Ending
    June 30,         Amount
    --------        ---------

     2009           $ 420,000
     2010             132,000
     2011              30,000
                           --
     2012               4,000
                   ----------

     Total         $  586,000
                   ==========

Rent expense, with the exception of the land lease referred to below, totaled
approximately $167,000, $178,000 and $136,000 for the fiscal years ended June
30, 2008, 2007 and 2006, 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 approximately $288,000, on which the
Company's principal production facility is located.

Letters of Credit

At June 30, 2008, the Company was committed for approximately $150,000 under
open commercial letters of credit.

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 June 30, 2008, the Company was obligated under three employment agreements
and one severance agreement. Compensation under the agreements includes annual
salaries approximating $1,105,000. The employment agreements provide for annual
bonuses based upon sales and profits, or a formula to be determined by the Board
of Directors, and various severance payments as defined in each agreement. The
agreement with the Company's Chief Executive Officer provides for a salary of
$587,000, includes additional compensation of 25,000 stock options that vest 20%
per year or upon a change in control, as defined, and a termination payment in
an amount equal to 299% of the average of the prior five calendar year's
compensation, subject to certain limitations, as defined. The employment
agreements expire at various times through October 2010.

NOTE 11 - Geographical Data
---------------------------

The Company is engaged in one major line of business: the development,
manufacture, and distribution of security alarm products and door security
devices 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, Europe, and South America.

                                                                              40


The Company observes the provisions of SFAS No. 131. The following represents
selected consolidated geographical data for and as of the fiscal years ended
June 30, 2007, 2006, and 2005:

                                                2008          2007        2006
                                               -------      -------      -------
                                                        (in thousands)
Sales to external customers(1):
         Domestic                              $56,122      $56,810      $58,549
         Foreign                                12,245        9,392       10,999
                                               -------      -------      -------
         Total Net Sales                       $68,367      $66,202      $69,548
                                               =======      =======      =======

Identifiable assets:
         United States                         $50,056      $47,636
         Dominican Republic (2)                 19,841       21,246
         Other foreign countries                 6,826        7,903
                                               -------      -------
         Total Identifiable Assets             $76,723      $76,785
                                               =======      =======

(1)  All of the Company's sales occur in the United States and are shipped
     primarily from the Company's facilities in the United States and United
     Kingdom. There were no sales into any one foreign country in excess of 10%
     of total net sales.
(2)  Consists primarily of inventories and fixed assets, which are located at
     the Company's principal manufacturing facility in the Dominican Republic.


NOTE 12 - Subsequent Event
--------------------------

On August 18, 2008, the Company acquired substantially all of the assets and
business of G. Marks Hardware, Inc. ("Marks") for $25 million, the repayment of
$1 million of bank debt and the assumption of current liabilities as described
more fully in the Asset Purchase Agreement. The Marks business involves the
manufacturing and distribution of door-locking devices. The Company completed
this acquisition at a price in excess of the value of the net identifiable
assets because it believes that the combination of the two companies offers the
potential for manufacturing and operational synergies as the Company combines
the Marks operations and production into its own door-locking operations and
production structure. The Company funded the acquisition with a term loan from
its lenders as described in Note 6.

The acquisition described above will be accounted for as a purchase and was
valued based on management's estimate of the fair value of the assets acquired
and liabilities assumed. The estimates of fair value are preliminary and subject
to adjustment for a period of up to one year from the date of acquisition. Costs
in excess of identifiable net assets acquired will be allocated to goodwill in
the first quarter of fiscal 2009.

                                                                              41


SCHEDULE II


                                                                          
                  NAPCO SECURITY SYSTEMS, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS

            Years Ended June 30, 2008, 2007, and 2006 (In Thousands)


      Column A                              Column B      Column C       Column D     Column E
----------------------------------------   ----------     ---------   ------------    --------
                                           Balance at     Charged to   Deductions/    Balance at
                                           Beginning      costs and   (recoveries)     end of
      Description                          of period      expenses        (1)          period
----------------------------------------   ----------     ---------   ------------    --------

For the year ended June 30, 2006:
   Allowance for doubtful accounts
      (deducted from accounts receivable)     $380         $ 70          $ 30         $420

For the year ended June 30, 2007:
   Allowance for doubtful accounts
      (deducted from accounts receivable)     $420         $(55)         $ --         $365

For the year ended June 30, 2008:
   Allowance for doubtful accounts
      (deducted from accounts receivable)     $365         $ 44          $  4         $405


(1)  Deductions relate to uncollectible accounts charged off to valuation
     accounts, net of recoveries.

                                                                              42


b. SUPPLEMENTARY FINANCIAL DATA (UNAUDITED)

QUARTERLY RESULTS

The following table sets forth unaudited financial data for each of the
Company's last eight fiscal quarters (in thousands except for per share data):


                                                                                         
                                                         Fiscal Year Ended June 30, 2008,
                                -----------------------------------------------------------------------------------
                                First Quarter(1)    Second Quarter(1)     Third Quarter(1)    Fourth Quarter(1)
                                ------------------- --------------------- ------------------- ---------------------

Net Sales                           $ 13,876              $ 16,166            $ 16,222               $ 22,103
Gross Profit as previously
 reported (2)                          5,129                 5,256               5,523                    n/a
Reclassification (2)                      95                   191                 193                    n/a
Gross Profit as
 Reclassified (2)                      5,224                 5,447               5,716                  4,025
Income (loss) from Operations            803                 1,285               1,568                   (520)
Net Income (loss)                        374                 1,172               3,277                 (1,106)
Net Income (loss) Per
Share(1):
            Basic EPS                    .02                   .06                 .17                   (.06)
            Diluted EPS                  .02                   .06                 .17                   (.06)


                                                         Fiscal Year Ended June 30, 2007,
                                -----------------------------------------------------------------------------------
                                  First Quarter        Second Quarter       Third Quarter        Fourth Quarter
                                ------------------- --------------------- ------------------- ---------------------
Net Sales                           $ 14,029              $ 16,077            $ 15,566               $ 20,530
Gross Profit as previously
 reported (2)                          5,559                 5,825               5,494                  6,311
Reclassification (2)                     203                   182                 209                    215
Gross Profit as
 Reclassified (2)                      5,762                 6,007               5,703                  6,526
Income from Operations                 1,561                 1,844               1,268                  1,828
Net Income                               952                 1,144               1,132                    989
Net Income Per Share
         Basic EPS                       .05                   .06                 .06                    .05
         Diluted EPS                     .05                   .06                 .06                    .05


     (1)  Gross profit for the fourth quarter of fiscal 2008 was adversely
          affected by the recognition of certain material and factory expenses
          in the fourth quarter that should have been charged to cost of goods
          sold during the first nine months of fiscal 2008. This was due to
          certain changes in the business not considered when applying the gross
          profit method of estimating inventory and cost of sales for the
          interim reporting periods.
     (2)  Certain expenses in Cost of sales for 2007 have been reclassified to
          Selling, general and administrative expenses

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 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. To a lesser degree,
sales in Europe are also adversely impacted in the Company's first fiscal
quarter because of European vacation patterns, i.e., many distributors and
installers are closed for the month of August.

                                                                              43


ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

None

ITEM 9A:  CONTROL AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. At the conclusion of the
period ended June 30, 2008, 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.

Management's Annual Report on Internal Control Over Financial Reporting.
Management's Report on Internal Control Over Financial Reporting on page FS-1 is
incorporated herein by reference.

Attestation Report of the Registered Public Accounting Firm. Report of
Independent Registered Public Accounting Firm on page FS-2 is incorporated
herein by reference.

Changes in Internal Control Over Financial Reporting. During the fourth quarter
of 2008, there were changes in the Company's internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting. Management
implemented internal controls to addresses the material weakness reported in its
prior year Annual Report on Form 10-K related to the valuation of inventory.
With respect to its overhead estimation methodology, while the technique used to
make this estimate has not changed, the amount of the costs used in the estimate
has significantly decreased since the prior year and is expected to continue to
decrease. Thus, management does not believe that its use of this estimation
technique continues to have a material impact on its financial information.
Furthermore, management incorporated additional reviews of obsolete and slow
moving parts by additional members of management. Management also prepared a
draft obsolescence review prior to the end of the year to facilitate the formal
review. Management now conducts weekly meetings to update the status of obsolete
or slow moving parts. Management has previously disclosed its remediation
efforts of the material weakness related to the classification of inventory, and
this weakness has been fully remediated. Additionally, management's current year
assessment over it's internal controls identified conditions which they deemed
to be material weaknesses, (as defined by standards established by the SEC and
the Public Company Accounting Oversight Board) with respect to detecting
inaccuracies in the costing of inventory and the recognition of expenses in cost
of sales for our interim reporting. Management has informed its independent
auditors and the Audit Committee that it has certain controls in place to detect
significant costing inaccuracies, however certain of these were not performed
because management had time constraints associated with the efforts involved
with its acquisition, an event that is not typical during the financial
reporting process. As part of its remediation efforts, management plans on
revising its inventory controls to ensure that the proper procedures are carried
out in future periods. Management also has informed its independent auditors and
the Audit Committee that it intends to develop new controls that will permit it
to identify new variables and changes in the business when they occur in order
to better estimate its interim inventory and cost of sales. Management will
continue to monitor the effectiveness of these actions and will make any other
changes or take such additional actions as management determines to be
appropriate. Management expects to complete this action during fiscal 2009.


ITEM 9B:  OTHER INFORMATION

None

                                                                              44


                                    PART III
                                    --------

The information called for by Part III is hereby incorporated by reference from
the information set forth under the headings "Election of Directors", "Corporate
Governance and Board Matters", "Executive Compensation", "Beneficial Ownership
of Common Stock" and "Principal Accountant Fees" in the Company's definitive
proxy statement for the 2008 Annual Meeting of Stockholders, to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A within 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K.

We have adopted a Code of Ethics which applies to our senior executive and
financial officers, among others. The Code is posted on our website,
www.napcosecurity.com under the "Investors - Other" captions. We intend to make
all required disclosures regarding any amendment to, or waiver of, a provision
of the Code of Ethics for senior executive and financial officers by posting
such information on our website.

                                                                              45


                                     PART IV
                                     -------


ITEM 15:  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)1. Financial Statements

The following consolidated financial statements of NAPCO Security Systems, Inc.
and its subsidiaries are included in Part II, Item 8:

                                                                            Page
                                                                            ----

Management Report on Internal Controls Over Financial Reporting             FS-1

Report of Independent Registererd Public Accounting Firm on
Internal Control Over Financial Reporting                                   FS-2

Report of Independent Registered Public Accounting Firm                     FS-3

Consolidated Financial Statements:

        Consolidated Balance Sheets as of June 30, 2008 and 2007            FS-4

        Consolidated Statements of Income for the Fiscal Years Ended
        June 30, 2008, 2007 and 2006                                        FS-6

        Consolidated Statements of Stockholders' Equity for the Fiscal
        Years Ended June 30, 2008, 2007 and 2006                            FS-7

        Consolidated Statements of Cash Flows for the Fiscal Years Ended
        June 30, 2008, 2007 and 2006                                        FS-8

        Notes to Consolidated Financial Statements, June 30, 2008           FS-9

                                                                              46


(a)2. Financial Statement Schedules

The following consolidated financial statement schedules of NAPCO Security
Systems, Inc. and its subsidiaries are included in Part II, Item 8:

                                                                           Page
                                                                           -----

II:  Valuation and Qualifying Accounts                                     FS-21

      B. Supplementary Financial Data                                      FS-22

Schedules other than those listed above are omitted because of the absence of
the conditions under which they are required or because the required information
is shown in the consolidated financial statements and/or notes thereto.



(a)3 and (b). Exhibits

Management Contracts designated by asterisk.


                                                                               
------------- ---------------------------------------------------------------------- ----------------------------------------------
Exhibit No.   Title
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-3.(i)      Certificate of Amendment of Certificate of Incorporation               Exhibit-3.(i) to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2006
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-3.(ii)     Certificate of Incorporation as amended                                Exhibit-3.(ii) to Report on Form 10-K for the
                                                                                     fiscal year ended June, 30 2006
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-3.(iii)    Amended and Restated By-Laws                                           Exhibit 3.(ii) to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.A (i)   Amended and Restated 1992 Incentive Stock Option Plan                  Exhibit 10.A(i) to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2005
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.A (ii)  2002 Employee Stock Option Plan                                        E-10.A
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.B       2000 Non-Employee Stock Option Plan                                    Exhibit-10.B to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2006
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.C       Loan and Security Agreement with Marine Midland Bank dated as of       Exhibit 10-C to Report on Form 10-K for the
              May 12, 1997                                                           fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.D       Revolving Credit Note #1 to Marine Midland Bank dated as of May 12,    Exhibit 10-D to Report on Form 10-K for the
              1997                                                                   fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.E       Revolving Credit Note #2 to Marine Midland Bank dated as of May 12,    Exhibit 10-E to Report on Form 10-K for the
              1997                                                                   fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------


                                                                              47



                                                                               
------------- ---------------------------------------------------------------------- ----------------------------------------------
Exhibit No.   Title
------------- ---------------------------------------------------------------------- ----------------------------------------------

Ex-10.F       Promissory Note to Marine Midland Bank dated as of May 12, 1997        Exhibit 10-F to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.G       Amendment No.1 to the Loan and Security Agreement with Marine          Exhibit 10-G to Report on Form 10-K for the
              Midland Bank dated as of May 28, 1998                                  fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.H       Term Loan Note to Marine Midland Bank dated as of May 28, 1998         Exhibit 10-H to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------
*Ex-10.I      Amended and Restated Employment Agreement with Richard Soloway         Exhibit 10.I to Report on Form 10-K for
                                                                                     fiscal year ended June 30, 2003
------------- ---------------------------------------------------------------------- ----------------------------------------------
*Ex-10.J      Employment Agreement with Jorge Hevia                                  Exhibit 10-J to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2005
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.K       Amendment No. 2 to the Loan and Security Agreement with HSBC Bank      Exhibit 10-K to Report on Form 10-K for the
              dated as of June 30, 1999                                              fiscal year ended June 30, 2005
------------- ---------------------------------------------------------------------- ----------------------------------------------
*Ex-10.L      Employment Agreement with Michael Carrieri                             Exhibit 10-L to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2005
------------- ---------------------------------------------------------------------- ----------------------------------------------
*Ex-10.M      Indemnification Agreement dated August 9, 1999                         Exhibit 10-M to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2005
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.O       Amendment No. 4 to Loan and Security Agreement                         Exhibit 10-O to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2005
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.P       Amendment No. 8 to Loan and Security Agreement                         Exhibit-10.P to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2006
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.Q       Note Modification Agreement                                            Exhibit 10.X to Report on Form 10-K for
                                                                                     fiscal year ended June 30, 2001
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.R       Amendment No. 10 to the Loan and Security Agreement                    Exhibit 10.R to Report on Form 10-K for
                                                                                     fiscal year ended June 30, 2003
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.S       Amendment No. 3 to the Loan and Security Agreement                     Exhibit 10-S to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.T       Amendment No. 9 to the Loan and Security Agreement                     Exhibit 10-T to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.U       Amendment No. 11 to the Loan and Security Agreement                    Exhibit 10-U to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.V       Amendment No. 12 to the Loan and Security Agreement                    Exhibit 10-V to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-10.W       Amendment No. 13 to the Loan and Security Agreement                    Exhibit 10-W to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2004
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-14.0       Code of Ethics                                                         Exhibit 14.0 to Report on Form 10-K for the
                                                                                     fiscal year ended June 30, 2003
------------- ---------------------------------------------------------------------- ----------------------------------------------


                                                                              48




                                                                               
------------- ---------------------------------------------------------------------- ----------------------------------------------
Exhibit No.   Title
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-21.0       Subsidiaries of the Registrant                                         E-18
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-23.1       Consent of Independent Auditors                                        E-19
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-31.1       Section 302 Certification of Chief Executive Officer                   E-20
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-31.2       Section 302 Certification of Chief Financial Officer                   E-21
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-32.1       Certification of Chief Executive Officer Pursuant to 18 USC            E-22
              Section 1350 and Section 906 of Sarbanes - Oxley Act of 2002
------------- ---------------------------------------------------------------------- ----------------------------------------------
Ex-32.2       Certification of Chief Financial Officer Pursuant to 18 USC            E-23
              Section 1350 and Section 906 of Sarbanes - Oxley Act of 2002
------------- ---------------------------------------------------------------------- ----------------------------------------------

                                                                              49




SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

September 30, 2008

NAPCO SECURITY SYSTEMS, INC.
(Registrant)


By: /s/RICHARD SOLOWAY
    ------------------
       Richard Soloway
       Chairman of the Board of
       Directors, President and Secretary
       (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and the dates indicated.

Signature                          Title                            Date
---------                          -----                            ----

/s/RICHARD SOLOWAY        Chairman of the Board of            September 30, 2008
----------------------    Directors,
Richard Soloway           President and Secretary and
                          Director
                          (Principal Executive Officer)


/s/KEVIN S. BUCHEL        Senior Vice President of            September 30, 2008
----------------------    Operations
Kevin S. Buchel           and Finance and Treasurer and
                          Director
                          (Principal Financial and Accounting
                          Officer)


/s/PAUL STEPHEN BEEBER    Director                            September 30, 2008
----------------------
Paul Stephen Beeber


/s/RANDY B. BLAUSTEIN     Director                            September 30, 2008
----------------------
Randy B. Blaustein


/s/ARNOLD BLUMENTHAL      Director                            September 30, 2008
----------------------
Arnold Blumenthal


/s/DONNA SOLOWAY          Director                            September 30, 2008
----------------------
Donna Soloway


/s/ANDREW J. WILDER       Director                            September 30, 2008
----------------------
Andrew J. Wilder


                                                                              50