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Item 9A. Controls and Procedures

2021-03-31 compared with 2020-03-13 · 43 added, 15 removed, 168 unchanged (26% of the section changed)

2 unchanged sentences

An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of December 31, 2020.

Based on and as of the time of such evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

Based on and as of the time of such evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

This conclusion was based on the identification of the deficiency in internal control over financial reporting described below.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Notwithstanding the deficiency that existed as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer have concluded that the financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the financial position, results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States of America.

Management's Report on Internal Control over Financial Reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019, based on the framework in Internal Control -Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on that evaluation our management concluded that our internal control over financial reporting was effective as of December 31, 2019.

The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by Marcum, LLP, an independent registered public accounting firm, as stated in its attestation report, which is included in Item 8 and is incorporated into this Item 9A by reference.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements in accordance with United States Generally Accepted Accounting Principles (“GAAP”).

Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Our management has identified a deficiency related to the Company’s inventory cycle count program, as described below.

The deficiency was concluded to be a “material weakness”, which is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

Based on this material weakness identified in the management evaluation of internal controls over financial reporting, management has concluded that our internal control over financial reporting was not effective as of December 31, 2020.

The Company’s controls related to the existence of inventory at the Rocky Mount, NC warehouse (the “Warehouse”) were not effective as the cycle count program used did not demonstrate inventory quantities were sufficiently counted.

This was the consequence of a number of factors, including the impact of COVID-19 on the Company’s operations, resulting in delays in the counting process.

In order to attain the results of a full physical inventory, the C ompany counted $10 million of inventory in February and March of 2021, which resulted in a non-material increase to inventory of $18,000, or less than 0.1%.

It should be noted that in the previous three years, inventory adjustments related to cycle counts amounted to approximately 0.2% annually.

The non-material adjustment to inventory did not require any change in the results reported by the Company in the earnings release for the Company’s fourth quarter and year end December 31, 2020 (Filed with the Company’s Form 8K on March 3, 2021).

Based on the results of management’s evaluation of the effectiveness of the Company’s internal control over financial reporting, the Company determined to take a number of actions to remediate the control deficiency described above.

The remediation actions include:

● The Company has evaluated the processes, procedures and controls related to the Warehouse cycle count program and has commenced making changes as considered appropriate to address the control deficiency.

● The Company is in the process of implementing a new inventory management system at the Warehouse, which is expected to be in place by the end of the second quarter 2021.

The new software will allow the Company to conduct its inventory cycle count program more efficiently.

● The Company is allocating additional resources to the implementation of its inventory cycle count program, including the hiring of additional personnel who will participate in the conduct of the program.

We believe that these actions will remediate the material weakness.

The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2021.

Our independent registered public accounting firm, Marcum LLP, has issued an adverse attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2020, as stated in their report which is included in the Financial Statements of this Annual Report on Form 10-K.

Marcum LLP has also audited our consolidated financial statements at December 31, 2020, and for each of the two years in the period ended December 31, 2020, and its report dated March 31, 2021, expressed an unqualified opinion on our consolidated financial statements.

Inherent Limitation on Effectiveness of Controls

Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by the board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP including those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its 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 the degree of compliance with policies and procedures may deteriorate.

Changes in Internal Control over Financial Reporting.

No changes in our internal control over financial reporting were identified as having occurred during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except for factors pertaining to the material weakness identified above, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter ended December 31, 2020, to which this report relates, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

11 unchanged sentences

Johnsen has served on the Board of TOMI Environmental Solutions, Inc., a publicly traded company, since February 1, 2016.

Johnsen’s qualifications to serve on the Board of the Company include the in-depth knowledge of all facets of the Company’s business which he has gained during his tenure as the Company’s Chief Executive Officer.

Johnsen’s qualifications to serve on the Board of the Company include the in-depth knowledge of all facets of the Company’s business which he has gained during his more than twenty-five years of service as the Company’s Chief Executive Officer.

Olschan has served as President and Chief Operating Officer of the Company since January 1, 2007;

2 unchanged sentences

Olschan previously served as Vice President and General Manager of the Cordset and Assembly Business of General Cable Corporation, an electrical wire and cable manufacturer.

Olschan’s qualifications to serve on the Board include his detailed knowledge of the Company’s operations which he has gained in his capacity as a member of senior management for more than eleven years, including as Chief Operating Officer since January 1999 and President since January 2007.

Olschan’s qualifications to serve on the Board include his detailed knowledge of the Company’s operations which he has gained in his capacity as a member of senior management for more than 24 years, including as Chief Operating Officer since January 1999 and President since January 2007.

Driscoll has served as Vice President and Chief Financial Officer, Secretary and Treasurer since October 2, 2002.

4 unchanged sentences

Davidson has served as Director since 2006.

Executive Director of the Helms Fund since 2013-2019.

Executive Director of the Helms Fund, 2013-2019.

The Helms Fund provides "gap financing" to socially responsible business ventures for capital expenditures.

Additionally, since 2009, Mr.

Davidson has served as President of Rex Davidson Associates, LLC, a management consulting service, and Executive Director of Las Cumbres Community Services, which provides developmental disability and mental health services to children, adults and families in Northern New Mexico.

Davidson has served as President of Rex Davidson Associates, LLC, a management consulting service.

From 2009 to 2019, Mr.

Davidson served as Executive Director of Las Cumbres Community Services, which provides developmental disability and mental health services to children, adults and families in Northern New Mexico;

from 2019 to 2020, he served as the Director of Special Initiatives.

From 1982 to 2009, he served as President and Chief Executive Officer of Goodwill Industries of Greater New York and Northern New Jersey, Inc., and President of Goodwill Industries Housing Corporation.

9 unchanged sentences

He served as Chairman and Chief Executive Officer of J.L.

Hammett Co., a reseller of educational, curriculum, equipment, and products from 1992 to 2006.

Hammett Co., a reseller of educational curriculum, equipment, furniture and products from 1992 to 2006.

Holden served on the Board of Directors of Software Secure, Incorporated, a privately-held company headquartered in Newton, MA, which focused on secure online educational testing technology, from 2007 until its sale in late 2016.

9 unchanged sentences

Vice President of Student and Academic Services from 1994 to June 2015, and thereafter she worked in Alumni Affairs and Development until her retirement.

Murphy became a member of the Board of Trustees of Adelphi University, and, since July 2016, has serve d as Vice Chair of its Board of Trustees.

Murphy became a member of the Board of Trustees of Adelphi University, and, since July 2016, has served as Vice Chair of its Board of Trustees.

She also serves on the Board of Directors for Kendal at Ithaca, a not-for-profit continuing care retirement community (since 2014 and Vice Chair since 2019).

Tompkins County Community Foundation (since January 201 5 and Chair of the Board of Directors, 2018-2019).

and Let’s Get Ready, an organization which provides low-income high school students with support services to help them gain admission to and graduate from college (2016-2019).

Murphy is immediate past President of Tompkins County Community Foundation, and, since 2017, a member of its executive committee;

she also served as Chair of the Board of Directors of the Foundation (2017 – 2019).

Murphy received a Ph.D.

i n Educational Administration from Cornell University.

in Educational Administration from Cornell University.

Murphy has broad senior management level experience in a large, complex organization .

In particular, her experience in employee compensation matters and the development and implementation of divers ity policies is helpful to the Company .

In particular, her experience in employee compensation matters and the development and implementation of diversity policies is helpful to the Company.

Barker has been a founder and CEO of AntelopeAI, LLC an artificial intelligence and machine learning start-up since December 2018.

110 unchanged sentences

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

What changed 10-K

Item 9A. Controls and Procedures