What changed in this filing

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Item 9A. Controls and Procedures

2021-07-08 compared with 2020-08-11 · 665 added, 678 removed, 261 unchanged (84% of the section changed)

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and

We maintain a system

of disclosure controls and procedures (as such item is defined in Rules 13a –

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure

controls and procedures (as such item is defined in Rules 13a –

15(e) and 15d –

the Exchange Act) that is designed to provide reasonable assurance that information, which is required to be disclosed by us in

the reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized

and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated

and communicated to management in a timely manner.

Our Chief Executive Officer and Chief Financial Officer have evaluated this

system of disclosure controls and procedures in accordance with applicable Securities and Exchange Commission guidance as of the

end of the period covered by this annual report, and have concluded that disclosure controls and procedures were not effective

because of the material weakness in internal control over financial reporting as discussed below.

Management’s Annual Report on Internal Control over

Financial Reporting

15(e) of the Exchange Act)

that is designed to provide reasonable assurance that information, which is required to be disclosed by us in the reports that we file

or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods

specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in

a timely manner.

Our Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures

in accordance with applicable Securities and Exchange Commission guidance as of the end of the period covered by this annual report, and

have concluded that disclosure controls and procedures were effective.

Management’s Annual Report on Internal Control over Financial

Our management, including

our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control

over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting

and the preparation of our consolidated financial statements for external reporting purposes in accordance with US GAAP.

control over financial reporting includes 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 the assets of the Company;

reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in

accordance with US GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations

of management and directors of the Company;

and (iii) 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 consolidated

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 or procedures may deteriorate.

Our Chief Financial

Officer, with the participation of our Chief Executive Officer, conducted an evaluation of the effectiveness of our internal control

over financial reporting based on the 1992 framework in Internal Control —

Integrated Framework issued by the Committee of

Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, management concluded that the Company’s internal

control over financial reporting was not effective as of March 31, 2020 because of the material weakness in internal control

over financial reporting as discussed below.

Material weaknesses

arose in our oversight of the accounting function as well as the disclosure controls and procedures of the Hong Kong Joint Venture

The HKJV is a material component of the Company’s consolidated financial statements during the period covered by

Effective March 31, 2020 the Company sold its interest in the HKJV, and accordingly, the sale of the Company’s

interest in the HKJV will remediate the necessity to design and implement appropriate disclosure controls and procedures in subsequent

reporting periods.

Changes in Internal Control over

Financial Reporting .

Effective in the quarter

ended March 31, 2020 the Company sold its interest in the ownership of its former Hong Kong Joint Venture.

Accordingly, the sale

of the Company’s interest in the HKJV will remediate the necessity to design and implement appropriate disclosure controls

and procedures in subsequent reporting periods.

There have been no other changes in internal control over financial reporting that

have materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter

ended March 31, 2020.

our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over

financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control

over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the

preparation of our consolidated financial statements for external reporting purposes in accordance with US GAAP.

Internal control over

financial reporting includes 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 the assets of the Company;

(ii) provide reasonable assurance that

transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with US GAAP, and that

the Company’s receipts and expenditures are being made only in accordance with authorizations of management and directors of the

and (iii) 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 consolidated 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 or procedures may deteriorate.

Our Chief Financial Officer,

with the participation of our Chief Executive Officer, conducted an evaluation of the effectiveness of our internal control over financial

reporting based on the 1992 framework in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations

of the Treadway Commission.

Based on this evaluation, management concluded that the Company’s internal control over financial reporting

was effective.

in Internal Control over Financial Reporting .

There have been no other changes

in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control

over financial reporting during the quarter ended March 31, 2021.

OTHER INFORMATION

1 unchanged sentence

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information with respect

to the identity and business experience of the directors of the Company and their remuneration set forth in the section captioned “Election

of Directors”

in the Company’s definitive Proxy Statement filed pursuant to Regulation 14A and issued in conjunction with

the 2021 Annual Meeting of Shareholders (the “Proxy Statement”) is incorporated herein by reference.

The information with

respect to the identity and business experience of the directors of the Company and their remuneration set forth in the section

captioned “Election of Directors”

in the Company’s definitive Proxy Statement filed pursuant to Regulation 14A

and issued in conjunction with the 2020 Annual Meeting of Shareholders (the “Proxy Statement”) is incorporated herein

by reference.

The information with respect to the identity and business experience of executive officers of the Company is set

forth in Part I of this Form 10-K.

The information with respect to the Company’s Audit Committee is incorporated

herein by reference to the section captioned “Meetings and Committees of the Board of Directors”

respect to the identity and business experience of executive officers of the Company is set forth in Part I of this Form 10-K.

The information with respect to the Company’s Audit Committee is incorporated herein by reference to the section captioned “Meetings

and Committees of the Board of Directors”

in the Proxy Statement.

The information with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference

to the section captioned “Compliance with Section 16(a) of the Exchange Act”

The information with respect to compliance with Section 16(a) of

the Exchange Act is incorporated herein by reference to the section captioned “Compliance with Section 16(a) of the Exchange

in the Proxy Statement.

information with respect to the Company’s Code of Ethics is incorporated herein by reference to the section captioned “Code

of Ethics”

The information with respect to the Company’s Code of Ethics is incorporated herein by reference

to the section captioned “Code of Ethics”

in the Proxy Statement.

EXECUTIVE COMPENSATION

The information required

by this item is incorporated herein by reference to the sections captioned “Director Compensation”

and “Executive

Compensation”

The information required by

this item is incorporated herein by reference to the sections captioned “Director Compensation”

and “Executive Compensation”

in the Proxy Statement.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required

by this item regarding security ownership is incorporated herein by reference to the sections captioned “Beneficial Ownership”

The information required by

this item regarding security ownership is incorporated herein by reference to the sections captioned “Beneficial Ownership”

and “Information Regarding Share Ownership of Management”

in the Proxy Statement.

Information required by this item

regarding our equity compensation plans is incorporated herein by reference to the Section entitled “Executive Compensation”

in the Proxy Statement.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required

by this item is incorporated herein by reference to the sections captioned “Transactions with Management”, if any,

and “Election of Directors”

Information required by this item regarding

our equity compensation plans is incorporated herein by reference to the Section entitled “Executive Compensation”

the Proxy Statement.

RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by

this item is incorporated herein by reference to the sections captioned “Transactions with Management”, if any, and “Election

of Directors”

in the Proxy Statement.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required

by this item is incorporated herein by reference to the section captioned “Independent Registered Public Accountants”

in the Proxy Statement.

The information required by

this item is incorporated herein by reference to the section captioned “Independent Registered Public Accountants”

Proxy Statement.

Financial Statements .

2 unchanged sentences

Consolidated Statements of Operations for the Years Ended March 31, 2021 and 2020

Consolidated Statements of Comprehensive Loss for the Years Ended March 31, 2020 and 2019

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended March 31, 2021 and 2020

Consolidated Statements of Shareholders’

2 unchanged sentences

Notes to Consolidated Financial Statements

Exhibits required to be filed

by Item 601 of Regulation S-K.

Articles of Incorporation (incorporated by reference to the Company’s Quarterly

Report on Form 10-Q for the period ended December 31, 1988, File No.

Articles Supplementary, filed October 14, 2003 (incorporated by reference to Exhibit 3.1

to the Company’s Current Report on Form 8-K filed October 31, 2002, file No.

Bylaws, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Current

Report on Form 8-K filed July 13, 2011, File No.

2011 Non-Qualified Stock Option Plan (incorporated by reference to the Company’s Proxy

Statement with respect to the Company’s 2011 Annual Meeting of Shareholders, filed July 26, 2011, File No.

Hong Kong Joint Venture Agreement, as amended (incorporated by reference to Exhibit 10.1

to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003, File No.

Discount Factoring Agreement between the Registrant and Merchant Factors Corp., dated January 6,

2015 (substantially identical agreement entered into by USI’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated

by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 16, 2015, file

Lease between Universal Security Instruments, Inc.

Exhibits required to be filed by Item

601 of Regulation S-K.

Incorporation (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended December 31,

1988, File No.

Articles Supplementary,

filed October 14, 2003 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K

filed October 31, 2002, file No.

Bylaws, as amended (incorporated

by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed July 13, 2011, File No.

2011 Non-Qualified Stock

Option Plan (incorporated by reference to the Company’s Proxy Statement with respect to the Company’s 2011 Annual Meeting

of Shareholders, filed July 26, 2011, File No.

Hong Kong Joint Venture

Agreement, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for

the year ended March 31, 2003, File No.

Discount Factoring Agreement

between the Registrant and Merchant Factors Corp., dated January 6, 2015 (substantially identical agreement entered into by

USI’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.1 to the Company’s

Current Report on Form 8-K filed January 16, 2015, file No.

Lease between Universal

Security Instruments, Inc.

John Properties, Inc.

dated November 4, 2008 for its office and warehouse located at 11407 Cronhill Drive, Suites A-D, Owings Mills, Maryland

21117 (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the period

ended December 31, 2008, File No.

Amendment to Lease between Universal Security Instruments, Inc.

dated November 4, 2008 for its office and warehouse located

at 11407 Cronhill Drive, Suites A-D, Owings Mills, Maryland 21117 (incorporated by reference to Exhibit 10.8 to the Company’s

Quarterly Report on Form 10-Q for the period ended December 31, 2008, File No.

Amendment to Lease between

Universal Security Instruments, Inc.

John Properties, Inc.

dated June 23, 2009 (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K

for the year ended March 31, 2009, File No.

Amended and Restated Employment Agreement dated July 18, 2007 between the Company and Harvey B.

dated June 23, 2009 (incorporated by reference

to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2009, File No.

Amended and Restated Employment Agreement dated July 18,

2007 between the Company and Harvey B.

Grossblatt ( incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2007, File No.

1-31747 ), as amended by Addendum dated November 13, 2007 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 15, 2007, File No.

1-31747 ), by Addendum dated

September 8, 2008 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 8, 2008, File No.

1-31747 ), by Addendum dated March 11, 2010 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 12, 2010, File No.

1-31747 ), as amended by Addendum dated

November 13, 2007 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 15, 2007, File No.

1-31747 ), by Addendum dated September 8, 2008 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 8, 2008, File No.

1-31747 ), by Addendum dated March 11,

2010 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 12, 2010, File No.

1-31747 ), by Addendum dated July 19, 2012 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 20, 2012, File No.

2 unchanged sentences

1-31747 ) ), by addendum dated July 23, 2015 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 28, 2015, File No.

1-31747 ), by

addendum dated July 12, 2016 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 12, 2016, File No.

1-31747 ) by addendum dated July 18, 2017 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 20, 2017, File No.

1-31747 ), by addendum dated July 9,

2018 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 9, 2018, File No.

1-31747 ), by addendum dated July 12, 2019 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 16, 2019, File No.

by addendum dated July 9, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report

on Form 8-K filed July 9, 2018, File No.

1-31747), by addendum dated July 12, 2019 (incorporated by reference

to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 16, 2019, File No.

and by addendum dated July 27, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current

Report on Form 8-K filed July 27, 2020, File No.

21 Subsidiaries of the Registrant (incorporated by reference

to Exhibit 21 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2012, File No.

23.1 Independent Registered Public

Accounting Firm’s Consent*

1-31747 ), and by addendum dated July 27, 2020 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 27, 2020, File No.

Subsidiaries of the

Registrant (incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K for the year ended March 31,

2012, File No.

Independent Registered Public Accounting

Firm’s Consent

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*

1 unchanged sentence

Section 1350 Certifications*

Press Release dated August 10, 2020*

Interactive data files providing financial information

from the Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 in XBRL (eXtensible

Business Reporting Language) pursuant to Rule 405 of Regulation S-T:

(i) Consolidated Balance Sheets as of

March 31, 2020 and 2019;

Press Release dated July 8, 2021*

Interactive data files providing financial information from the

Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021 in XBRL (eXtensible Business

Reporting Language) pursuant to Rule 405 of Regulation S-T:

(i) Consolidated Balance Sheets as of March 31, 2021 and

(ii) Consolidated Statements of Operations for the years ended March 31, 2021 and 2020;

(iii) Consolidated Statements of Comprehensive Loss for the years ended March 31, 2020 and 2019

(iv) Consolidated Statements of Shareholders’

(iii) Consolidated

Statements of Comprehensive Income (Loss) for the years ended March 31, 2021 and 2020 (iv) Consolidated Statements of

Shareholders’

Equity for the years ended March 31, 2021 and 2020;

(v) Consolidated Statements of Cash Flows for the years ended March 31, 2020 and 2019;

and (vi) Notes to

Consolidated Financial Statements*

(v) Consolidated Statements of Cash Flows for the

years ended March 31, 2021 and 2020;

and (vi) Notes to Consolidated Financial Statements*

*Filed herewith.

Pursuant to the requirements

of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed

on its behalf by the undersigned thereunto duly authorized.

of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its

behalf by the undersigned thereunto duly authorized.

UNIVERSAL SECURITY INSTRUMENTS, INC.

August 11, 2020

/s/ Harvey B.

2 unchanged sentences

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 on the dates indicated.

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 on the dates indicated.

/s/ Harvey B.

President, Chief Executive Officer

August 11, 2020

Chief Financial Officer

August 11, 2020

(principal financial officer and

1 unchanged sentence

/s/ Cary Luskin

August 11, 2020

/s/ Ronald A.

August 11, 2020

/s/ Ira Bormel

August 11, 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Audit Committee of the

Board of Directors and Shareholders

of Universal Security Instruments, Inc.

Universal Security Instruments, Inc.

and Subsidiary

2 unchanged sentences

balance sheets of Universal Security Instruments, Inc.

and Subsidiary (the “Company”) as of March 31, 2020

and 2019, the related consolidated statements of operations, comprehensive loss, shareholders’

equity and cash flows for

each of the two years in the period ended March 31, 2020, and the related notes (collectively referred to as the “financial

statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of

the Company as of March 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years

in the period ended March 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

and Subsidiary (the “Company”) as of March 31, 2021 and 2020, the related

consolidated statements of operations, comprehensive income (loss), shareholders’

equity and cash flows for each of the two years

in the period ended March 31, 2021, and the related notes (collectively referred to as the “financial statements”).

opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2021

and 2020, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2021, in conformity

with accounting principles generally accepted in the United States of America.

Basis for Opinion

2 unchanged sentences

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with

the standards of the PCAOB .

Those standards require that we plan and perform the audits to obtain reasonable assurance about

whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required

to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are

required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company's internal control over financial reporting.

are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are

required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB .

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were

we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal

control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures

to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures

in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made

by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a

reasonable basis for our opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from

the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,

subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Marcum LLP

We have served as the Company’s auditor since 2015.

Philadelphia, Pennsylvania

August 11, 2020

Philadelphia, PA

UNIVERSAL SECURITY INSTRUMENTS, INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

3 unchanged sentences

Receivables from employees

Receivable from Hong Kong Joint Venture

Amount due from factor

3 unchanged sentences

TOTAL CURRENT ASSETS

INVESTMENT IN HONG KONG JOINT VENTURE

INTANGIBLE ASSETS - NET

21 unchanged sentences

Accumulated Deficit

Accumulated other comprehensive income

TOTAL SHAREHOLDERS’

TOTAL LIABILITIES AND SHAREHOLDERS’

The accompanying notes are an integral

part of these consolidated financial statements

The accompanying notes are an integral part

of these consolidated financial statements

UNIVERSAL SECURITY INSTRUMENTS, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

5 unchanged sentences

Research and development expense

Operating (loss) income

Other expense:

Operating income (loss)

Other income (expense):

Forgiveness of debt –

Loss from investment in Hong Kong Joint Venture

Interest expense, net

Loss before income taxes

Income tax benefit

Loss per share:

Earnings (Loss) before income taxes

Income tax expense

NET INCOME (LOSS)

$ (5,813,891 )

Earnings (Loss) per share:

Basic and diluted

Shares used in computing net loss per share:

Shares used in computing net earnings (loss) per share:

Weighted average basis and diluted shares outstanding

The accompanying notes are an integral

part of these consolidated financial statements

The accompanying notes are an integral part

of these consolidated financial statements

UNIVERSAL SECURITY INSTRUMENTS, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended March 31,

$ (5,813,891 )

NET INCOME (LOSS)

$ (5,813,891 )

Other Comprehensive (Loss) Income

Other Comprehensive Loss

Company’s Portion of Hong Kong

Joint Venture’s Other Comprehensive

(Loss) Income:

Currency translation loss

Unrealized (loss) gain on investment securities

Unrealized loss on investment securities

Reclassification adjustment for gain included in net loss

Total Other Comprehensive Loss

COMPREHENSIVE LOSS

$ (6,425,647 )

COMPREHENSIVE INCOME (LOSS)

$ (6,425,647 )

The accompanying notes are an integral

part of these consolidated financial statements

The accompanying notes are an integral part

of these consolidated financial statements

UNIVERSAL SECURITY INSTRUMENTS, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

3 unchanged sentences

Currency translation loss

Unrealized gain on investment securities

Balance at March 31, 2019

Currency translation loss

Unrealized loss on investment securities

Reclassification

adjustment for gain included in net loss

adjustment for

gain included

Balance at March 31, 2020

Balance at March 31, 2021

$ (8,192,414 )

The accompanying notes are an integral

part of these consolidated financial statements

The accompanying notes are an integral part

of these consolidated financial statements

UNIVERSAL SECURITY INSTRUMENTS, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

1 unchanged sentence

OPERATING ACTIVITIES:

$ (5,813,891 )

Net Income (loss)

$ (5,813,891 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

Forgiveness of debt –

Paycheck Protection Program

Depreciation of right-of-use asset

Increase in allowance for doubtful accounts receivable

Loss from investment in Hong Kong Joint Venture

Changes in operating assets and liabilities:

Decrease (Increase) in accounts receivable and amounts due from factor

Decrease (Increase) in inventories

Decrease in prepaid expenses

(Decrease) Increase in accounts payable and accrued expenses

(Increase) Decrease in accounts receivable and amounts due from factor

Decrease in inventories

(Increase) Decrease in prepaid expenses

Increase (Decrease) in accounts payable and accrued expenses

Decrease in operating lease liability

1 unchanged sentence

FINANCING ACTIVITIES:

Net (repayment of) proceeds from line of credit - factor

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

(DECREASE) INCREASE IN CASH

Proceeds from –

Paycheck Protection Program

Net repayment of line of credit - factor

NET CASH USED IN FINANCING ACTIVITIES

INCREASE (DECREASE) IN CASH

Cash at beginning of period

5 unchanged sentences

Right-of-use asset in exchange for operating lease liability

Reduction in accounts payable –

Eyston Company Ltd arising from the sale of the investment in the Hong Kong Joint Venture

The accompanying notes are an integral

part of these consolidated financial statements

Conversion of trade accounts payable to note payable

Reduction in trade accounts payable to Eyston Co.

arising from the sale of

the Hong Kong Joint Venture

The accompanying notes are an integral part

of these consolidated financial statements

UNIVERSAL SECURITY INSTRUMENTS, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A –

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

Nature of Business:

Universal Security

Instruments, Inc.’s (the “Company”) primary business is the sale of smoke alarms and other safety products

to retailers, wholesale distributors and to the electrical distribution trade which includes electrical and lighting distributors

as well as manufactured housing companies.

The Company imports all of its safety and other products from foreign manufacturers.

The Company, as an importer, is subject to tariffs which vary depending on types of products and country of origin, changes in

economic and political conditions in the country of manufacture, potential trade restrictions and currency fluctuations.

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING

Universal Security Instruments, Inc.’s (the “Company”) primary business is the sale of

smoke alarms and other safety products to retailers, wholesale distributors and to the electrical distribution trade which includes electrical

and lighting distributors as well as manufactured housing companies.

The Company imports all of its safety and other products from foreign

manufacturers.

The Company, as an importer, is subject to tariffs which vary depending on types of products and country of origin, changes

in economic and political conditions in the country of manufacture, potential trade restrictions and currency fluctuations.

Principles of Consolidation:

consolidated financial statements include the accounts of the Company and its wholly owned subsidiary USI Electric, Inc.

All significant

intercompany accounts and transactions have been eliminated in consolidation.

In 1989 we formed Eyston Company Limited (Eyston),

a limited liability company under the laws of Hong Kong, as a 50% joint venture partner with a Hong Kong-based partner, to manufacture

various products in the Peoples Republic of China (the “Hong Kong Joint Venture”).

Effective March 31, 2020 we sold

our 50% interest in the Hong Kong Joint Venture in exchange for $4,000,000.

We believe that our 50% ownership interest in the Hong

Kong Joint Venture through the date of its sale on March 31, 2020 allowed us to significantly influence the operations of the Hong

Kong Joint Venture.

As such, we accounted for our interest in the operations of the Hong Kong Joint Venture using the equity method

of accounting we have included our investment balance as a non-current asset through the date of sale.

We have included our share

of the Hong Kong Joint Venture’s loss in our consolidated statements of operations for fiscal years ended March 31, 2020

The investment and earnings and losses were adjusted to eliminate intercompany profits through the date of its sale on

March 31, 2020.

Use of Estimates:

In preparing financial

statements in conformity with accounting principles generally accepted in the United States of America (US-GAAP), management is

required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent

assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting

The consolidated

financial statements include the accounts of the Company and its wholly owned subsidiary USI Electric, Inc.

All significant intercompany

accounts and transactions have been eliminated in consolidation.

In 1989 we formed Eyston Company Limited (Eyston), a limited liability

company under the laws of Hong Kong, as a 50% joint venture partner with a Hong Kong-based partner, to manufacture various products in

the Peoples Republic of China (the “Hong Kong Joint Venture”).

Effective March 31, 2020, we sold our 50% interest in the Hong

Kong Joint Venture in exchange for $4,000,000.

We believe that our 50% ownership interest in the Hong Kong Joint Venture through the date

of its sale on March 31, 2020 allowed us to significantly influence the operations of the Hong Kong Joint Venture.

As such, we accounted

for our interest in the operations of the Hong Kong Joint Venture using the equity method of accounting we have included our investment

balance as a non-current asset through the date of sale.

We have included our share of the Hong Kong Joint Venture’s loss in our

consolidated statements of operations for fiscal years ended March 31, 2020.

The investment and earnings and losses were adjusted to eliminate

intercompany profits through the date of its sale on March 31, 2020.

of Estimates:

In preparing financial statements in conformity with accounting principles generally accepted in the United States

of America (US-GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities,

the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses

during the reporting period.

Actual results could differ from those estimates.

The Company maintains its

cash in bank deposit accounts which, at times, may exceed federally insured limits.

The Company has not experienced any losses

in such accounts, and believes it is not exposed to any significant credit risk with cash.

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.

The Company has not experienced

any losses in such accounts, and believes it is not exposed to any significant credit risk with cash.

Revenue Recognition:

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is recognized at a point in time once the Company has determined that the customer has obtained control over the product.

is typically deemed to have been transferred to the customer when the product is shipped or delivered to the customer.

may not return, exchange or refuse acceptance of goods without our approval.

Generally, the Company does not grant extended payment

Shipping and handling costs associated with outbound freight, after control over a product has transferred to a customer,

are accounted for as a fulfillment cost and are recorded in selling, general and administrative expense.

The amount of revenue recognized reflects

the consideration to which the Company expects to be entitled to receive in exchange for products sold.

Revenue is recorded at

the transaction price net of estimates of variable consideration.

The Company uses the expected value method based on historical

data in considering the impact of estimates of variable consideration, which may include trade discounts, allowances, product returns

(including rights of return) or warranty replacements.

Estimates of variable consideration are included in revenue to the extent

that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

Control is typically

deemed to have been transferred to the customer when the product is shipped or delivered to the customer.

Customers may not return, exchange

or refuse acceptance of goods without our approval.

Generally, the Company does not grant extended payment terms.

Shipping and handling

costs associated with outbound freight, after control over a product has transferred to a customer, are accounted for as a fulfillment

cost and are recorded in selling, general and administrative expense.

Remaining performance obligations represent the transaction price

of firm orders for satisfied or partially satisfied performance obligations on contracts with an original expected duration of one year

The Company’s contracts are predominantly short-term in nature with a contract term of one year or less.

For those contracts,

the Company has utilized the practical expedient in ASC Topic 606 exempting the Company from disclosure of the transaction price allocated

to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one

year or less.

The amount of revenue recognized reflects the

consideration to which the Company expects to be entitled to receive in exchange for products sold.

Revenue is recorded at the transaction

price net of estimates of variable consideration.

The Company uses the expected value method based on historical data in considering the

impact of estimates of variable consideration, which may include trade discounts, allowances, product returns (including rights of return)

or warranty replacements.

Estimates of variable consideration are included in revenue to the extent that it is probable that a significant

reversal in the amount of cumulative revenue recognized will not occur.

Disaggregation of Revenue:

presents below revenue associated with sales of products acquired from Eyston, the Hong Kong Joint Venture, separately from revenue

associated with sales of ground fault circuit interrupters (GFCI’s) and ventilation fans.

The Company believes this disaggregation

best depicts how our various product lines perform and are affected by economic factors.

Revenue recognized by these categories

for the fiscal years ended March 31, 2020 and 2019 are as follows:

The Company presents

below revenue associated with sales of safety alarm products separately from revenue associated with sales of ground fault circuit interrupters

(GFCI’s) and ventilation fans.

The Company believes this disaggregation best depicts how our various product lines perform and are

affected by economic factors.

Revenue recognized by these categories for the fiscal years ended March 31, 2021 and 2020 are as follows:

Fiscal Year ended

1 unchanged sentence

March 31, 2020

Sales of safety alarms acquired from Eyston

Sales of safety alarms

Sales of GFCI’s and ventilation fans

Accounts Receivable:

The Company assigns the majority of its

trade receivables on a pre-approved non-recourse basis to Merchant Factors Corporation (Merchant or Factor) under a factoring agreement

on an ongoing basis.

Factoring charges recognized on assignment of receivables are deducted from revenue in the consolidated statements

of operations and amounted to $118,141 and $132,137 for the years ended March 31, 2020 and 2019, respectively.

Management considers amounts due from the

Company’s factor to be “financing receivables”.

Trade accounts receivable, other receivables, and receivables

from our Hong Kong Joint Venture are not considered to be financing receivables.

At the time a receivable is assigned to

our factor, the credit risk associated with the credit worthiness of the debtor is assumed by the factor.

The Company continues

to bear any credit risk associated with delivery or warranty issues related to the products sold.

Management assesses the credit risk of

both its trade accounts receivable and its financing receivables based on the specific identification of accounts that have exceeded

credit terms.

The Company assigns the majority of its trade

receivables on a pre-approved non-recourse basis to Merchant Factors Corporation (Merchant or Factor) under a factoring agreement on an

ongoing basis.

Factoring charges recognized on assignment of receivables are deducted from revenue in the consolidated statements of operations

and amounted to $154,267 and $118,141 for the years ended March 31, 2021 and 2020, respectively.

Management considers amounts due from the Company’s

factor to be “financing receivables”.

Trade accounts receivable, foreign receivables, and receivables from our suppliers are

not considered to be financing receivables.

At the time a receivable is assigned to our factor,

the credit risk associated with the credit worthiness of the debtor is assumed by the factor.

The Company continues to bear any credit

risk associated with delivery or warranty issues related to the products sold.

Management assesses the credit risk of both its

trade accounts receivable and its financing receivables based on the specific identification of accounts that have exceeded credit terms.

An allowance for uncollectible receivables is provided based on that assessment.

Changes in the allowance account

from one accounting period to the next are charged to operations in the period the change is determined.

Amounts ultimately determined

to be uncollectible are eliminated from the receivable accounts and from the allowance account in the period that the receivables’

status is determined to be uncollectible.

Changes in the allowance account from one accounting

period to the next are charged to operations in the period the change is determined.

Amounts ultimately determined to be uncollectible

are eliminated from the receivable accounts and from the allowance account in the period that the receivables’

status is determined

to be uncollectible.

Based on the nature of the factoring agreement

and prior experience, no allowance for uncollectible financing receivables has been provided.

At March 31, 2020 and 2019,

an allowance of $57,000 has been provided for uncollectible trade accounts receivable.

Inventories are stated

at the lower of cost (first in/first out method) or net realizable value.

Included as a component of finished goods inventory are

additional non-material costs.

and prior experience, no allowance for uncollectible financing receivables has been provided and no amounts are considered to be past

due at March 31, 2021.

At March 31, 2021 and 2020, respectively, an allowance of $157,000 and $57,000 has been provided for

uncollectible trade accounts receivable.

Inventories are stated at the lower of cost (first in/first out method) or net realizable value.

Included as a component of finished goods

inventory are additional non-material costs.

These costs include freight, import duty, tariffs, and inspection fees.

Expenses incurred for inventory

quality control in the amount of approximately $45,000 and $45,000, were absorbed in inventory for the fiscal years ended March 31,

2020 and 2019, respectively.

Expenses incurred

for inventory quality control in the amount of approximately $45,000 and $45,000, were absorbed in inventory for the fiscal years ended

March 31, 2021 and 2020, respectively.

We evaluate inventories on a quarterly basis and write down inventory that is considered obsolete

or unmarketable in an amount equal to the difference between the cost of inventory and the estimated net realizable value based

upon assumptions about future demand and market conditions.

Impairment of long-lived assets :

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the

asset may not be recoverable.

The factors considered in performing this assessment include current operating results, anticipated

future results, the manner in which the asset group is used and the effects of obsolescence, demand, competition and other economic

Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of these asset groups

in relation to the operating performance of the business and future undiscounted cash flows expected to result from the use of

these asset groups.

or unmarketable in an amount equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions

about future demand and market conditions.

of long-lived assets :

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that

the carrying value of the asset group may not be recoverable.

The factors considered in performing this assessment include current operating

results, anticipated future results, the manner in which the asset group is used and the effects of obsolescence, demand, competition

and other economic factors.

Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of these

asset groups in relation to the operating performance of the business and future undiscounted cash flows expected to result from the use

of these asset groups.

Impairment losses are recognized when the sum of expected future cash flows is less than the asset groups carrying

2 unchanged sentences

no impairment to long-lived assets resulted for fiscal years ended March 31, 2021 and 2020.

Income Taxes:

The Company recognizes

a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities

and their reported amounts in the consolidated financial statements.

These temporary differences may result in taxable or deductible

amounts in future years when the reported amounts of the assets or liabilities are recovered or settled.

The deferred tax assets

are reviewed periodically for recoverability and a valuation allowance is provided whenever it is more likely than not that a deferred

tax asset will not be realized.

The Company follows Accounting Standards

Codification (ASC) 740-10 that gives guidance to tax positions related to the recognition and measurement of a tax position taken

or expected to be taken in a tax return and requires that we recognize in our financial statements the impact of a tax position,

if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position.

and penalties, if any, related to income tax matters are recorded as income tax expenses.

Company determines if an arrangement is a lease at inception.

Right-of-use (“ROU”) assets represent the Company’s right

to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over

the lease term.

As most of the Company’s leases do not provide an implicit rate, the Company estimates the incremental borrowing

rate to discount the lease payments based on information available at lease commencement.

The Company’s lease terms may include

options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

The Company utilizes

certain practical expedients, including the election not to reassess its prior conclusions about lease identification, lease classification

and initial direct costs, as well as the election not to separate lease and non-lease components for arrangements where the Company is

Lease expense is recognized on a straight-line basis over the lease term.

See Note F, Leases.

The Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax

basis of assets or liabilities and their reported amounts in the consolidated financial statements.

These temporary differences may result

in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled.

deferred tax assets are reviewed periodically for recoverability and a valuation allowance is provided whenever it is more likely than

not that a deferred tax asset will not be realized.

The Company follows Accounting Standards Codification

(ASC) 740-10 that gives guidance to tax positions related to the recognition and measurement of a tax position taken or expected to be

taken in a tax return and requires that we recognize in our financial statements the impact of a tax position, if that position is more

likely than not to be sustained upon an examination, based on the technical merits of the position.

Interest and penalties, if any,

related to income tax matters are recorded as income tax expenses.

See Note G, Income Taxes.

We generally provide warranties, on the safety

products, from one to ten years to the non-commercial end user on all products sold.

The manufacturers of our safety products provide

us with a one-year warranty on all products we purchase for resale.

Claims for warranty replacement of products beyond the one-year

warranty period covered by the manufacturers have not been historically material.

Research and Development:

and development costs are charged to operations as incurred.

Shipping and Handling Fees and Costs:

We generally provide warranties, on the safety products, from one to ten years to the non-commercial end user on all products sold.

manufacturers of our safety products provide us with a one-year warranty on all products we purchase for resale.

Claims for warranty replacement

of products beyond the one-year warranty period covered by the manufacturers have not been historically material.

and Development:

Research and development costs are charged to operations as incurred.

and Handling Fees and Costs:

The Company includes shipping and handling fees billed to customers in net sales.

Shipping and handling costs associated with inbound

freight are included in cost of goods sold.

Shipping and handling costs associated with outbound freight are included in selling,

general and administrative expenses and totaled $343,838 and $472,570 in fiscal years 2020 and 2019, respectively.

Foreign currency :

The activity and

accounts of the Hong Kong Joint Venture are denominated in Hong Kong dollars and are translated to US dollars.

The Company translates

the accounts of the Hong Kong Joint Venture at the applicable exchange rate in effect at the year-end date for assets and liabilities

and at the average exchange rate for the reporting period for statement of operation purposes.

The Company currently does not maintain

cash in foreign banks to support its operations in Hong Kong.

The cumulative balance of currency translation,

a component of accumulated other comprehensive income, amounted to $561,358 at March 31, 2019.

The reclassification of the

realized gain from other comprehensive income is included in the loss from investment in the Hong Kong Joint Venture in the Consolidated

Statements of Operations.

Net Loss per Share:

Basic net loss

per share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the

Diluted loss per share is computed by dividing net loss for the period by the weighted average number of common shares

and common share equivalents outstanding (unless their effect is anti-dilutive) for the period.

As a result of the net losses,

the weighted average number of common shares outstanding is identical for the years ended March 31, 2020 and 2019 for both

handling costs associated with inbound freight are included in cost of goods sold.

Shipping and handling costs associated with outbound

freight are included in selling, general and administrative expenses and totaled $409,692 and $343,838 in fiscal years 2021 and 2020,

respectively.

The activity and accounts of the Hong Kong Joint Venture are denominated in Hong Kong dollars and are translated

to US dollars.

The Company translates the accounts of the Hong Kong Joint Venture at the applicable exchange rate in effect at the year-end

date for assets and liabilities and at the average exchange rate for the reporting period for statement of operation purposes.

The reclassification of the realized gain from

other comprehensive income is included in the loss from investment in the Hong Kong Joint Venture in the Consolidated Statements of Operations

for the fiscal year ended March 31, 2020.

Net Earnings (Loss) per Share:

earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding

during the period.

Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average

number of common shares and common share equivalents outstanding (unless their effect is anti-dilutive) for the period.

As a result of

the net loss for the fiscal year ended March 31, 2020, the weighted average number of common shares outstanding is identical for both

basic and diluted shares.

In addition, there were no other securities outstanding during 2020 or 2019.

Recently Issued Accounting Standards:

Changes to U.S.

GAAP are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates

(ASU’s) to the FASB’s Accounting Standards Codification.

The Company considers the applicability and impact of all

In addition, there were no other securities outstanding during 2021 or 2020 other than common stock.

Issued Accounting Standards:

Changes to US-GAAP are established by the Financial Accounting Standards Board (FASB) in the form of

Accounting Standards Updates (ASU’s) to the FASB’s Accounting Standards Codification.

The Company considers the applicability

and impact of all ASU’s.

In June 2016, the FASB issued ASU

2018-07, Compensation - Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting.

This guidance expands the scope of accounting for share-based payment arrangements to include share-based payment transactions

for acquiring goods and services from nonemployees.

This guidance was adopted effective April 1, 2019 and did not have an

effect on the financial statements of the Company at March 31, 2020.

In February 2016, the FASB issued

ASU 2016-02, Leases (Topic 842) , which sets out the principles for the recognition, measurement, presentation and disclosure

of leases for both parties to a contract (i.e., lessees and lessors).

The new standard requires lessees to apply a dual approach,

classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a

financed purchase by the lessee.

This classification determines whether lease expense is recognized based on an effective interest

method or on a straight-line basis over the term of the lease.

A lessee is also required to record a right-of-use asset and a lease

liability for all leases with a term of greater than 12 months regardless of their classification.

Leases with a term of 12 months

or less are accounted for similar to previous guidance for operating leases with the election of the practical expedient.

standard requires lessors to account for leases using an approach that is substantially equivalent to previous guidance for sales-type

leases, direct financing leases and operating leases.

The Company adopted the standard on April 1, 2019, the date it became

effective for public companies based on the Company’s fiscal year, using the modified retrospective approach whereby the

cumulative effect of adoption was recognized on the adoption date and prior periods were not restated.

There was no net cumulative

effect adjustment to the accumulated deficit as of April 1, 2019 as a result of this adoption.

Upon adoption, the Company

elected the package of practical expedients permitted within the standard, which among other things, allows for the carryforward

of historical lease classification.

The Company also elected the practical expedient provided in a subsequent amendment to the

standard that removed the requirement to separate lease and non-lease components, provided certain conditions were met.

2016-13, “

Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments .”

The guidance in ASU 2016-13 requires the measurement and recognition of expected credit losses for financial assets held at amortized

It replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more

timely recognition of credit losses.

The Company adopted this guidance as of April 1, 2020, and the adoption of this guidance

did not have a material impact on the Company’s consolidated financial statements.

NOTE B –

LIQUIDITY AND MANAGEMENT’S PLAN

The Company had net losses of $5,813,891

and $1,347,986 for the years ended March 31, 2020 and 2019, respectively.

As the Company’s products are sold

primarily to the construction industry and do-it-yourself centers, restrictions and limitations imposed by the COVID-19 pandemic

have had a negative impact on the Company’s sales.

The Company is not yet able to quantify the full impact of the COVID-19

pandemic on its sales and financial results, but believes that the pandemic was a factor in significantly lower sales for the fourth

quarter of its fiscal year ended March 31, 2020 when compared to sales for the 2019 period.

Our short-term borrowings to finance operating

losses, trade accounts receivable, and foreign inventory purchases are provided pursuant to the terms of our Factoring Agreement

with Merchant.

Advances from the Company’s factor, are at the sole discretion of Merchant based on their assessment of the

Company’s receivables, inventory and financial condition at the time of each request for an advance.

The unused availability

of this facility totaled approximately $738,000 at March 31, 2020.

The Company sold its fifty percent ownership in the Hong Kong

Joint Venture effective March 31, 2020.

The non-cash proceeds from the sale were used to reduce our trade accounts payable due

to the Hong Kong Joint Venture by $4,000,000.

In addition, the Company and the HKJV agreed to convert $839,831 of trade accounts

payable to an interest only note payable.

In April, 2020 the Company and the HKJV formalized these terms into a note payable agreement

As the Company previously reported, on August 31,

2020, the Company received a letter from NYSE American LLC (the “Exchange”) stating that the Exchange has determined that

the Company is not in compliance with the Exchange’s continued listing requirements as the result of the Company’s failure

to maintain stockholders’

equity of $6.0 million after reporting losses from continuing operations and/or net losses in its five

most recent fiscal years.

On September 23, 2020, the Company submitted to the Exchange the Company’s plan (the “Plan”)

of actions the Company has taken or will take to regain compliance with the continued listing standards by February 28, 2022 (the

“Plan Period”).

On November 5, 2020, the Company received a letter from the Exchange advising the Company that the Exchange

has accepted the Plan and granted the Plan Period through February 28, 2022.

The Exchange will review the Company periodically to

determine whether the Company is making progress consistent with the Plan.

The Company is working diligently to execute its Plan to regain

compliance with the Exchange’s continued listing requirements.

The Company had net income of $268,343 for the

fiscal year ended March 31, 2021 and a net loss of $5,813,891 for the year ended March 31, 2020.

As the Company’s products are sold primarily

to the construction industry and do-it-yourself centers, restrictions and limitations imposed by the COVID-19 pandemic have had an impact

on the Company’s sales We are not yet able to quantify the full impact of the COVID-19 pandemic on our sales and financial results,

but we believe that during the first half of calendar 2020 (our fourth quarter of fiscal 2020 and first quarter of fiscal 2021) sales

were negatively impacted by lower sales resulting from steps taken to combat the spread of COVID-19.

Sales in our second and third fiscal

quarters ended September 30, 2020, and December 31, 2020 increased significantly when compared to sales for the comparable 2019

periods due to the Company’s ability to fill orders from inventory for a large national retailer new customer, when the national

retailer’s usual supplier was unable to fill the orders due to delays caused by the pandemic.

Our sales growth was also due to sales

of two products to another large national retailer which purchased certain of our models as a 1,350 store test, which were completed in

the fourth quarter of the fiscal year ending March 31, 2021.

Our short-term borrowings to finance operations,

trade accounts receivable, and foreign inventory purchases are provided pursuant to the terms of our Factoring Agreement with Merchant.

Advances from the Company’s factor, are at the sole discretion of Merchant based on their assessment of the Company’s receivables,

inventory and financial condition at the time of each request for an advance.

The unused availability of this facility totaled approximately

$1,795,000 at March 31, 2021.

The Company sold its fifty percent ownership in

Eyston effective March 31, 2020.

The non-cash proceeds from the sale were used to reduce our trade accounts payable due to Eyston

by $4,000,000.

In addition, the Company and Eyston agreed to convert $1,081,440 of trade accounts payable to an interest only note payable

with a maturity date of April 19, 2022.

Until March 31, 2020 the Company had secured extended payment terms for purchases up to

$4,000,000 from our Hong Kong Joint Venture for the purchase of sealed battery alarms.

These amounts were unsecured, incurred interest

at 5.5% per annum, and provided for repayment terms of 120 days for each purchase.

Subsequent to March 31, 2020 Eyston will continue

to be the Company’s principal supplier of safety alarms and the Company will pay for these purchases upon evidence of shipment

from the factory.

We anticipate, now

that our complete line of sealed smoke and carbon monoxide alarms has been introduced, that these products will compete on price

and functionality with similar products offered by our larger competitors.

While we believe there will be market acceptance of

our products we cannot be assured of this.

Should our products not achieve the level of acceptance we anticipate this will have

a significant impact on our future operations and potentially impact our ability to continue operations.

The Company has a history of sales that are insufficient to

generate profitable operations, and has limited sources of financing.

Management’s plan in response to these conditions includes

increasing sales resulting from the delivery of the Company’s line of sealed battery ionization smoke alarms, carbon monoxide

products, and ground fault circuit interrupters.

In addition, effective March 31, 2020, the Company sold its ownership interest

in the Hong Kong Joint Venture reducing its current liabilities due to the Hong Kong Joint Venture by $4,000,000.

Subsequent to

March 31, 2020 the Company has seen positive results on this plan due to increased sales of its product offerings to a major home

improvement retailer during the second quarter of the Company’s fiscal year ending March 31, 2021.

The increase in sales

to the major home improvement retailer has resulted in significant additional availability under the provisions of the Company’s

Until March 31, 2020 we had secured extended payment terms for purchases up to $4,000,000

from Eyston for the purchase of sealed battery alarms.

These amounts were unsecured, incurred interest at 5.5% per annum, and provided

for repayment terms of 120 days for each purchase.

Subsequent to March 31, 2020, Eyston continues to be the Company’s principal

supplier of safety alarms and the Company will pay for these purchases upon evidence of shipment from the factory.

We anticipate, now that our complete line of sealed

smoke and carbon monoxide alarms has been introduced, that these products will compete on price and functionality with similar products

offered by our larger competitors.

While we believe there will be market acceptance of our products we cannot be assured of this.

our products not achieve the level of acceptance we anticipate this will have a significant impact on our future operations and potentially

impact our ability to continue operations.

Prior to the fiscal year ended March 31, 2021 the Company has a history

of sales that were insufficient to generate profitable operations, and has limited sources of financing.

Management’s plan in response

to these conditions continues to be to increase sales resulting from the delivery of the Company’s line of sealed battery ionization

smoke alarms, carbon monoxide products, and ground fault circuit interrupters.

The Company has seen positive results on this plan due

to increased sales of its product offerings to a major home improvement retailer during the second and third quarters of the Company’s

fiscal year ended March 31, 2021.

This increase in sales has resulted in significant additional availability under the Company’s

facility with its Factor.

Management expects this sales growth to continue going forward.

In May, 2020 the Company received a Paycheck

Protection Program loan of $221,400 under the CARES Act and expects the loan will be forgiven in compliance with the provisions

Though no assurances can be given, if management’s plan continues to be successful over the next twelve months,

the Company anticipates that it should be able to meet its cash needs for the next twelve months following the issuance date of

Cash flows and credit availability is expected to be adequate to fund operations for one year from the issuance date

of this report.

Management expects sales growth to continue going forward.

In May, 2020 the Company received a Paycheck Protection

Program loan of $221,400 under the CARES Act and the loan was subsequently forgiven in compliance with the provisions of the CARES Act.

Though no assurances can be given, if management’s plan continues to be successful over the next twelve months, the Company anticipates

that it should be able to meet its cash needs for the next twelve months following the issuance date of this report.

Cash flows and credit

availability is expected to be adequate to fund operations for one year from the issuance date of this report.

NOTE C –

INVESTMENT IN THE HONG

KONG JOINT VENTURE

The Company held a fifty percent interest

in Eyston Company Limited, the Hong Kong Joint Venture, which has manufacturing facilities in the People’s Republic of China,

for the manufacturing of certain of our electronic and electrical products.

The Company sold its fifty percent interest in the

Hong Kong Joint Venture in exchange for $4,000,000.

The Company recorded a loss related to the sale of the Company’s investment

in the Hong Kong Joint Venture of $2,472,620, and a loss from its equity share of the Hong Kong Joint Venture’s net loss

for the year ended March 31, 2020 of $1,369,655.

The combined loss is recorded as the loss from investment in the Hong Kong

Joint Venture on the Consolidated Statements of Operations for the year ended March 31, 2020.

The proceeds of the sale were

used to reduce our outstanding trade account payable balance owed to the Hong Kong Joint Venture.

As of March 31, 2019, the

Company had an investment balance of $8,441,889, respectively for its 50% interest in the Hong Kong Joint Venture.

material differences between US-GAAP and those used by the Hong Kong Joint Venture.

INVESTMENT IN THE HONG KONG

JOINT VENTURE

The Company held a fifty percent interest in Eyston

Company Limited, the Hong Kong Joint Venture, which has manufacturing facilities in the People’s Republic of China, for the manufacturing

of certain of our electronic and electrical products.

The Company sold its fifty percent interest in the Hong Kong Joint Venture in exchange

for $4,000,000.

The Company recorded a loss related to the sale of the Company’s investment in the Hong Kong Joint Venture of $2,472,620,

and a loss from its equity share of the Hong Kong Joint Venture’s net loss for the year ended March 31, 2020 of $1,369,655.

The combined loss is recorded as the loss from investment in the Hong Kong Joint Venture on the Consolidated Statements of Operations

for the year ended March 31, 2020.

The proceeds of the sale were used to reduce our outstanding trade account payable balance owed

to the Hong Kong Joint Venture.

There are no material differences between US-GAAP and those used by the Hong Kong Joint Venture.

The following represents summarized financial

information derived from the financial statements of the Hong Kong Joint Venture as of March 31, 2019 and for the years ended

March 31, 2020 and 2019.

Current assets

Property and other assets

Current liabilities

Non-current liabilities

Total liabilities and equity

information derived from the financial statements of the Hong Kong Joint Venture for the fiscal year ended March 31, 2020.

For the Year Ended March 31,

During the years ended March 31, 2020 and 2019, the Company

purchased $7,335,646 and $10,982,518, respectively, of finished product from the Hong Kong Joint Venture, which represents 82.7%

and 87.2%, respectively, of the Company’s total finished product purchases.

Effective March 31, 2020, the Company sold its fifty

percent ownership interest in the Hong Kong Joint Venture and converted $839,831 of trade accounts payable due to the Hong

Kong Joint Venture to an unsecured long-term interest only note payable in April 2020.

Interest is based on the Shanghai

Commercial Bank Limited in Hong Kong US Dollar prime rate published on the first day of each calendar month plus 2% (5.25%

During the year ended March 31, 2021 and 2020, the Company purchased

$7,612,131 and $7,335,646, respectively, of finished product from Eyston, which represented 77.6% and 82.7%, respectively, of the Company’s

total finished product purchases.

Effective March 31, 2020, the Company sold

its fifty percent ownership interest in the Hong Kong Joint Venture and converted $1,081,440 of trade accounts payable due to the Hong

Kong Joint Venture to an unsecured long-term interest only note payable with the principal balance due in April 2022.

based on the Shanghai Commercial Bank Limited in Hong Kong US Dollar prime rate published on the first day of each calendar month plus

2% (5.25% effective rate at March 31, 2020) and is payable monthly.

The principal balance of $839,831 is due and payable on

April 19, 2022.

The Company has reflected this amount as a noncurrent liability at March 31, 2020 as the terms of

sale were completed with the HKJV in connection with the sale.

At March 31, 2019, the Company had outstanding $4,962,023

under an extended payment term agreement with the Hong Kong Joint Venture.

The extended payment term agreement was canceled

with the sale of the Company’s interest in the Hong Kong Joint Venture.

The agreement previously had provided for

extended payment terms for the purchase of inventory from the Hong Kong Joint Venture.

Purchases under the agreement were

limited to $4,000,000, incurred interest at 5.50%, are for a term of one hundred-twenty (120) days, and were unsecured.

Dividends declared and paid by the Hong Kong Joint Venture, which amounted to $0 for the fiscal years ended March 31,

2020 and 2019, are first used to repay any outstanding balance on the agreement.

The balance outstanding under this agreement

at March 31, 2019 is $4,962,023 with $2,758,960 of this amount being beyond agreed repayment terms.

The Company’s investment in the Hong

Kong Joint Venture at March 31, 2019, as recorded on the Company’s consolidated balance sheets and through the date

of sale, has been adjusted for the effect of intercompany profit of the Hong Kong Joint Venture in the ending inventory of the

For the fiscal year ended March 31, 2020 the Company had

secured extended payment terms for purchases up to $4,000,000 from Eyston for the purchase of sealed battery alarms.

These amounts were

unsecured, incurred interest at 5.5% per annum, and provided for repayment terms of 120 days for each purchase.

NOTE D –

SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS

On January 15, 2015, the Company entered

into an Agreement with Merchant for the purpose of factoring the Company’s trade accounts receivable and to provide financing

secured by finished goods inventory.

Under the modified Agreement the Company may borrow eighty percent (80%) of eligible accounts

Additional funding, characterized by Merchant as an over advance, may be provided up to one hundred percent (100%)

of eligible accounts receivable.

The over advance portion, if any, may not exceed fifty percent (50%) of eligible inventory up

to a maximum of $500,000.

The Agreement which was extended on January 7, 2020, expires on January 6, 2022, and provides

for continuation of the program for successive two year periods until terminated by one of the parties to the Agreement.

available to borrow from Merchant is approximately $738,000 and $605,000 at March 31, 2020 and 2019, respectively.

on factored trade accounts receivable and borrowing on inventories are secured by all of the Company’s trade accounts receivable

and inventories, are repaid periodically as collections are made by Merchant but are otherwise due upon demand, and bear interest

at the prime commercial rate of interest, as published, plus two percent (effective rate 5.25% at March 31, 2020 and 7.50%

at March 31, 2019).

Advances under the Agreement are made at the sole discretion of Merchant, based on their assessment of

the receivables, inventory and our financial condition at the time of each request for an advance.

On January 15, 2015, the Company entered into

an Agreement with Merchant for the purpose of factoring the Company’s trade accounts receivable and to provide financing secured

by finished goods inventory.

Under the modified Agreement the Company may borrow eighty percent (80%) of eligible accounts receivable.

Additional funding, characterized by Merchant as an over advance, may be provided up to one hundred percent (100%) of eligible accounts

The over advance portion, if any, may not exceed fifty percent (50%) of eligible inventory up to a maximum of $500,000.

Agreement which was extended and expires on January 6, 2022, provides for continuation of the program for successive two year periods

until terminated by one of the parties to the Agreement.

The amount available to borrow from Merchant is approximately $1,795,000 and

$738,000 at March 31, 2021 and 2020, respectively.

Advances on factored trade accounts receivable and borrowing on inventories are secured

by all of the Company’s trade accounts receivable and inventories, are repaid periodically as collections are made by Merchant but

are otherwise due upon demand, and bear interest at the prime commercial rate of interest, as published, plus two percent (effective rate

5.25% at March 31, 2021 and March 31, 2020).

Advances under the Agreement are made at the sole discretion of Merchant, based on their

assessment of the receivables, inventory and our financial condition at the time of each request for an advance.

At March 31, 2021 and

there was $1,561,665 and $1,851,591 borrowed and outstanding under the factoring agreement.

Under the Agreement, the Company assigned

receivables of $14,162,999 and $16,868,324 during the years ended March 31, 2020 and 2019, respectively.

The uncollected balance

of non-recourse receivables held by the factor amounted to $2,300,109 and $2,549,986 at March 31, 2020 and 2019.

cash maintained on deposit at March 31, 2020 and 2019 with the factor earns interest at the factor’s prime rate of interest

less 2.5 percent (effective rate of 0.75% and 3.00% at March 31, 2020 and 2019, respectively.) There was no cash on deposit

with the Factor at March 31, 2020 or 2019.

2020 there was $18,904 and $1,561,665 borrowed and outstanding under the factoring agreement, respectively.

Under the Agreement, the Company assigned receivables

of $17,003,317 and $14,162,999 during the years ended March 31, 2021 and 2020, respectively.

The uncollected balance of non-recourse

receivables held by the factor amounted to $1,925,291 and $2,300,109 at March 31, 2021 and 2020.

Collected cash maintained on deposit

at March 31, 2021 and 2020 with the factor earns interest at the factor’s prime rate of interest less 2.5 percent (effective

rate of 0.75% and 0.75% at March 31, 2021 and 2020, respectively.) There was no cash on deposit with the Factor at March 31,

2021 or 2020.

In May, 2020 the Company received a Paycheck Protection Program loan

of $221,400 under the CARES Act and during the fiscal year ended March 31, 2021, the loan was forgiven in compliance with the provisions

of the CARES Act.

NOTE E –

PROPERTY AND EQUIPMENT - NET

Property and equipment are recorded at

cost, less accumulated depreciation and amortization.

Depreciation and amortization are provided by using the straight-line method

based on estimated useful lives.

Property and equipment are recorded at cost, less

accumulated depreciation and amortization.

Depreciation and amortization are provided by using the straight-line method based on estimated

useful lives.

Expenditures for major betterments that extend the useful life of property and equipment are capitalized.

Repair and maintenance costs are expensed as incurred.

When property and equipment are retired or otherwise disposed of, the cost

and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in the results

of operations.

The estimated useful lives for financial

reporting purposes are as follows:

Repair and maintenance

costs are expensed as incurred.

When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation

and amortization are removed from the accounts and any resulting gain or loss is included in the results of operations.

The estimated useful lives for financial reporting

purposes are as follows:

Leasehold improvements

10 unchanged sentences

Computer equipment

Less accumulated depreciation and amortization

Depreciation and amortization expense totaled $159,469, which

includes $156,250 of amortization of right-of-use lease asset, and $15,587 for fiscal years ended March 31, 2020 and 2019, respectively.

Right-of-use lease assets of $329,698, net, are included in leasehold improvements in Property and Equipment on the Consolidated

Balance Sheets.

Less accumulated depreciation

Depreciation expense totaled $161,799, which includes $158,576 of amortization

of right-of-use lease asset, and $159,469 which included $156,250 of amortization of right-of-use lease asset for fiscal years ended March

31, 2021 and 2020, respectively.

Right-of-use lease assets of $171,122 and $329,698, net, are included in leasehold improvements in Property

and Equipment on the Consolidated Balance Sheets as of March 31, 2021 and 2020, respectively.

NOTE F - LEASES

The Company is a lessee in lease agreements

for office space.

Certain of the Company’s leases contain provisions that provide for one or more options to renew at the

Company’s sole discretion.

The Company’s leases are comprised of fixed lease payments, with its real estate leases

including lease payments subject to a rate or index which may be variable.

Certain real estate leases also include executory costs

such as common area maintenance (non-lease component).

As a practical expedient permitted under ASC 842, the Company has elected

to account for the lease and non-lease components as a single lease component.

Lease payments, which may include lease components

and non-lease components, are included in the measurement of the Company’s lease liabilities to the extent that such payments

are either fixed amounts or variable lease amounts based on a rate or index (fixed in substance) as stipulated in the lease contract.

During January 2009, the Company entered

into an operating lease for its office and warehouse location in Owings Mills, Maryland which was set to expire in March 2019.

In October, 2018, we extended this operating lease to expire in April 2022.

This lease is subject to increasing rentals at 2.5%

In November 2019, the Company renewed its operating lease through February 2021 for a 3,400 square foot office in Naperville,

This lease is subject to increasing rentals at three percent (3.0%) per year.

Our operating leases for real estate are

generally renewable with terms and conditions similar to the original lease.

Rent expense, including common area maintenance, totaled

$208,734 for the year ended March 31, 2019.

Rent expense for short term operating leases amounted to $67,448 for the year ended

March 31, 2020.

None of the Company’s lease agreements contain any residual value guarantees or material restrictive covenants.

As a result of the Company’s election of the package of practical expedients permitted within ASC 842, which among other

things, allows for the carryforward of historical lease classification, all of the Company’s lease agreements in existence

at the date of adoption that were classified as operating leases under ASC 840 have been classified as operating leases under ASC

Lease expense for payments related to the Company’s operating leases is recognized on a straight-line basis over the

related lease term, which includes options to extend or terminate the lease when it is reasonably certain that the Company will

The Company is a lessee in lease agreements for

office space.

Certain of the Company’s leases contain provisions that provide for one or more options to renew at the Company’s

sole discretion.

The Company’s leases are comprised of fixed lease payments, with its real estate leases including lease payments

subject to a rate or index which may be variable.

Certain real estate leases also include executory costs such as common area maintenance

(non-lease component).

As a practical expedient permitted under ASC 842, the Company has elected to account for the lease and non-lease

components as a single lease component.

Lease payments, which may include lease components and non-lease components, are included in the

measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable lease amounts

based on a rate or index (fixed in substance) as stipulated in the lease contract.

During January 2009, the Company entered into

an operating lease for its office and warehouse location in Owings Mills, Maryland which was set to expire in March 2019.

2018, we extended this operating lease to expire in April 2022.

This lease is subject to increasing rentals at 2.5% per year.

renewed its operating lease through February 2022 for a 3,400 square foot office in Naperville, Illinois.

Included are 3 one-year renewal

options that are not included in the measurement of the lease term.

Our operating leases for real estate are generally

renewable with terms and conditions similar to the original lease.

Rent expense, including common area maintenance, totaled $239,557 and

$208,734 for the years ended March 31, 2021 and 2020, respectively.

None of the Company’s lease agreements contain any residual

value guarantees or material restrictive covenants.

As a result of the Company’s election of the package of practical expedients

permitted within ASC 842, which among other things, allows for the carryforward of historical lease classification, all of the Company’s

lease agreements in existence at the date of adoption that were classified as operating leases under ASC 840 have been classified as operating

leases under ASC 842.

Lease expense for payments related to the Company’s operating leases is recognized on a straight-line basis

over the related lease term, which includes options to extend or terminate the lease when it is reasonably certain that the Company will

exercise that option.

Right-of-use assets represent the Company’s

right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease

payments as specified in the lease.

Right-of-use assets and lease liabilities related to the Company’s operating leases are

recognized at the lease commencement date based on the present value of the remaining lease payments over the lease term and amounted

to approximately $485,000 at the date of adoption.

When the Company’s leases do not provide an implicit rate, the Company

uses its incremental borrowing rate based on the information available surrounding the Company’s borrowing rates at the lease

commencement date in determining the present value of lease payments.

The right-of use asset also includes any lease payments made

at or before lease commencement less any lease incentives.

As of March 31, 2020, the Company had right-of-use assets of $329,698

and lease liabilities of $329,698 related to its operating leases.

right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments

as specified in the lease.

Right-of-use assets and lease liabilities related to the Company’s operating leases are recognized at

the lease commencement date based on the present value of the remaining lease payments over the lease term and amounted to approximately

$485,000 at the date of adoption.

When the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing

rate based on the information available surrounding the Company’s borrowing rates at the lease commencement date in determining

the present value of lease payments.

The right-of use asset also includes any lease payments made at or before lease commencement less

any lease incentives.

As of March 31, 2021, the Company had right-of-use assets of $171,122 and lease liabilities of $171,122 related

to its operating leases.

Right-of-use assets are included in property and equipment, net, on the consolidated balance sheet and lease

liabilities related to the Company’s operating leases are included in short-term and long-term lease liability on the consolidated

balance sheet.

As of March 31, 2021 the Company’s weighted-average remaining lease term and weighted-average discount rate related

to its operating leases is one year and 6.0%, respectively.

During the fiscal year ended March 31, 2021, the cash paid for amounts included

in the measurement of lease liabilities related to the Company’s operating leases was $173,622, which is included as an operating

cash outflow within the consolidated statements of cash flows.

During the fiscal year ended March 31, 2021, the operating lease costs

related to the Company’s operating leases was $173,622 which is included in operating costs and expenses in the consolidated statements

of operations.

During the fiscal years ended March 31, 2021 and 2020, the Company did not enter into any material lease agreements set

to commence in the future and there were no newly leased assets for which a right-of use asset was recorded in exchange for a new lease

liability, other than th o se lease assets recorded upon implementation.

As of March 31, 2020, the Company had right-of-use assets

of $329,698 and lease liabilities of $329,698 related to its operating leases.

Right-of-use assets are included in property and equipment,

1 unchanged sentence

and long-term lease liability on the consolidated balance sheet.

As of March 31, 2020 the Company’s weighted-average remaining

lease term and weighted-average discount rate related to its operating leases were two years and 6.0%, respectively.

fiscal year ended March 31, 2020, the cash paid for amounts included in the measurement of lease liabilities related to the Company’s

operating leases was $160,605, which is included as an operating cash outflow within the consolidated statements of cash flows.

During the fiscal year ended March 31, 2020, the operating lease costs related to the Company’s operating leases was $160,605

which is included in operating costs and expenses in the consolidated statements of operations.

During the fiscal year ended March

31, 2020, the Company did not enter into any lease agreements set to commence in the future and there were no newly leased assets

for which a right-of use asset was recorded in exchange for a new lease liability, other than th o se lease assets recorded

upon implementation.

As of March 31, 2020 the Company’s weighted-average remaining lease

term and weighted-average discount rate related to its operating leases were two years and 6.0%, respectively.

During the fiscal year

ended March 31, 2020, the cash paid for amounts included in the measurement of lease liabilities related to the Company’s operating

leases was $160,605, which is included as an operating cash outflow within the consolidated statements of cash flows.

During the fiscal

year ended March 31, 2020, the operating lease costs related to the Company’s operating leases was $160,605 which is included in

operating costs and expenses in the consolidated statements of operations.

The future minimum payments under operating leases were as follows

6 unchanged sentences

NOTE G –

The Company files its income tax returns

The Company files its income tax returns in the

federal jurisdiction, and various state jurisdictions.

1 unchanged sentence

and 2018 are considered open and subject to examination by tax authorities.

Deferred income tax assets and liabilities

are computed and recognized for those differences that have future tax consequences and will result in net taxable or deductible

amounts in future periods.

Deferred tax expense or benefit is the result of changes in the net asset or liability for deferred

The deferred tax liabilities and assets for the Company result primarily from net operating loss and tax credit carry forwards,

reserves and accrued liabilities.

At March 31, 2020, the Company has

total net federal and state operating loss carry forwards of approximately $5,714,000, which expire in various amounts at dates

from 2020 through 2034.

There are certain limitations to the use and application of these items.

Management reviews net operating

loss carry forwards and income tax credit carry forwards to evaluate if those amounts are recoverable.

After a review of projected

taxable income and the components of the deferred tax assets in accordance with applicable accounting guidance it was determined

that it is more likely than not that the tax benefits associated with the remaining components of the deferred tax assets will

not be realized.

This determination was made based on the Company’s history of losses from operations and the uncertainty

as to whether the Company will generate sufficient taxable income to use the deferred tax assets prior to their expiration.

a valuation allowance was established to fully offset the value of the deferred tax assets.

Our ability to realize the tax benefits

associated with the deferred tax assets depends primarily upon the timing of future taxable income and the expiration dates of

the components of the deferred tax assets.

If sufficient future taxable income is generated, we may be able to offset a portion

of future tax expenses

The reconciliation between the statutory federal income tax

provision and the actual effective tax provision is as follows:

Deferred income tax assets and liabilities are computed and

recognized for those differences that have future tax consequences and will result in net taxable or deductible amounts in future periods.

Deferred tax expense or benefit is the result of changes in the net asset or liability for deferred taxes.

The deferred tax liabilities

and assets for the Company result primarily from net operating loss and tax credit carry forwards, reserves and accrued liabilities.

At March 31, 2021, the Company has total net federal

operating loss carry forwards of approximately $5,912,000.

certain limitations to the use and application of these items.

Management reviews net operating loss carry forwards and income tax credit

carry forwards to evaluate if those amounts are recoverable.

After a review of projected taxable income and the components of the deferred

tax assets in accordance with applicable accounting guidance it was determined that it is more likely than not that the tax benefits associated

with the remaining components of the deferred tax assets will not be realized.

This determination was made based on the Company’s

history of losses from operations and the uncertainty as to whether the Company will generate sufficient taxable income to use the deferred

tax assets prior to their expiration.

Accordingly, a valuation allowance was established to fully offset the value of the deferred tax

Our ability to realize the tax benefits associated with the deferred tax assets depends primarily upon the timing of future taxable

income and the expiration dates of the components of the deferred tax assets.

If sufficient future taxable income is generated, we may

be able to offset a portion of future tax expenses.

The reconciliation between the statutory federal income tax provision

and the actual effective tax provision is as follows:

Years ended March 31,

Federal benefit at statutory rate (21%) before loss carry-forward

Federal tax (benefit) at statutory rate (21%) before loss carry-forward

$ (1,220,917 )

Non-repatriated loss of Hong Kong Joint Venture

Permanent and other differences

3 unchanged sentences

Change in deferred tax asset valuation allowance

The individual components of the Company’s deferred tax

assets are as follows:

The individual components of the Company’s deferred tax assets

are as follows:

Deferred tax assets:

7 unchanged sentences

NOTE H - COMMITMENTS AND CONTINGENCIES

From time to time, the Company is involved

in various lawsuits and legal matters.

It is the opinion of management, based on consultation with legal counsel, that there are

no outstanding material claims outside of the normal course of business.

The Company’s employment agreement

with its CEO (the “CEO Agreement”) requires the Company to make certain post-employment payments to the CEO in the

event of his termination following a change in control, death, disability, non-renewal, or resignation with “Good Reason”

under terms of the CEO Agreement.

Additionally, the CEO Agreement requires the Company to make post-employment payments, which

can range from approximately $94,000 to $1,995,000, dependent upon the controlling event, as discussed above.

In July, 2020, the

Company renewed the CEO Agreement through July 31, 2021.

From time to time, the Company is involved in

various lawsuits and legal matters.

It is the opinion of management, based on consultation with legal counsel, that there are no outstanding

material claims outside of the normal course of business.

The Company’s employment agreement with

its CEO (the “CEO Agreement”) requires the Company to make certain post-employment payments to the CEO in the event of his

termination following a change in control, death, disability, non-renewal, or resignation with “Good Reason”

under terms of

the CEO Agreement.

Additionally, the CEO Agreement requires the Company to make post-employment payments, which can range from approximately

$94,000 to $1,995,000, dependent upon the controlling event, as discussed above.

In July, 2020, the Company renewed the CEO Agreement

through July 31, 2021.

NOTE I - CONCENTRATIONS

The Company is primarily a distributor

of safety products for use in home and business under both its trade names and private labels for other companies.

in Note C, the Company purchased a majority of its products from the Hong Kong Joint Venture.

The Company had two different customers,

one in each of the fiscal years that ended March 31, 2020 and 2019 that represented 10.3% and 12.2% of the Company’s

The Company is primarily a distributor of safety products for use in

home and business under both its trade names and private labels for other companies.

The Company acquires all of the smoke alarm and carbon

monoxide alarm safety products that it sells from Eyston Company, Ltd.

At March 31, 2021, the Company had receivables due from Eyston

Company, Ltd.

of $381,401 recorded in trade accounts receivable.

The Company had one customer in the fiscal year

that ended March 31, 2021 that represented 21.9% of the Company’s net sales and two customers in the fiscal year that ended March

31, 2020 that represented 12.2% and 10.3% of the Company’s net sales, respectively.

NOTE J - QUARTERLY FINANCIAL DATA (UNAUDITED)

4 unchanged sentences

September 30,

Net loss per share:

Net income (loss)

Net income (loss) per share:

Basic and diluted

1 unchanged sentence

Basic and diluted

NOTE K –

RETIREMENT PLAN

The Company has a retirement savings plan

under Section 401(k) of the Internal Revenue Code.

All full-time employees who have completed 12 months of service are

eligible to participate.

The Company has a retirement savings plan under

Section 401(k) of the Internal Revenue Code.

All full-time employees who have completed 12 months of service are eligible to

Employees are permitted to contribute up to the amounts prescribed by law.

The Company may provide contributions

to the plan consisting of a matching amount equal to a percentage of the employee’s contribution, not to exceed four percent

Employer contributions were $41,121 and $36,868 for the years ended March 31, 2020 and 2019, respectively.

The Company may provide contributions to the plan

consisting of a matching amount equal to a percentage of the employee’s contribution, not to exceed four percent (4%).

contributions were $43,412 and $41,121 for the years ended March 31, 2021 and 2020, respectively.

NOTE L –

1 unchanged sentence

During the fiscal year ended March 31, 2021

2020 and 2019, inventory purchases and other company expenses of approximately $999,000 and $1,723,000, respectively, were charged

to credit card accounts of Harvey B.

Grossblatt, the Company’s Chief Executive Officer and certain of his immediate family

The Company subsequently reimbursed these charges in full.

and 2020, inventory purchases and other company expenses of approximately $1,206,000 and $999,000 respectively, were charged to credit

card accounts of Harvey B.

Grossblatt, the Company’s Chief Executive Officer and certain of his immediate family members.

subsequently reimbursed these charges in full.

Grossblatt receives mileage benefits from these charges.

The maximum amount outstanding and due to Mr.

Grossblatt at any point during the fiscal year ended March 31, 2020 and

2019 amounted to $136,876 and $168,826, respectively, and the amount outstanding at March 31, 2020 and 2019 is $27,102 and

$55,321, respectively.

The maximum amount outstanding

and due to Mr.

Grossblatt at any point during the fiscal year ended March 31, 2021 and 2020 amounted to $158,134 and $136,876,

respectively, and the amount outstanding at March 31, 2021 and 2020 is $50,536 and $27,102, respectively.

NOTE M –

INTANGIBLE ASSETS - NET

Intangible assets consist of legal expenses

of $89,434 incurred in obtaining and perfecting patents on newly developed detector technology and are capitalized for financial

statement purposes.

Intangible assets consist of legal expenses of

$89,434 incurred in obtaining and perfecting patents on newly developed detector technology and are capitalized for financial statement

Upon issuance, patents are amortized on a straight-line basis over twenty years.

Amortization expense for the

fiscal year ended March 31, 2020 and 2019 was $4,471 and $4,472, respectively.

Accumulated amortization at March 31,

2020 and 2019 was $40,245 and $35,774, respectively.

Amortization expense for the fiscal year ended

March 31, 2021 and 2020 was $4,472 and $4,471, respectively.

Accumulated amortization at March 31, 2021 and 2020 was $44,717

and $40,245, respectively.

Amortization expense for the next five years is expected to be $4,472 through 2026.

1 unchanged sentence

SHAREHOLDERS’

Under the terms of the Company’s 2011 Non-Qualified Stock

Option Plan, 120,000 shares of common stock are reserved for the granting of stock options.

There were no stock options outstanding

at March 31, 2020 or 2019.

Under the terms of the Company’s 2011 Non-Qualified Stock Option

Plan, 120,000 shares of common stock are reserved for the granting of stock options.

There were no stock options outstanding at March 31,

2021 or 2020.

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