DeFi Capital Markets, Inc. 10-K

ITEM 9A . CONTROLS AND PROCEDURES 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 – 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. 13 Management’s Annual Report on Internal Control over Financial Reporting 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. 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 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 effective. Changes 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. ITEM 9B. OTHER INFORMATION Not applicable. 14 PART III ITEM 10 . 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 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” in the Proxy Statement. 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. ITEM 11 . 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. ITEM 12. 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” 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. ITEM 13 . 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” in the Proxy Statement. ITEM 14 . 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. 15 PART IV ITEM 15 . EXHIBITS (a)1. Financial Statements . Page Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets as of March 31, 2021 and 2020 F-2 Consolidated Statements of Operations for the Years Ended March 31, 2021 and 2020 F-3 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended March 31, 2021 and 2020 F-4 Consolidated Statements of Shareholders’ Equity for the Years Ended March 31, 2021 and 2020 F-5 Consolidated Statements of Cash Flows for the Years Ended March 31, 2021 and 2020 F-6 Notes to Consolidated Financial Statements F-7 (a)3. Exhibits required to be filed by Item 601 of Regulation S-K. Exhibit No. 3.1 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. 1-31747) 3.2 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. 1-31747) 3.3 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. 1-31747) 10.1 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. 1-31747) 10.2 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. 1-31747) 10.3 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. 1-31747) 10.4 Lease between Universal Security Instruments, Inc. and St. 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. 1-31747) 10.5 Amendment to Lease between Universal Security Instruments, Inc. and St. 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. 1-31747) 10.6 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 ), 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. 1-31747 ), by Addendum dated July 3, 2013 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 8, 2013, File No. 1-31747 ), and by Addendum dated July 21, 2014 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 21, 2014, File No. 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. 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. 1-31747 ). 16 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. 1-31747) 23.1 Independent Registered Public Accounting Firm’s Consent 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer* 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer* 32.1 Section 1350 Certifications* 99.1 Press Release dated July 8, 2021* 101 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 2020; (ii) Consolidated Statements of Operations for the years ended March 31, 2021 and 2020; (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, 2021 and 2020; and (vi) Notes to Consolidated Financial Statements* *Filed herewith. 17 SIGNATURES 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. UNIVERSAL SECURITY INSTRUMENTS, INC. July 8, 2021 By: /s/ Harvey B. Grossblatt Harvey B. Grossblatt President and Chief Executive Officer (principal executive officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Harvey B. Grossblatt President, Chief Executive Officer July 8, 2021 Harvey B. Grossblatt and Director /s/ James B. Huff Chief Financial Officer July 8, 2021 James B. Huff (principal financial officer and principal accounting officer) /s/ Cary Luskin Director July 8, 2021 Cary Luskin /s/ Ronald A. Seff Director July 8, 2021 Ronald A. Seff /s/ Ira Bormel Director July 8, 2021 Ira Bormel 18 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Audit Committee of the Board of Directors and Shareholders Universal Security Instruments, Inc. and Subsidiary Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Universal Security Instruments, Inc. 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”). In our 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 These financial statements are the responsibility of the Company's management. 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. 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. 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 that: (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 Marcum llp We have served as the Company’s auditor since 2015. Philadelphia, PA July 8, 2021 F- 1 UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS ASSETS March 31, 2021 2020 CURRENT ASSETS Cash $ 160,604 $ 93,794 Accounts receivable: Trade, less allowance for doubtful accounts 653,172 109,548 Receivables from employees 5,000 36,876 658,172 146,424 Amount due from factor 1,925,291 2,300,109 Inventories – finished goods 4,181,193 5,123,959 Prepaid expenses 336,699 113,145 TOTAL CURRENT ASSETS 7,261,959 7,777,431 INTANGIBLE ASSETS - NET 44,717 49,189 PROPERTY AND EQUIPMENT - NET 184,678 346,477 OTHER ASSETS 4,000 4,000 TOTAL ASSETS $ 7,495,354 $ 8,177,097 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Line of credit – factor Short-term portion of operating lease liability $ 18,904 171,122 $1,561,665 158,578 Accounts payable – trade 509,561 505,904 Accounts payable – Eyston Company Ltd. 755,148 266,409 Accrued liabilities: Accrued payroll and employee benefits 103,381 136,683 Accrued commissions and other 139,242 88,694 TOTAL CURRENT LIABILITIES 1,697,358 2,717,933 ACCOUNTS PAYABLE – Eyston Company Ltd. – noncurrent 1,081,440 839,831 LONG-TERM PORTION OF OPERATING LEASE LIABILITY - 171,120 TOTAL LONG-TERM LIABILITIES 1,081,440 1,010,951 COMMITMENTS AND CONTINGENCIES - - SHAREHOLDERS’ EQUITY Common stock, $.01 par value per share; 20,000,000 shares authorized, 2,312,887 shares issued and outstanding at March 31, 2021 and 2020 23,129 23,129 Additional paid-in capital 12,885,841 12,885,841 Accumulated Deficit (8,192,414 ) (8,460,757 ) TOTAL SHAREHOLDERS’ EQUITY 4,716,556 4,448,213 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 7,495,354 $ 8,177,097 The accompanying notes are an integral part of these consolidated financial statements F- 2 UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended March 31, 2021 2020 Net sales $ 17,520,151 $ 14,803,024 Cost of goods sold – acquired from Joint Venture - 10,009,571 Cost of goods sold - other 11,880,442 1,034,599 GROSS PROFIT 5,639,709 3,758,854 Selling, general and administrative expense 5,034,380 4,628,881 Research and development expense 471,545 691,886 Operating income (loss) 133,784 (1,561,913 ) Other income (expense): Forgiveness of debt – PPP Loan 221,400 - Loss from investment in Hong Kong Joint Venture - (3,842,275 ) Interest expense, net (86,841 ) (409,703 ) Earnings (Loss) before income taxes 268,343 (5,813,891 ) Income tax expense - - NET INCOME (LOSS) $ 268,343 $ (5,813,891 ) Earnings (Loss) per share: Basic and diluted $ 0.12 $ (2.51 ) Shares used in computing net earnings (loss) per share: Weighted average basis and diluted shares outstanding 2,312,887 2,312,887 The accompanying notes are an integral part of these consolidated financial statements F- 3 UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended March 31, 2021 2020 NET INCOME (LOSS) $ 268,343 $ (5,813,891 ) Other Comprehensive Loss Company’s Portion of Hong Kong Joint Venture’s Other Comprehensive Loss: Currency translation loss - (134,151 ) Unrealized loss on investment securities - (50,397 ) Less: Reclassification adjustment for gain included in net loss - (427,208 ) Total Other Comprehensive Loss - (611,756 ) COMPREHENSIVE INCOME (LOSS) $ 268,343 $ (6,425,647 ) The accompanying notes are an integral part of these consolidated financial statements F- 4 UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Common Stock Shares Amount Additional Paid-In Capital Accumulated Deficit Accum. Other Comprehensive Income Total Balance at April 1, 2019 2,312,887 $ 23,129 $ 12,885,841 $ (2,646,866 ) $ 611,756 $ 10,873,860 Currency translation loss (134,151 ) (134,151 ) Unrealized loss on investment securities (50,397 ) (50,397 ) Less: Reclassification adjustment for gain included in net loss (427,208 ) (427,208 ) Net loss (5,813,891 ) (5,813,891 ) Balance at March 31, 2020 2,312,887 23,129 12,885,841 (8,460,757 ) - 4,448,213 Net income 268,343 268,343 Balance at March 31, 2021 2,312,887 $ 23,129 $ 12,885,841 $ (8,192,414 ) $ - $ 4,716,556 The accompanying notes are an integral part of these consolidated financial statements F- 5 UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended March 31, 2021 2020 OPERATING ACTIVITIES: Net Income (loss) $ 268,343 $ (5,813,891 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 7,695 7,690 Forgiveness of debt – Paycheck Protection Program (221,400 ) - Depreciation of right-of-use asset 158,576 156,250 Increase in allowance for doubtful accounts receivable 100,000 - Loss from investment in Hong Kong Joint Venture - 3,842,275 Changes in operating assets and liabilities: (Increase) Decrease in accounts receivable and amounts due from factor (236,930 ) 568,879 Decrease in inventories 942,766 1,728,346 (Increase) Decrease in prepaid expenses (223,554 ) 32,045 Increase (Decrease) in accounts payable and accrued expenses 751,252 (356,096 ) Decrease in operating lease liability (158,576 ) (156,250 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 1,388,172 9,248 FINANCING ACTIVITIES: Proceeds from – Paycheck Protection Program 221,400 - Net repayment of line of credit - factor (1,542,762 ) (289,926 ) NET CASH USED IN FINANCING ACTIVITIES (1,321,362 ) (289,926 ) INCREASE (DECREASE) IN CASH 66,810 (280,678 ) Cash at beginning of period 93,794 374,472 CASH AT END OF PERIOD $ 160,604 $ 93,794 Supplemental information: Interest paid $ 82,184 $ 496,250 Income taxes paid $ - $ - Supplemental disclosures of non-cash activities: Right-of-use asset in exchange for operating lease liability $ - $ 485,948 Conversion of trade accounts payable to note payable 1,081,440 - Reduction in trade accounts payable to Eyston Co. Ltd. arising from the sale of the Hong Kong Joint Venture $ - $ 4,000,000 The accompanying notes are an integral part of these consolidated financial statements F- 6 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. Principles of Consolidation: 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. 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 period. Actual results could differ from those estimates. 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: The Company’s primary source of revenue is the sale of safety and security products based upon purchase orders or contracts with customers. Revenue is recognized at a point in time once the Company has determined that the customer has obtained control over the product. 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 or more. 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. F- 7 Disaggregation of Revenue: 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 March 31, 2021 March 31, 2020 Sales of safety alarms $ 15,218,162 $ 13,098,923 Sales of GFCI’s and ventilation fans 2,301,989 1,704,101 $ 17,520,151 $ 14,803,024 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 $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. Based on the nature of the factoring agreement 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: 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, 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 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 value, and losses are determined based upon the excess carrying value of the asset group over its fair value. Based on this assessment, no impairment to long-lived assets resulted for fiscal years ended March 31, 2021 and 2020. Leases: The 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 lease. 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 a lessee. Lease expense is recognized on a straight-line basis over the lease term. See Note F, Leases. 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. F- 8 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. Warranties: 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: Research and development costs are charged to operations as incurred. Shipping 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 $409,692 and $343,838 in fiscal years 2021 and 2020, 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 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: Basic net 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 2021 or 2020 other than common stock. Recently 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 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 cost. 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. F- 9 NOTE B – LIQUIDITY AND MANAGEMENT’S PLAN 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 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. 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. F- 10 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 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. 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 for the fiscal year ended March 31, 2020. For the Year Ended March 31, 2020 Net Sales $ 8,054,070 Gross Profit 276,787 Net Loss (3,235,107 ) 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. 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% effective rate at March 31, 2020) and is payable monthly. 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. F- 11 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 receivable. 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 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 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. 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: Leasehold improvements - Shorter of term of lease or useful life of asset Machinery and equipment - 5 to 10 years Furniture and fixtures - 5 to 15 years Computer equipment - 5 years Property and equipment consist of the following: March 31, 2021 2020 Leasehold improvements $ 652,670 $ 652,670 Machinery and equipment 190,400 190,400 Furniture and fixtures 261,292 261,292 Computer equipment 302,634 302,634 1,406,996 1,406,996 Less accumulated depreciation (1,222,318 ) (1,060,519 ) $ 184,678 $ 346,477 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. F- 12 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% per year. The Company 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, 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, 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, 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 at March 31, 2021: 2022 $ 175,792 2023 - Total operating lease payments $ 175,792 Less: amounts representing interest (4,670 ) Present value of net operating lease payments $ 171,122 Less: current portion - Long-term portion of operating lease obligations $ 171,122 F- 13 NOTE G – INCOME TAXES The Company files its income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Income tax returns filed for the fiscal years ended March 31, 2020, 2019, 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 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. 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. Accordingly, 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: Years ended March 31, 2021 2020 Federal tax (benefit) at statutory rate (21%) before loss carry-forward $ 56,352 $ (1,220,917 ) Permanent and other differences (33,029 ) 7,646 State income tax (benefit) – net of federal effect 3,353 (72,000 ) Expiration of tax credits 129,999 - Change in deferred tax asset valuation allowance (156,675 ) 1,285,271 $ - $ - The individual components of the Company’s deferred tax assets are as follows: March 31, 2021 2020 Deferred tax assets: Accruals and allowances $ 76,376 $ 39,112 Inventory uniform capitalization 11,027 18,544 Net operating loss carry forward 1,241,522 1,258,433 Foreign tax credit carry forward - 169,511 Research and development tax credit carry forward 61,701 61,701 Allowance for unrealizable deferred tax assets (1,390,626 ) (1,547,301 ) Net deferred tax asset $ - $ - F- 14 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. 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. 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) Quarterly Results of Operations (Unaudited): The unaudited quarterly results of operations for fiscal years 2021 and 2020 are summarized as follows: Quarter Ended June 30, September 30, December 31, March 31, 2021 Net sales $ 2,940,768 $ 6,457,295 $ 5,124,750 $ 2,997,338 Gross profit 1,077,143 2,104,028 1,520,323 938,215 Net income (loss) (78,982 ) 725,845 78,318 (456,838 ) Net income (loss) per share: Basic and diluted (0.03 ) 0.31 0.03 (0.19 ) 2020 Net sales $ 4,343,291 $ 3,622,269 $ 3,223,678 $ 3,613,786 Gross profit 1,244,829 1,090,346 769,992 653,687 Net loss (608,954 ) (700,814 ) (1,011,833 ) (3,492,290 ) Net loss per share: Basic and diluted (0.26 ) (0.30 ) (0.44 ) (1.51 ) 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. 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 (4%). Employer contributions were $43,412 and $41,121 for the years ended March 31, 2021 and 2020, respectively. NOTE L – RELATED PARTY TRANSACTIONS During the fiscal year ended March 31, 2021 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. The Company subsequently reimbursed these charges in full. Mr. 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, 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. F- 15 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. Upon issuance, patents are amortized on a straight-line basis over twenty years. 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. NOTE N– SHAREHOLDERS’ EQUITY 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. F- 16