What changed in this filing

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Item 9A. Controls and Procedures

2024-07-12 compared with 2023-07-14 · 71 added, 80 removed, 409 unchanged (27% of the section changed)

14 unchanged sentences

Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of March 31, 2024, because of a material weakness in internal control over financial reporting as discussed below.

A material weakness arose during the fiscal year ended March 31, 2023, in the management review controls over classification of and disclosure of amounts within the financial statements.

Material weaknesses arose during the fiscal years ended March 31, 2024, and 2023, in the management review controls over classification of and disclosure of amounts within the financial statements.

The Company plans to remediate the material weakness by clarification of the classification of amounts and inclusion of the required disclosures.

A material weakness arose during the fiscal year ended March 31, 2023, in the management review controls over the classification of and accounting for income taxes.

Material weaknesses arose during the fiscal years ended March 31, 2024, and 2023, in the management review controls over the classification of and accounting for income taxes.

The Company plans to remediate the material weakness by clarification of the classification of amounts and inclusion of the required disclosures.

Material weaknesses arose during the fiscal year ended March 31, 2024, in management’s review and control over documentation supporting entries posted to the Company’s general ledger.

The Company plans to remediate the material weakness by implementing procedures to improve documentation used to support entries to the Company’s general ledger.

Changes in Internal Control over Financial Reporting

1 unchanged sentence

OTHER INFORMATION

Not applicable.

N o t a p p licable.

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 2024 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 the identity and compensation of executive officers of the Company is in the Company’s definitive Proxy Statement filed pursuant to Regulation 14A and issued in conjunction with the 2024 Annual Meeting of Shareholders is incorporated herein by reference.

The information with respect to the Company’s Audit Committee is incorporated herein by reference to the section captioned “Corporate Governance” 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.

8 unchanged sentences

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 “Authorization For Appointment of Auditors” in the Proxy Statement.

Financial Statements .

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1-31747) , by addendum dated July 28, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 28, 2021, File No.

1-31747) and by addendum dated July 22, 2022

(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 28, 2022, file No.

1-31747) , by addendum dated July 22, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 28, 2022, file No.

1-31747) , and by addendum dated June 12, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 13, 2023, 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, 2022, File No.

64 unchanged sentences

Accounts receivable:

Trade, less allowance for doubtful accounts

Trade, less provision for credit losses of $ 325,000 in 2024, and 157,012 in 2023

Other receivables

10 unchanged sentences

Accounts payable – trade

Note payable – Eyston Company Ltd.

Accounts payable – Eyston Company Ltd.

22 unchanged sentences

Engineering and product development expense

Operating income

Other expense:

Interest expense, net

Earnings (loss) before income taxes

Operating (loss) income

Other (expense) income:

Interest income

Interest expense

(Loss) Income before income taxes

Income tax expense

NET INCOME (LOSS)

Earnings (loss) per share:

NET (LOSS) INCOME

(Loss) Earnings per share:

Basic and diluted

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

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

Weighted average basic and diluted shares outstanding

13 unchanged sentences

OPERATING ACTIVITIES:

Net Income (loss)

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

Net (Loss) Income

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

Depreciation and amortization

Depreciation of right-of-use asset and decrease in other assets

Decrease in allowance for inventory reserve

Changes in operating assets and liabilities:

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

( 1,506,650 )

Decrease (Increase) in inventories

( 1,977,868 )

Decrease in prepaid expenses

(Decrease) Increase in accounts payable and accrued expenses

Decrease in accounts receivable and amount due from factor

(Increase) Decrease in inventories

(Increase) Decrease in prepaid expenses

Increase (Decrease) in accounts payable and accrued expenses

( 1,918,493 )

Decrease in operating lease liability

NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES

( 1,860,051 )

NET CASH PROVIDED BY OPERATING ACTIVITIES

FINANCING ACTIVITIES:

1 unchanged sentence

( 1,081,440 )

Net (repayment) borrowing of line of credit - factor

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

Net repayment of line of credit - factor

NET CASH USED IN FINANCING ACTIVITIES

( 1,779,176 )

(DECREASE) INCREASE IN CASH

(DECREASE) IN CASH

Cash at beginning of year

2 unchanged sentences

Interest paid

Income taxes paid

Supplemental disclosures of non-cash activities:

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

The accompanying notes are an integral part of these consolidated financial statements.

6 unchanged sentences

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.

Proposed Merger:

As previously reported, on February 25, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company (USI), a wholly owned subsidiary of the Company D-U Merger Sub, Inc.

a Delaware corporation (“Merger Sub”) and Infinite Reality, Inc., a Delaware corporation (“Infinite Reality”).

On December 12, 2022, Infinite Reality terminated the Merger Agreement.

Principles of Consolidation:

1 unchanged sentence

All significant intercompany accounts and transactions have been eliminated in consolidation.

Other accounts receivable for the fiscal year ended March 31, 2022, were reclassified to achieve uniformity with the presentation of other accounts receivable for the fiscal year ended March 31, 2023.

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.

On an ongoing basis, we evaluate these estimates, including those related to bad debts, inventories, income taxes, and contingencies and litigation.

On an ongoing basis, we evaluate these estimates, including those related to credit losses, inventories, income taxes, and contingencies and litigation.

We base these estimates on historical experiences and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources.

19 unchanged sentences

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.

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, 2024, and 2023 are as follows:

11 unchanged sentences

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, 2023.

At March 31, 2023, and 2022, an allowance of $ 157,000 has been provided for uncollectible trade accounts receivable.

Management assesses the credit risk of both its trade accounts receivable and its financing receivables based on the specific identification of accounts.

A provision for credit losses is provided based on that assessment.

Changes in the provision 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 provision for credit losses in the period that the receivables’ status is determined to be uncollectible.

Based on the nature of the factoring agreement and prior experience, no provision for credit losses related to Amounts Due from Factor has been provided.

At March 31, 2024 and 2023, a provision for credit losses of approximately $ 325,000 and approximately $ 157,000 , respectively,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.

14 unchanged sentences

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 for short-term leases, 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.

The Company utilizes certain practical expedients for short-term leases, 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.

See Note D, Leases.

6 unchanged sentences

See Note E, 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.

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

The manufacturers of our safety products offer the company a discount on products purchased to cover the cost of providing warranty replacements.

Claims for warranty replacement of products covered by the manufacturers have not been historically material.

Engineering and Product Development:

4 unchanged sentences

Shipping and handling costs associated with outbound freight are included in selling, general and administrative expenses and totaled $ 561,075 and $ 524,016 in fiscal years 2024 and 2023, respectively.

Net Earnings (Loss) per Share:

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

Diluted earnings (loss) per share is computed by dividing net income (loss) for the year by the weighted average number of common shares and common share equivalents outstanding (unless their effect is anti-dilutive) for the year.

Net (Loss) Earnings per Share:

Basic net(loss) earnings per share is computed by dividing net (loss) earnings for the year by the weighted average number of common shares outstanding during the year.

Diluted (loss) earnings per share is computed by dividing net (loss) income for the year by the weighted average number of common shares and common share equivalents outstanding (unless their effect is anti-dilutive) for the year.

As a result, the weighted average number of common shares outstanding is identical for both basic and diluted shares.

3 unchanged sentences

The Company considers the applicability and impact of all ASU’s.

Management adopted ASU 2016-02 related to credit losses effective April 1, 2023.

Management determined that adoption of the guidance of the ASU did not have a material impact on the consolidated financial statements on the date of adoption or for the fiscal year ended March 31, 2024.

Management has reviewed ASU 2023 - 07 related to segment reporting effective November 27, 2023.

While the adoption of the ASU is still under consideration, management believes that adoption of the guidance of the ASU would not have a material impact on the consolidated financial statements on the date of adoption or for the fiscal year ended March 31, 2024.

NOTE B – 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 Company entered into an Agreement with Merchant Financial Group (Merchant) for the purpose of factoring the Company’s trade accounts receivable.

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

The Agreement, as supplemented, provides for additional financing at the sole discretion of Merchant to be secured by inventory.

The Agreement, which was extended and expires on January 6, 2026, 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 $610,000 at March 31, 2024 .

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 10.0% and 5.50% at March 31, 2023 and March 31, 2022, respectively).

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.

Advances on factored trade accounts receivable are secured by all assets, 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 10.5% and 10.0% at March 31, 2024 and March 31, 2023, respectively).

Advances under the Agreement are made at the sole discretion of Merchant, based on their assessment of the receivables and inventory, and our financial condition at the time of each request for an advance.

At March 31, 2024 and 2023 there was $ 768,853 and $ 1,459,350 borrowed and outstanding under the factoring agreement, respectively.

During the fiscal year ending March 31, 2024, a temporary provision by Merchant to provide additional funding of up to $ 500,000 , characterized by Merchant as an over advance, and that provided funding up to one hundred percent ( 100 %) of eligible accounts receivable, expired.

In June 2024, subsequent to the fiscal year ending March 31, 2024, additional funding, characterized by Merchant as an over advance, and providing funding of up to $ 1,600,000 secured by inventory was approved by Merchant.

Under the Agreement, the Company assigned receivables of $ 18,668,543 and $ 22,581,988 during the years ended March 31, 2024, and 2023, respectively.

24 unchanged sentences

( 1,555,646 )

Depreciation expense totaled $ 158,986 , which includes $ 155,764 of amortization of right-of-use lease asset for fiscal year ended March 31, 2023.

Depreciation and the amortization of intangibles totaled $ 163,457 , which includes $ 155,764 of amortization of right-of-use lease asset for fiscal year ended March 31, 2024.

For the fiscal year ended March 31, 2023, depreciation expense totaled $ 158,986 which included $ 155,764 of amortization of right-of-use lease asset.

7 unchanged sentences

The Company utilizes certain practical expedients for short-term leases 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 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.

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.

Effective March 2022, we extended our operating lease for a 15,000 square foot office and warehouse located in Baltimore County, Maryland to expire in April 2025 subject to a right to terminate the lease if the Company enters into a binding agreement to sell the assets of the Company.

5 unchanged sentences

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 $ 265,990 and $ 252,975 for the years ended March 31, 2023, and 2022, respectively.

Rent expense, including common area maintenance, totaled approximately $ 293,000 and $ 266,000 for the years ended March 31, 2024, and 2023, respectively.

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

7 unchanged sentences

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, 2023, the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases is two years and 5.5 %, respectively.

As of March 31, 2024, the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases is one year and 5.5 %, respectively.

During the fiscal year ended March 31, 2024, the cash paid for amounts included in the measurement of lease liabilities related to the Company’s operating leases was $ 158,985 , which is included as an operating cash outflow within the consolidated statements of cash flows.

2 unchanged sentences

As of March 31, 2022, the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases is three years and 5.5 %, respectively.

As of March 31, 2023, the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases is two years and 5.5 %, respectively.

During the fiscal year ended March 31, 2023, the cash paid for amounts included in the measurement of lease liabilities related to the Company’s operating leases was $ 143,989 , which is included as an operating cash outflow within the consolidated statements of cash flows.

9 unchanged sentences

federal jurisdiction, and various state jurisdictions.

Income tax returns filed for the fiscal years ended March 31, 2022, 2021, and 2020 are considered open and subject to examination by tax authorities.

Federal income tax returns filed for the fiscal years ended March 31, 2023, 2022, and 2021 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.

5 unchanged sentences

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, the components of the deferred tax asset, and the current global economic conditions including unresolved supply chain issues related to the acquisition of electronic microchips, 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.

After a review of projected taxable income, the components of the deferred tax asset, and the current global economic conditions, 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 prior 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.

4 unchanged sentences

Years ended March 31,

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

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

Permanent and other differences

State income tax (benefit) – net of federal effect

State income (benefit) tax – net of federal effect

Change in deferred tax asset valuation allowance

18 unchanged sentences

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 had one customer during the fiscal year ended March 31, 2023, that represented 18.2 % of the Company’s net sales, and no customers in the fiscal year that ended March 31, 2022, that represented greater than 10% of the Company’s net sales.

The Company had no customers in the fiscal year ended March 31, 2023, that represented greater than 10% of the Company’s accounts receivable, and one customer in the fiscal year ended 2022, that represented 13.6 % of the Company’s accounts receivable on March 31, 2022.

The Company had three customers during the fiscal year ended March 31, 2024, that represented 13.7 %, 13.7 %, and 10.6 % of the Company’s net sales.

The Company had one customer during the fiscal year ended March 31, 2023, that represented 18.2 % of the Company’s net sales.

The Company had no customers in the fiscal years ended March 31, 2024, and 2023 that represented greater than 10% of the Company’s accounts receivable.

The Company acquires all the smoke alarm and carbon monoxide alarm safety products that it sells from Eyston Company, Ltd.

14 unchanged sentences

Grossblatt at any point during the fiscal year ended March 31, 2024, and 2023 may include amounts submitted for personal expense reimbursement and amounts paid by Mr.

Grossblatt for inventory purchases or other company expenses and amounted to approximately $ 217,000 and $ 211,000 , respectively.

The amount outstanding at March 31, 2023 and 2022 is approximately $ 0 and $ 44,000 , respectively.

Grossblatt for inventory purchases or other company expenses and amounted to approximately $ 276,000 and $ 217,000 , respectively, and the amount outstanding at March 31, 2024 and 2023 is approximately $ 0 and $ 0 , respectively.

NOTE J – INTANGIBLE ASSETS - NET

4 unchanged sentences

Amortization expense for the next five years is expected to be $ 4,472 per fiscal year through 2027.

NOTE K – NOTE PAYABLE – EYSTON COMPANY, LTD.

On 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.

The terms of the note payable were amended subsequent to March 31, 2022, to provide for monthly payments of $ 100,000 beginning April 2022 and until the note payable is paid in full.

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 % ( 5.5 % effective rate at March 31, 2022) and is payable monthly.

The balance of the note payable at March 31, 2023 is $ 0 .

NOTE L – SHAREHOLDERS’ EQUITY

NOTE K – 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.

1 unchanged sentence

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