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PART I

General

Universal Security Instruments, Inc. (“we” or “the Company”) designs and markets a variety of popularly-pricedpopularly priced safety products consisting primarily of smoke alarms, carbon monoxide alarms and related products. Most of our products require minimal installation and are designed for easy installation by the consumer without professional assistance and are sold through retail stores. We also market products to the electrical distribution trade through our wholly-ownedwholly owned subsidiary, USI Electric, Inc. (“USI Electric”). The electrical distribution trade includes electrical and lighting distributors as well as manufactured housing companies. Products sold by USI Electric usually require professional installation.

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,Due to manufacture various products in the Peoples Republic of China (the “Hong Kong Joint Venture”). The Company imports almost all of its products from the People’s Republic of China (PRC), and, until March 31, 2020, the Company was a 50% owner of Eyston Company Limited, the Company’s Hong Kong Joint Venture, which manufactures almost all of the Company’s products in the PRC.

In light of the shutdowns, quarantines and other restrictions and delays in operations and travel caused by or related to COVID-19 in Hong Kong, the PRC and the United States, the Company has experienced delays in shipping and receiving of products. As the Company’s productsWe 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 itsour sales and financial results, but believes that the pandemic was a factor in significantly lowerresults. While sales for the fourth quarter of its fiscal year ended March 31, 2020increased when compared to sales for the 2019 period. As previously disclosed in a filing of Form 8-K, this filing of Form 10-K originallycomparable 2021 period, delivery schedules have been delayed and freight costs have increased significantly. Our sales growth has been due on June 29, 2020, was delayed by the effects relatedprimarily to the COVID-19 pandemic.

Effective, March 31, 2020 we sold our 50% interest in the Hong Kong Joint Venture in exchange for $4,000,000. The proceeds of the sale were usedincreased sales to reduce our outstanding trade account payable balance owedelectrical distributors reflecting increased housing demand and increased retail sales to the Hong Kong Joint Venture. 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 import all of our products from foreign suppliers. For the fiscal year ended March 31, 2020, approximately 82.7% of our purchases were imported from Eyston.

large national retailers.

Our sales for the year ended March 31, 20202022, were $14,803,024$19,549,785 compared to $17,588,040$17,520,151 for the year ended March 31, 2019.2021. We reported a net loss of $5,813,891$78,150 in fiscal 20202022 compared to a net lossincome of $1,347,986$268,343 in fiscal 2019, an increase2021, a decrease in the net lossearnings of $4,465,905 (331.3%$346,493 (129.1%). The net loss is primarily due to the loss arising from the sale of the Company’s interest in the Hong Kong Joint Venture, the Company’s interest in the loss from investment in the Hong Kong joint venture’s operations, and operating losses from the Company’s domestic operations duringfor the fiscal year ended March 31, 2020.

2022, is attributed to decreased gross margins arising from increases in freight, customs, and duty expenditures. In addition, the Company has incurred increased legal and consulting fees associated with the proposed merger (described below). The net earnings for the fiscal year ended March 31, 2021, are primarily attributed to increased sales and gross margins compared to the fiscal year ended March 31, 2020, and to the forgiveness of debt associated with the Paycheck Protection Program loan under the CARES Act.

The Company was incorporated in Maryland in 1969. Our principal executive office is located at 11407 Cronhill Drive, Suite A, Owings Mills, Maryland 21117, and our telephone number is 410-363-3000. Information about us may be obtained from our website www.universalsecurity.com.Copies of our Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, are available free of charge on our website as soon as they are filed with the Securities and Exchange Commission (SEC) through a link to the SEC’s EDGAR reporting system. Simply select the “Investor Relations” menu item, and then click on the “SEC Filings” link. The SEC’s EDGAR reporting system can also be accessed directly at www.sec.gov.

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”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Infinite Reality, with Infinite Reality continuing as the surviving corporation and wholly owned subsidiary of the Company (the “Merger”). The Merger will become effective at the time when the Certificate of Merger has been duly filed or such later date specified in the filed certificate (the “Effective Time”). As a result, immediately following the Effective Time, the former Infinite Reality stockholders will hold approximately 97.6% of the outstanding shares of USI Common Stock and the stockholders of USI will retain ownership of approximately 2.4% of the outstanding shares of USI Common Stock. The directors and officers of Infinite Reality prior to the Effective Time will remain the directors and officers after the Effective Time, until their resignation or removal. At the Effective Time, the Company will take the actions required to replace the officers and directors of the Company with designees by Infinite Reality. At the Effective Time, the parties intend for the Company to convert from a Maryland corporation to a Delaware corporation. Pursuant to the Merger Agreement, Infinite Reality shareholders acquire the right to convert their Infinite Reality common stock held immediately prior to the Merger into the Company common stock. Holders of the Company’s common stock prior to the Effective Time (“Legacy Shareholders”) may also receive a dividend of the Company common stock if the market capitalization of the Company is less than $500 million within180 days after the Effective Time. Under the terms of the Merger Agreement, the Company current operating business will continue, and the Company has agreed to use its best efforts to sell or spin off its business operations prior to the Effective Time. In the event the Company’s current business operations are not sold or otherwise divested by the Effective Time, a Contingent Value Rights Agreement will issue to each

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Legacy Shareholder. The Merger Agreement includes customary rights of each party to terminate the Merger Agreement, including: in the event shareholder approval is not obtained; if the Company’s shares are not approved for continued listing by the NYSE MKT LLC following the Effective Time; and if a party receives a superior offer and complies with the terms of the Merger Agreement regarding accepting such offer. On May 16, 2022, the Company filed with the United States Securities Exchange Commission (SEC) a proxy statement and Form S-4 registration statement in connection with the Merger. If USI or Infinite Reality accepts a superior offer and terminates the Merger Agreement, the terminating party will pay a breakup fee to the non-terminating party covering its out-of-pocket expenses, subject to a cap of $100,000, plus 4% of the market capitalization of USI as of the Effective Date.

Safety Products

We market a line of residential smoke and carbon monoxide alarms under the trade names “UNIVERSAL” and “USI Electric” both of which are manufactured by Eyston.

Eyston Company Limited (Eyston) in the Peoples Republic of China (PRC), a principal supplier of the Company’s products.

Our line of safety alarms consists of units powered by replaceable batteries, ten yearten-year sealed batteries, or are 120 volt with battery backup. Our replaceable battery products contain different types of batteries with different battery lives, and some include alarm silencers. The smoke alarms marketed to the electrical distribution trade also include hearing impaired and heat alarms with a variety of features. We also market door chimes, ventilation products, ground fault circuit interrupters (GFCI’s), and other electrical devices.

Our wholly-owned subsidiary, USI Electric, Inc., focuses its sales and marketing efforts to maximize safety product sales, especially smoke alarms and carbon monoxide alarms manufactured by Eyston, to the electrical distribution trade.

Import Matters

We import all of our products. As an importer, we are subject to numerous 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. Substantially all of our safety products are imported from the People’s Republic of China. TheseCertain of these products are currently subject to tariffs ranging from ten toof twenty-five percent.

We have attempted to protect ourselves from fluctuations in currency exchange rates to the extent possible by negotiating commitments in U.S. dollars. Our inventory purchases are also subject to delays in delivery due to problems with shipping and docking facilities, as well as other problems associated with purchasing products abroad.

As previously discussed, in light of the shutdowns, quarantines and other restrictions and delays in operations and travel caused by or related to COVID-19 in Hong Kong, the PRC and the United States, the Company has experienced delays in shipping and receiving of products.

Sales and Marketing; Customers

We sell our products to various customers, and our total sales market can be divided generally into two categories; sales by the Company to retailers, including wholesale distributors, chain, discount, television retailers and home center stores, catalog and mail order companies and other distributors (“retailers”), and sales by our USI Electric subsidiary to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies) and foreign customers. Products marketed by the Company have historically been retailed to “do-it-yourself” consumers by these retailers. Products marketed by our USI Electric subsidiary to the electrical distribution trade typically require professional installation. We do not currently market a significant portion of our products directly to end users.

A significant portion of our sales are made by approximately 40 independent sales organizations, compensated by commission, which represents approximately 100 sales representatives, some of which have warehouses where USI Electric products are maintained for sale. In addition, the Company has established a national distribution system with eight regional stocking warehouses throughout the United States which generally enables customers to receive their orders the next day without paying for overnight freight charges. Our agreements with these sales organizations are generally cancelable by either party upon 30 days’ notice. We do not believe that the loss of any one of these organizations would have a material adverse effect upon our business. Sales are also made directly by the officers and full-time employees of the Company and our USI Electric subsidiary, sevensome of whom have other responsibilities for the Company. Sales outside the United States are made by our officers and through exporters, and amounted to less than five percent of total net sales in fiscal years 20202022 and 2019.2021.

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We also market our products through our website and through our own sales catalogs and brochures, which are mailed directly to trade customers. Our customers, in turn, may advertise our products in their own catalogs and brochures and in their ads in newspapers and other media. We also exhibit and sell our products at various trade shows, including the annual National Hardware Show.

Our backlog of orders as of March 31, 20202022, was approximately $507,000.$6,028,000. Our backlog as of March 31, 20192021, was approximately $748,000. This decrease$3,905,000. The increase in backlog is primarily due to the timingdelays in unloading of ordersfreight at California ports of entry caused by or related to COVID-19 issues.

Suppliers

The majority of our safety products.

Hong Kong Joint Venture

Through March 31, 2020 we held a fifty percent interest inproducts are manufactured for us by Eyston Company Limited, the Hong Kong Joint Venture, which has manufacturing facilities in the People’s Republic of China, for the manufacturing of certainand amounted to approximately 83.6% and 77.6% of our electronic and electrical products. Effective, March 31, 2020 we sold our fifty percent interest in the Hong Kong Joint Venture in exchangepurchases for $4,000,000. The 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 requiring monthly interest only payments. In April, 2020 the Company and the HKJV formalized these terms into a note payable agreement with a maturity date of April 19, 2022. 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. During the fiscal years ended March 31, 20202022 and 2019, 82.7% and 87.2%, respectively, of our total inventory purchases were made from Eyston.

Other Suppliers

2021, respectively. Certain other private label products are also manufactured for us by other foreign suppliers. We believe that our relationships with our other suppliers are good. The loss of any of our other suppliers would have a short-term adverse effect on our operations, but replacement sources for these other suppliers could be developed.

Competition

In fiscal years 20202022 and 2019,2021, sales of safety products accounted for substantially all of our total sales. In the sale of smoke alarms and carbon monoxide alarms, we compete in all of our markets with First Alert and Walter Kidde Portable Equipment, Inc. These companies have greater financial resources and financial strength than we have. However, we believe that our safety products compete favorably in the market primarily on the basis of styling, features and pricing.

The safety industry in general involves changing technology. The success of our products may depend on our ability to improve and update our products in a timely manner and to adapt to new technological advances.

Employees

As of March 31, 2020,2022, we had thirteentwelve employees, nineeight of whom are engaged in administration and sales, and the balance of whom are engaged in product development. Our employees are not unionized, and we believe that our relations with our employees are satisfactory.

Not applicable.

Effective October, 2018,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 2022.2025 subject to a right to terminate the lease if the Company enters into a binding agreement to sell the assets of the Company. Monthly rental expense, with common area maintenance, currently approximates $14,500 and increases 2.5%3.0% per year.

Effective March 2003, we entered into an operating lease for office space in Naperville, Illinois. This lease, consisting of 3,400 square feet, was renewed in November 2019 and extends through February 2021.2023. The monthly rental, with common area maintenance, approximated $5,500$4,900 per month during the current fiscal year and is subject to increasing rentals of 3% per year.

The Company believes that its current facilities are currently suitable and adequate.

From time to time the Company is involved in various claims and routine litigation matters. In the opinion of management, after consultation with legal counsel, the outcomes of such matters are not anticipated to have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.

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Set forth below is information aboutSubsequent to March 31, 2022, the Company’s executive officers.

HARVEY B. GROSSBLATTCompany became aware of a lawsuit filed by Thomas Henderson against Universal Security Instruments, Inc. and its directors in the U.S. District Court for the Southern District of New York, Civil Action No. 22cv4354. To our knowledge, none of the defendants has yet been served. The plaintiff claims to be a directorshareholder in the Company and alleges that the registration statement on Form S-4 filed by the Company on May 16, 2022 (which, when declared effective, will also be the merger proxy statement distributed to the shareholders of the Company since 1996. He served as Chief Financial Officer from October 1983 through August 2004, Secretary and Treasurerof Infinite Reality in connection with the proposed Merger) is materially deficient and misleading in omitting material information and, therefore, violates the provisions of the Securities Exchange Act of 1934 (the “Exchange Act”) and the regulations promulgated thereunder. The suit seeks to enjoin the Merger, direct the defendants to comply with the provisions of the Exchange Act, award costs and fees to the plaintiff, and grant such other relief as the court may deem just and proper. The Company from September 1988 through August 2004,believes that the suit is wholly without merit and, Chief Operating Officer from April 2003 through August 2004. Mr. Grossblatt was appointed Chief Executive Officer in August 2004.once served, the Company will aggressively defend the suit.

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JAMES B. HUFF was appointed Chief Financial Officer in August 2004 and Secretary and Treasurer in October 2004.6

Gross Profit. Gross profit percentage is calculated as net sales less cost of goods sold expressed as a percentage of net sales. Our gross profit percentage for the fiscal year ended March 31, 20202022, was 25.4%30.9% compared to 31.6%32.2% in fiscal 2019.2021. The decrease in 20202022 gross margin is attributed to the mix of products sold.

increase in freight and demurrage charges caused by global supply chain problems.

Selling, General and Administrative Expense. Selling, general and administrative expenses decreasedincreased to $4,628,881$5,524,343 in fiscal 20202022 from $4,864,522$5,034,380 in fiscal 2019.2021. As a percentage of net sales, these expenses were 31.3%28.3% for the fiscal year ended March 31, 20202022, and 27.6%28.7% for the fiscal year ended March 31, 2019.2021. These expenses increaseddecreased as a percentage of net sales as they do not decreaseincrease in direct proportion to decreasesincreases in sales. These expenses decreasedincreased as a dollar amount due primarily due to decreasesincreases in insurance, salaries expense, freight,legal and commissions.

consulting fees associated with a proposed Merger.

Research and Development. Research and development expense for the fiscal year ended March 31, 20202022, was $691,886, of which approximately $200,000 was for new product development.$438,200. Research and development expense for the fiscal year ended March 31, 20192021, was $502,845, of which approximately $100,000 was for new product development.$471,545. The increasedecrease in overall research and development expense for the 20202022 period compared to the 20192021 period was due to increaseddecreased independent testing of products.

Interest Expense (Net). For the fiscal years ended March 31, 20202022, and 2019,2021, the Company incurred net interest expense of $409,703$147,840 and $484,953,$86,841, respectively, related to borrowing costs associated with interest paid on amounts borrowed from our factor and on extended trade payables due to the Hong Kong Joint Venture.Eyston. The decreaseincrease in interest expense resulted from reducedincreased borrowing from our factor during the fiscal year ended March 31, 20202022, to fund inventory purchases and operating cash requirements.

Income Taxes. For the fiscal years ended March 31, 20202022, and 20192021 our statutory Federal tax rate was 21.0%. The Company has accumulated net operating losses and other income tax credits for which a full valuation allowance has been established. Accordingly, income taxes or deferred income tax benefits indicated by the provision for income taxes as shown on the Consolidated Statements of Operations for the fiscal years ended March 31, 20202022, and 20192021 varies from the expected statutory rate. Footnote GF to the financial statements provides a reconciliation of the amount of tax that would be expected at statutory rates and the amount of tax expense or benefit provided at the effective rate of tax for each fiscal period.

Net Loss.(Loss) Income. We reported a net loss of $5,813,891$78,150 for the fiscal year 2020,2022, compared to net income of $268,343 for fiscal 2021, a decrease of $346,493 (129.1%) in net income. The net loss of $1,347,986 for fiscal 2019, an increase of $4,465,905 (331.3%) in the net loss. The increase in the net loss is primarily due to the loss arising from the sale of the Company’s interest in the Hong Kong Joint Venture, the Company’s interest in the loss from investment in the Hong Kong joint venture’s operations during the fiscal year ended March 31, 2020,2022, is attributed to decreased gross margins arising from increases in freight, customs, and operating losses.duty expenditures. In addition, the Company has incurred increased legal and consulting expense associated with a proposed Merger.

See “Hong Kong Joint Venture” belowAlso, contributing to net income for further discussion regarding the operationsfiscal year ended March 31, 2021, is the forgiveness of $221,400 of debt related to the Hong Kong Joint Venture.

Paycheck Protection Program under the CARES Act.

Financial Condition, Liquidity and Capital Resources

The Company hadreported a net lossesloss of $5,813,891$78,150 and $1,347,986net income of $268,343 for the years ended March 31, 20202022 and 2019,2021, respectively. As of March 31, 2020,2022, working capital (computed as the excess of current assets over current liabilities) increaseddecreased by $2,705,185$1,112,654 from $2,354,313$5,564,601 on March 31, 2019,2021, to $5,059,498$4,451,947 on March 31, 2020.2022.

Our operating activities used cash of $1,860,051 for the year ended March 31, 2022. Operating activities used cash principally to increase trade accounts receivable and amounts due from factor of $1,506,650, to increase inventories by $1,977,868, a net loss of $78,150, and is partially offset by an increase in accounts payable and accrued expenses of $1,669,566, and a decrease in prepaid expenses of $95,357.

Our operating activities provided cash of $9,248$1,388,172 for the year ended March 31, 2020. There was2021. Operating activities provided cash principally from a decrease in theinventories of $942,766, an increase in accounts payable due to the Hong Kong Joint Venture and accrued expenses of $356,096,$751,252, net income of $268,343, plus non-cash depreciation of an operating lease asset of $158,576, and an increase in the allowance for doubtful accounts receivable of $100,000. Operating activities used cash principally from an increase in prepaid expenses of $223,554, a decrease in the operating lease liability of $156,250. In addition the Company had a net loss of $5,813,891 which includes a non-cash loss from operations of the Hong Kong Joint Venture of $1,369,655 and the non-cash loss on the sale of our ownership interest$158,576, an increase in the Hong Kong Joint Venture of $2,472,620. Operating cash was provided as accounts receivable and amounts due from factor decreased by $568,879 and inventories decreased by $1,728,346. Our operating activities provided cash of $5,874 for$236,930, less non-cash forgiveness of $221,400 from the year ended March 31, 2019 principally as a result ofPaycheck Protection Program Loan under the increase in the accounts payable due to the Hong Kong Joint Venture and accrued expenses of $1,642,022. This was partially offset by a net loss of $1,347,986 which includes a non-cash loss of the Hong Kong Joint Venture of $1,049,897. In addition to the net loss, operating cash decreased as accounts receivable and amounts due from factor increased by $130,614 and inventories increased by $1,360,413.

CARES Act.

Our investing activities did not provide or use cash during the fiscal years ended March 31, 20202022, or 2019.2021.

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Financing activities provided cash of $2,138,182 reflecting the increase in net borrowing from the Factor. Financing activities used cash of $289,926$1,321,362 during the fiscal year ended March 31, 2020 as a result of2021, resulting primarily from the net repayment of amounts due to our Factor. Financing activities provided cash of $240,437 during the fiscal year ended March 31, 2019 as a result of net advances against trade accounts receivable provided by our factor.

Our overall sales are primarily dependent upon the strength of the U.S. housing market. As stated elsewhere in this report, our USI Electric subsidiary markets our products to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies); every downturndemand in new home construction and new home sales negativelydirectly impacts sales by our USI Electric subsidiary. Our operating results for the fiscal years ended March 31, 20202022, and 20192021 continue to be significantly impacted bydependent upon the economic conditions of the U.S. housing market. The improved line of sealed smoke and carbon monoxide alarms began selling during the fiscal year ended March 31, 2017 and management expects sales will improve as these items gain acceptance in the market. Management believes that with an improved housing market and sales of our sealed products, the Company will improve profitability.

Management expects our product offerings including sealed battery alarm and ground fault circuit interrupter 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 willcould have a significant impact on our future operations, and our sales may decline, potentially impacting our ability to continue operating in our current fashion.

Our short-term borrowings to finance operating losses,operations, trade accounts receivable, and foreign inventory purchases are provided pursuant to the terms of our Factoring Agreement with Merchant Factors Corporation (Merchant or Factor). Borrowings under our Factoring Agreement bear interest at prime plus 2% and are secured by trade accounts receivable and inventory. Advances from Merchant 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$11,000 on 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 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 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.

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 increasingcontinues 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. In addition, effective March 31, 2020, the Company sold its ownership interest in the Hong Kong Joint Venture reducing its current liabilitieshas a short-term note payable due to its principal supplier (Eyston Company Ltd.) that requires monthly payments beginning April, 2022 of $100,000 per month and until the Hong Kong Joint Venture by $4,000,000. Subsequentprincipal balance of approximately $1,081,000 is repaid. The Company has a long history of working closely with Eyston and believes that forbearance or extension of the payment terms of the short-term note payable can be achieved if required to meet short-term cash flow requirements. Further, the Company’s factor has withheld financing on approximately $560,000 of the Company’s accounts receivable subject to resolution of delivery disputes with a major customer. The resolution of these items has been ongoing and subsequent to March 31, 20202022, the customer has been making payments as proof of delivery is confirmed. The Company expects that all amounts in dispute will be resolved satisfactorily and that availability of approximately $560,000 in operating cash flow will become available under the factoring agreement subsequent to March 31, 2022. Finally, the Company has filed requests for refunds of customs payments with US Customs and Border Protection for approximately $300,000 (including interest expected) for overpayments of duty. The Company expects this refund to be available during the second quarter of fiscal year 2023. The Company has seen positive results on this plan due toas reflected by 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 facility with its Factor.offerings. 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 of the 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.

Hong Kong Joint Venture

In fiscal year 2020, sales of the Hong Kong Joint Venture were $8,054,070 compared to $13,252,710 in fiscal 2019. The decline in sales is primarily due to decrease sales to the Company. During the fiscal year ended March 31, 2020, sales to the Company decreased compared to the prior year by approximately $3,700,000.

Gross margins of the Hong Kong Joint Venture for fiscal year 2020 decreased to 3.4% from 13.0% in the prior fiscal year. The primary reason for the decrease is the absorption of fixed production costs due to an insufficient volume of sales to the Company and others.

Selling, general and administrative expenses of the Hong Kong Joint Venture for fiscal 2020 were $4,186,690, compared to $4,141,982 in the prior fiscal year. As a percentage of sales, these expenses were 52.0% and 31.3%, respectively, for the fiscal years ended March 31, 2020 and 2019. Selling, general and administrative expenses were higher as a percentage as certain fixed costs do not decrease proportionally with decreased sales.

Investment income and interest income, net of interest expense, was $261,349 for fiscal year 2020, compared to $336,946 for fiscal year 2019 principally due to an increase in interest earned on trade accounts receivable due from the Company.

The net loss was $3,235,107 for fiscal year 2020 compared to a net loss of $1,791,405 for the fiscal year ended March 31, 2019. The net loss for fiscal 2020 and 2019 was primarily due to sales that are insufficient to cover fixed general and administrative cost.

Related Party Transactions

Pursuant to its written charter, the Audit Committee of the Board of Directors of the Company reviews and approves all transactions with related persons that are required to be disclosed under applicable regulation. During the fiscal year ended March 31, 20202022, and 2019,2021, inventory purchases and other company expenses of approximately $999,000$1,582,000 and $1,723,000,$1,206,000, 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 travel mileage and other credit card benefits from these charges. The maximum amount outstanding and due to Mr. Grossblatt at any point during the fiscal year ended March 31, 20202022, and 20192021 may include amounts submitted for personal expense reimbursement and amounts paid by Mr. Grossblatt for inventory purchases or other company expenses and amounted to $136,876approximately $211,000 and $168,826,$158,000, respectively, and the amount outstanding at March 31, 20202022 and 20192021 is $27,102approximately $44,000 and $55,321,$51,000, respectively.

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Critical Accounting Policies

Management’s discussion and analysis of our consolidated financial statements and results of operations is based upon our consolidated financial statements included as part of this document. The preparation of these

consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to bad debts, inventories, income taxes, impairment of long-lived assets, 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. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect management’s more significant judgments and estimates used in the preparation of its consolidated financial statements. For a detailed discussion on the application of these and other accounting policies, see Note A to the consolidated financial statements, included in this Annual Report. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates. These judgments are based on our historical experience, terms of existing contracts, current economic trends in the industry, information provided by our customers, and information available from outside sources, as appropriate. Our critical accounting policies include:

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. After a review of projected taxable income and the components of the deferred tax asset 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 Company follows ASC 740-10 which provides guidance for 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 consolidated 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.

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.

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.

We have established allowances to cover anticipated doubtful accounts based upon historical experience.

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Inventories: Inventories are valued at the lower of cost or net realizable value. Cost is determined on the first in/first out method. We evaluate inventories on a quarterly basis and write down inventory that is deemed 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.

Off-Balance Sheet Arrangements. We have not created, and are not party to, any special-purpose or off balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into our financial statements and do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources.

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 had 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 one customer in the fiscal year that ended March 31, 2022, that represented 13.6% of the Company’s accounts receivable on March 31, 2022. The Company had a different customer during the fiscal year ended March 31, 2021 that represented 21.9% of the Company’s net sales. The Company acquires all the smoke alarm and carbon monoxide alarm safety products that it sells from Eyston Company, Ltd. Products manufactured for us by Eyston amounted to approximately 83.6% and 77.6% of our purchases for the fiscal years ended March 31, 2022, and 2021, respectively. At March 31, 2022, and 2021, the Company had accounts receivable due from Eyston of $358,958 and $381,401, respectively.

Accounting Standards

New Accounting Standards

See Note A, Recently issued accounting pronouncements, in the Notes to the Consolidated Financial Statements for a discussion of recently adopted new accounting guidance and new accounting guidance not yet adoptedadopted.

The financial statements and supplementary data required by this Item 8 are included in the Company’s Consolidated Financial Statements and set forth in the pages indicated in Item 15(a) of this Annual Report.

Not applicable.

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 not effective because of the material weakness in internal control over financial reporting as discussed below.effective.

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

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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 not effective as of March 31, 20202022, because of thea material weakness in internal control over financial reporting as discussed below.

Material weaknessesA material weakness arose in our oversightthe classification of and disclosure of amounts within the financial statements. The Company plans to remediate the material weakness by clarification of the accounting function as well as the disclosure controlsclassification of amounts and proceduresinclusion of the Hong Kong Joint Venture (HKJV). The HKJV is a material component of the Company’s consolidated financial statements during the period covered by this report. 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.required disclosures.

Changes in Internal Control over Financial Reporting.Reporting.

Effective inExcept for 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. Therematerial weakness noted above 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, 2020.2022.

Not applicable.

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PART III

Directors and Executive Officers

The information with respect to the identityBoard currently consists of four directors. The Company’s directors are divided into three classes and business experienceare elected for terms of three years each and until his successor is elected and qualifies.

The following table sets forth, for each director and executive officer of the directorsCompany, his name, age as of March 31, 2022, the year he first became a director and, if applicable, executive officer of the Company and their remuneration set forth in the section captioned “Electionexpiration of Directors” inhis current term. There are no known arrangements or understandings between any director of the Company’s definitive Proxy Statement filed pursuant to Regulation 14ACompany and issued in conjunction withany other person that has been selected as a director.

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Presented below is certain information concerning the 2020 Annual Meeting of Shareholders (the “Proxy Statement”) is incorporated herein by reference. The information with respect to the identitydirectors and business experience of executive officers of the CompanyCompany. Unless otherwise stated, all directors have held the positions indicated for at least the past five years.

Ira F. Bormel has served as chief financial officer of Berman Enterprises LLC and related companies, a Maryland based owner, developer and manager of office and retail commercial properties, since 1999. Mr. Bormel is set forth in Part Ialso a former chief financial officer of this Form 10-K. The informationthe Company. Mr. Bormel is well qualified to serve as a member of the Board due to his experience as chief financial officer of a multi-million dollar business and his familiarity with respect to the Company’s business and industry.

Harvey B. Grossblatt was Chief Financial Officer of the Company from 1983 until August 2004, Secretary and Treasurer of the Company from 1988 until August 2004, Chief Operating Officer of the Company from April 2003 through August 2004, and Chief Executive Officer since August 2004. Mr. Grossblatt is well qualified to serve as a member of the Board due to his more than a quarter century experience as a member of the Company’s senior management and detailed knowledge of the Company’s operations and home safety products industry.

Cary Luskin has been in the retail electronics business since 1978. Since 1998, Mr. Luskin has been President of The Big Screen Store, Inc., a chain of large-screen television retail stores. Mr. Luskin is well qualified to serve as a member of the Board due to his extensive experience in the retail electronics business and senior executive of a public company.

Ronald A. Seff, M.D. has been in the private practice of ophthalmology since 1977. From 1977 until 1998, Dr. Seff practiced with, and was a senior executive of, a large medical practice with four offices in Maryland. Dr. Seff is well qualified to serve as a member of the Board due to his extensive practical business experience gained as a senior executive of a large medical practice in which Dr. Seff had responsibility for a wide range of business functions. Dr. Seff serves on the Audit and Compensation Committees of the Company and has a broad understanding of the Company, its management, and its operations.

James B. Huff was appointed Chief Financial Officer of the Company in August 2004 and Secretary and Treasurer in October 2004.

Audit Committee

The Audit Committee is incorporated hereinappointed by referencethe Board to assist the Board in its duty to oversee the Company’s accounting, financial reporting and internal control functions and the audit of the Company’s financial statements. The Committee’s responsibilities include, among others, direct responsibility for hiring, firing, overseeing the work of and determining the compensation for the Company’s independent auditors, who report directly to the section captioned “Meetings and CommitteesAudit Committee. The members of the Audit Committee during the fiscal year ended

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401(k) Plan

The Company has a defined contribution profit sharing plan covering eligible employees. The Plan is incorporated herein by referencevoluntary with respect to participation and is subject to the sections captioned “Director Compensation” and “Executive Compensation”provisions of ERISA. The plan provides for participant contributions of up to 25% of annual compensation, as defined by the plan. The Company contributes an amount equal to a match of the first three percent (3%) contributed by the employee plus fifty percent (50%) of the next two percent (2%) contributed by the employee with a maximum contribution of four percent (4%). The Company may contribute an additional amount from its profits as authorized by the Board. The Company made no additional contributions in fiscal 2022. Participants in the Proxy Statement.plan are immediately vested in their and the Company’s contributions, plus actual earnings thereon. The Company’s fiscal 2022 contributions to the plan on behalf of named executive officers are included in the “All Other Compensation” column in the “Summary Compensation Table” above.

Executive Employment Agreements

The Chief Executive Officer’s compensation is governed largely by his employment agreement with the Company, originally effective April 1, 2002, as amended. The current employment agreement expires on July 31, 2022. The employment agreement currently provides that Mr. Grossblatt’s base annual salary (since April 1, 2007) is $350,000. Additionally, Mr. Grossblatt is entitled to bonus compensation for each fiscal year of the Company in which the Company earned pre-tax net income in such fiscal year in excess of a percentage, pre-determined by the Board, of shareholders’ equity as of the start of the fiscal year (which is 4% for the fiscal years ended March 31 2022 and 2021), as follows: 3% of all (after the 4% threshold) pre-tax net income up to $1 million, 4% of pre-tax net income from $1-$2 million, 5% of pre-tax net income from $2-$3 million, 6% of pre-tax net income from $3-$4 million, 7% of pre-tax net income over $4 million. Mr. Grossblatt is also entitled to life, health and disability insurance benefits, medical reimbursement, automobile allowance, and Company paid retirement plan contributions.

If the Employment Agreement is not renewed by the Company or is terminated by Mr. Grossblatt for good reason, Mr. Grossblatt is entitled to receive his compensation through any balance of the employment term plus a lump sum payment equal to his last 12 months base salary and bonus, health benefits for three years, and an additional lump sum payment payable on each of the first three anniversaries of the termination equal to the 401(k) plan contribution the Company would have made on behalf of the Company had he remained employed by the Company.

If Mr. Grossblatt’s employment is terminated following or in anticipation of a “change of control” of the Company, Mr. Grossblatt will be entitled to receive a lump sum payment equal to his base salary for the balance of the Employment Agreement’s term and the amount of Mr. Grossblatt’s last bonus plus three times Mr. Grossblatt’s last 12 months base salary and bonus. In addition, Mr. Grossblatt is entitled to receive health benefits for three years, and an additional lump sum payment payable on the anniversary of the termination equal to the 401(k) plan contribution the Company would have made on behalf of the Company had he remained employed by the Company for three years. In the event of a change in control Mr. Grossblatt will receive an amount equal to three times his base salary for the last 12 months and the amount of his last bonus, limited to 2.99 times Mr. Grossblatt’s average annual taxable compensation from the Company which is included in his gross income for the five taxable years of the Company ending before the date on which the change of control occurs.

If the Employment Agreement is terminated by the Company due to Mr. Grossblatt’s death, Mr. Grossblatt’s estate is entitled to receive a lump sum payment equal to his base salary for the greater of the balance of the Employment Agreement’s term or one year, reduced by any individual life insurance benefits the premiums for which are paid for by the Company, plus the amount of his last bonus and the amount of the Company’s last 401(k) plan contribution made on behalf of Mr. Grossblatt. In addition, Mr. Grossblatt’s estate is entitled to the health insurance and medical reimbursement benefits for the longer of the balance of the term or three years following the date of death, or the cash equivalent thereof.

If the Employment Agreement is terminated by the Company due to Mr. Grossblatt’s disability, Mr. Grossblatt is entitled to the continuation of the payment of his base salary for the balance of the term, reduced by any group or individual disability income insurance benefits the premiums for which are paid for by the Company and Social Security disability benefits paid to Mr. Grossblatt. In addition, Mr. Grossblatt is entitled to the health insurance and medical reimbursement benefits and a payment equal to the 401(k) plan

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Director Compensation

The following table summarizes the compensation paid to directors for the fiscal year ended March 31, 2022:

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The following table reflects the names and addresses of the only persons known to the Company to be the beneficial owners of 5% or more of the Shares outstanding as of June 30, 2022. For purposes of calculating beneficial ownership, Rule 13d-3 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) requires inclusion of Shares that may be acquired within sixty days of June 30, 2022. Unless otherwise indicated in the footnotes to this table, beneficial ownership of Shares represents sole voting and investment power with respect to those Shares.

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The following table sets forth information required by this item regarding security ownership is incorporated herein by referencewith respect to the sections captioned “Beneficial Ownership” and “Information Regarding Share Ownershipbeneficial ownership of Management”the Shares on June 30, 2022, by (i) each executive officer of the Company named in the Proxy Statement. Information required by this item regarding our equity compensation plans is incorporated herein by reference toSummary Compensation Table, (ii) each current director and each nominee for election as a director and (iii) all directors and executive officers of the Section entitled “Executive Compensation”Company as a group. For purposes of calculating beneficial ownership, Rule 13d-3 of the Exchange Act requires inclusion of Shares that may be acquired within sixty days of June 30, 2022. Unless otherwise indicated in the Proxy Statement.footnotes to this table, beneficial ownership of Shares represents sole voting and investment power with respect to those Shares.

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Pursuant to its written charter, the Audit Committee of the Board of Directors of the Company reviews and approves all transactions with related persons that are required to be disclosed under applicable regulation. During the fiscal year ended March 31, 2022, and 2021, inventory purchases and other company expenses of approximately $1,582,000 and $1,206,000, 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 travel mileage and other credit card benefits from these charges. The maximum amount outstanding and due to Mr. Grossblatt at any point during the fiscal year ended March 31, 2022, and 2021 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 $211,000 and $158,000, respectively, and the amount outstanding at March 31, 2022 and 2021 is approximately $44,000 and $51,000, respectively.

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The information requiredfollowing table sets forth, for each director, whether such individual has been determined by this item is incorporated herein by referencethe Board to be “independent” as defined in Section 803.A. of the sections captioned “Transactions with Management”, if any, and “Election of Directors” in the Proxy Statement.NYSE MKT LLC Company Guide.

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The following is a description of the fees billed to the Company by Marcum LLP (the “Auditor”) during the fiscal year ended March 31, 2022, and 2021:

Audit Fees. Audit fees include fees billed by the Auditor, for the fiscal years ended March 31, 2022 and 2021, in connection with the annual audits of the Company’s consolidated financial statements, and review of the Company’s interim financial statements. Audit fees also include fees for services performed by the Auditor that are closely related to the audit and in many cases could only be provided by the Auditor. Such services include consents related to Securities and Exchange Commission and other regulatory filings. The aggregate fees for audit services for the fiscal years ended March 31, 2022, and 2021 totaled approximately $208,000 and $196,000 respectively.

Audit Related Fees. Audit related services include due diligence services related to accounting consultations, internal control reviews and employee benefit plan audits. There were no fees billed for audit related services paid by the Company during the fiscal years ended March 31, 2022, and 2021.

Tax Fees. Tax fees include corporate tax compliance, advisory and planning services. There were no tax related services provided in fiscal years ended March 31, 2022, and 2021.

All Other Fees. There were no other fees for services provided in the fiscal years ended March 31, 2022, and 2021.

The information requiredCompany’s Audit Committee reviews all fees charged by this item is incorporated hereinthe Company’s independent auditors, and actively monitors the relationship between audit and non-audit services provided. The Audit Committee must pre-approve all audit and non-audit services provided by reference to the section captioned “Independent Registered Public Accountants” in the Proxy Statement.Company’s independent auditors and fees charged.

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PART IV

(a)1. Financial StatementsStatements..

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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.

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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.

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