SEC Form 10-Q filed by Universal Safety Products Inc.

Statement of Management

Universal Safety Products, Inc., formerly “Universal Security Instruments, Inc.” (“we” or “the Company”) designs and markets a variety of popularly priced safety products which, during the period covered by this Quarterly Report, consisted 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 owned subsidiary, Universal Safety Electric, Inc., formerly, USI Electric, Inc. (“Universal Electric”). The electrical distribution trade includes electrical and lighting distributors as well as manufactured housing companies. Products sold by Universal Electric usually require professional installation. On July 7, 2025, we established a wholly owned subsidiary, Universal DEFI, LLC, to facilitate future growth opportunities. As of September 30, 2025, Universal DEFI, LLC has conducted no operations.

Management had been seeking access to additional funding or other resources, or the right strategic business combination, which would allow the Company to drive long-term value for its shareholders while taking advantage of growth opportunities that the Company seeks to execute. In furtherance thereof, as previously announced on October 31, 2024, the Company entered into an Asset Purchase Agreement with Feit Electric Company, Inc. (“Feit”) pursuant to which Feit agreed to acquire the smoke and carbon monoxide alarm portion of the Company’s business and the non-tangible assets of the Company, including but not limited to the trade name of Universal Security Instruments, Inc. and Universal Electric, Inc. The Closing was subject to the approval of the transaction by the requisite vote of the shareholders of the Company. A special meeting of the shareholders to approve the sale and related actions was held on April 15, 2025, and the asset sale was approved. Accordingly on May 22, 2025, the Company closed on the asset sale to Feit pursuant to the terms of the Asset Purchase Agreement. The assets held for sale in accordance with the Asset Purchase Agreement at March 31, 2025, are shown separately in the financial statements accompanying this Quarterly Report and are valued at the lower of the assets carrying value or fair value less selling cost. The Company currently intends to continue importing and marketing its product lines other than smoke alarms and carbon monoxide alarms and is exploring other business opportunities to drive long-term value for our shareholders.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Universal Electric. and Universal DEFI, LLC. Except for the condensed consolidated balance sheet as of March 31, 2025, which was derived from audited financial statements, the accompanying condensed consolidated financial statements are unaudited. Significant inter-company accounts and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the interim condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (US-GAAP) have been condensed or omitted. The interim condensed consolidated financial statements should be read in conjunction with the Company’s March 31, 2025, audited financial statements filed with the Securities and Exchange Commission on Form 10-K as filed on July 29, 2025. The interim operating results are not necessarily indicative of the operating results for the full fiscal year.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with US-GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

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 cost to complete the sale and are recorded in selling, general and administrative expense. Remaining performance obligations represent the transaction price of firm orders for satisfied or partially satisfied performance obligations on

Accounts Receivable, Amount Due From Factor, and Allowance for Credit Losses

Receivables are recorded when the Company has an unconditional right to consideration. We have established a provision for credit losses based upon historical experience and the consideration of current and future economic conditions.

The Company assigns the majority of its trade receivables on a pre-approved non-recourse basis to Merchant Factors Corporation (Merchant or Factor) under a factoring agreement on an ongoing basis. At the time a receivable is assigned to our factor the credit risk associated with the credit worthiness of the debtor is assumed by the factor. The Company continues to bear any credit risk associated with sales to customers that are denied credit by the factor, dispute delivery, and/or have warranty issues related to the products sold.

Management considers amounts due from the Company’s factor to be “financing receivables”. Trade accounts receivable, foreign receivables, and receivables from our suppliers are not considered to be financing receivables.

Management assesses the credit risk of both its trade accounts receivables 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. Management considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history with the customer, current industry trends, and changes in customer payment terms. Our normal collection cycle ranges between thirty and forty days. Estimated uncollectible amounts are charged to earnings and a credit to a valuation allowance. Balances which remain outstanding after reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Historically, the level of uncollectible accounts has not been significant. 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 September 30, 2025, and March 31, 2025, a provision for credit losses of $470,000 has been provided for uncollectible trade accounts receivable.

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 three customers in the six-month period ended September 30, 2025, that represented 13.8%, 12.9%, and 10.5% of the Company’s net sales, and no single customer representing more than 10% of the Company’s net sales for the three-month period ended September 30, 2025. The Company had three customers represented 25.6%, 13.3%, and 11.4%, respectively, of the total trade accounts receivable at September 30, 2025.

The Company had two customers in the six-month period ended September 30, 2024, that represented 30.0%, and 13.1% of the Company’s net sales, with the same two customers representing 49.2% and 15.0% of the Company’s net sales for the three-month period ended September 30, 2024. These customers represented 50.9% and 13.2%, respectively, of the total trade accounts receivable at September 30, 2024.

Line of Credit – Factor

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 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 $67,000, and $348,000, at September 30, 2025 and March 31, 2025, respectively. 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 9.25% and 9.50% at September 30, 2025, and March 31, 2025, 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 September 30, 2025, and March 31, 2025, there was $0 and $2,100,458 borrowed and outstanding under the factoring agreement, respectively. Collected cash maintained on deposit with the factor earns interest at the factor’s prime rate of interest less 2.5 percent (effective rate of 4.75% and 5.00% at September 30, 2025 and March 31, 2025, respectively). Cash on deposit with Merchant at September 30, 2025 and March 31, 2025 amounted to $949,693 and 0, respectively.

Convertible Debentures

On August 13, 2025, the Company entered into a Securities Purchase Agreement with SJC Lending, LLC (SJC), in which the Company agreed to sell SJC convertible promissory notes in three separate closings of 8% convertible notes in various principal amounts up to $2,750,000 in the aggregate. The closing on the initial tranche, which occurred on August 13, 2025, consisted of the issuance of a convertible note to SJC in the principal amount of $1,100,000, for a purchase price of $1,000,000. An additional convertible note to SJC representing the planned second and third tranches was closed on September 25, 2025, in the principal amount of $1,650,000, for a purchase price of $1,500,000. The Company paid $20,000 out of the proceeds of the notes for legal fees and expenses related to the Agreement. The notes mature in one year on August 13, 2026, and September 25, 2026, respectively, if not previously converted, and are convertible into shares of common stock at a discounted price amounting to 80% of the lowest volume weighted average price occurring in the ten-business day period prior to the conversion date. SJC may convert any or all of the unpaid principal amount prior to the maturity date, however $500,000 of the unpaid principal must be converted to common stock on the date of maturity. The notes bear interest from the date of issuance at 8% of the face amount of the notes. In addition, straight-line amortization amounting to $15,479 of the original issue discount of $250,000, has been recorded as interest expense at September 30, 2025.

Under the provisions of ASC 815-40-15, “Derivatives and Hedging Contracts in Entity’s Own Equity – Scope and Scope Exceptions,” our outstanding convertible notes are indexed to our stock. The application of ASC 815-40-15 resulted in our accounting for these notes as derivative instruments, and they are recognized as liabilities in our condensed consolidated balance sheets.

The notes payable are accounted for as derivative liabilities at September 30, 2025, and are recorded net of the fair value of the derivative component on the date of issuance with changes in fair value recognized as a gain or loss for each reporting period thereafter. The notes were recorded at fair value on the date of issuance, using the Binomial valuation model, and accordingly, an original derivative liability of $309,000 and $458,000 was recorded on August 13, 2025, and September 25, 2025, respectively. The fair value of this liability is determined each reporting period and gains and losses are recognized in the statement of operations under “Other Income (Expense)”. The fair value of the derivative liability of the notes payable is $814,000 at September 30, 2025. Other expense of $47,000 was recorded during the accounting period ended September 30, 2025, reflecting an increase in the fair value of the derivative component of the liability for the period from the original issuance of the notes payable to September 30, 2025.

Fair Value of Financial Instruments

The accounting standards regarding the fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash and other current assets and liabilities to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization. The Company has also adopted ASC 820-10, “Fair Value Measurements” which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

The carrying amounts of our financial instruments, including cash, cash investments, accounts payable, and accrued expenses approximate fair value because of their generally short maturities.

We measured the fair value of the convertible notes by using the Binomial Valuation model. As of September 30, 2025, the assumptions used to measure fair value of the liability embedded in our outstanding notes included an exercise price of $3.32 per share, a common share market price of $3.99, a discount rate of 20%, and a volatility of 50%.

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The following table sets forth a summary of changes in the fair value of our Level 3 financial instrument liability for the three and six month periods ended September 30, 2025.

Leases

The Company is a lessee in lease agreements for office space. Certain of the Company’s leases contain provisions for one or more options to terminate or extend the lease at the Company’s sole discretion. The Company’s leases are comprised of fixed lease payments, with its real estate leases including lease payments subject to a rate or index which may be variable. Certain real estate leases also include executory costs such as common area maintenance (non-lease component). As a practical expedient permitted under ASC 842, the Company has elected to account for the lease and non-lease components as a single lease component. 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.

Effective October 2025, we extended our operating lease for a 15,000 square foot office and warehouse located in Baltimore County, Maryland to expire in January 2026. No option to continue the lease beyond January 2026 has been provided in the lease extension. Monthly rental expense, with common area maintenance, currently approximates $15,000.

Income Taxes

We calculate our interim tax provision in accordance with the guidance for accounting for income taxes in interim periods. We estimate the annual effective tax rate and apply that tax rate to our ordinary quarterly pre-tax income. The tax expense or benefit related to discrete events during the interim period is recognized in the interim period in which those events occurred.

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 condensed 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.

Management reviews net operating loss carry-forwards and income tax credit carry forwards to evaluate if those amounts are recoverable. The Company expects to use approximately $1,950,000 of its net operating loss carry-forwards in connection with the filing of its tax return for the fiscal year ending March 31, 2026. However, 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. Accordingly, a valuation allowance was established to fully offset the value of the remaining 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 condensed 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.

We calculate our interim tax provision in accordance with the guidance for accounting for income taxes in interim periods. We estimate the annual effective tax rate and apply that tax rate to our ordinary quarterly pre-tax income. The tax expense or benefit related to discrete events during the interim period is recognized in the interim period in which those events occurred.

Earnings per Common Share

Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the periods presented. Diluted earnings per common share is computed based on the weighted average number of common shares outstanding plus the effect of stock options and other potentially dilutive common stock equivalents using the treasury stock method based on the Company’s average stock price.

Cash Dividend

On September 2, 2025, the Company declared a one-time special cash dividend of $1.00 per share of the Company’s outstanding common stock. The special dividend represents a portion of the purchase price the Company received for the sale of assets held for sale as previously discussed. The dividend to shareholders of record on September 18, 2025, was paid on September 25, 2025, in the aggregate amount of $2,312,787.

Contingencies

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 condensed consolidated financial position, results of operations, or cash flows in future years.

Related Party Transactions

During the three and six-month periods ended September 30, 2025, inventory purchases and other company expenses of approximately $39,000 and $123,000 respectively, were charged to credit card accounts of Harvey B. Grossblatt, the Company’s Chief Executive Officer and certain of his immediate family members. During the three and six-month periods ended September 30, 2024, inventory purchases and other company expenses of approximately $386,000 and $946,000 respectively, were charged to credit card accounts of Harvey B. Grossblatt, the Company’s Chief Executive Officer and certain of his immediate family members. The Company subsequently reimbursed these charges in full. Mr. Grossblatt receives mileage benefits from these charges. The maximum amount outstanding and due to Mr. Grossblatt at any point during the six-month period ended September 30, 2025, and 2024 amounted to $22,680 and $285,333, respectively. The amount due to Mr. Grossblatt at September 30, 2025, and 2024 amounted to approximately $3,000 and $7,000, respectively and is included in accounts payable on the condensed consolidated balance sheets.

Recently Adopted Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to improve income tax disclosure requirements by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income tax disclosure requirements. The guidance in this ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the effect this ASU will have on its consolidated financial statements and footnote disclosures.

On August 28, 2017, the FASB issued Accounting Standards Update No. 2017- 12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in that Update made targeted improvements to the optional hedge accounting model with the objective of improving hedge accounting to better portray the economic results of an entity’s risk management activities in its financial statements. In August 2025, the Company adopted the accounting standard as the Company entered into certain contracts that may contain embedded derivatives requiring separate accounting if specific criteria were met.