Universal Security Instruments(UUU) - 2026 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents unaudited condensed consolidated financial statements and management's analysis for Universal Safety Products, Inc ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section presents unaudited consolidated financial statements, covering balance sheets, operations, equity, cash flows, and accounting notes Condensed Consolidated Balance Sheets The balance sheet reflects decreased total assets and current liabilities, with increased shareholders' equity due to net income | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Assets | | | | Total Current Assets | $7,580,226 | $9,816,279 | | Total Assets | $7,580,226 | $9,816,279 | | Liabilities & Equity | | | | Total Current Liabilities | $606,194 | $4,652,568 | | Total Shareholders' Equity | $6,974,032 | $5,163,711 | | Total Liabilities & Shareholders' Equity | $7,580,226 | $9,816,279 | - Cash increased from $348,074 to $482,166, and cash – investment increased from $0 to $3,338,228[10] - Accounts receivable (trade, net) increased from $580,574 to $1,836,427, while amount due from factor decreased significantly from $3,666,790 to $831,216[10] - Inventories – finished goods decreased from $3,024,114 to $1,012,259, and Assets – Held for Sale became $0 from $1,681,937[10] - Line of credit - factor decreased from $2,100,458 to $0[10] Condensed Consolidated Statements of Operations The company reported $1,810,321 net income for Q1 2025, reversing a prior year net loss, primarily from an asset sale gain | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $3,824,247 | $4,598,516 | | Cost of goods sold | $3,130,112 | $3,510,812 | | GROSS PROFIT | $694,135 | $1,087,704 | | Selling, general and administrative expense | $1,113,303 | $1,397,421 | | Engineering and product development expense | $112,007 | $87,601 | | Operating loss | $(531,175) | $(397,318) | | Gain on sale of assets | $2,820,668 | — | | Interest income (expense) | $3,828 | $(44,888) | | Net income (loss) before taxes | $2,293,321 | $(442,206) | | Provision for income taxes | $483,000 | — | | NET INCOME (LOSS) | $1,810,321 | $(442,206) | | Basic and diluted EPS | $0.78 | $(0.19) | - Net sales decreased by 16.8% YoY, from $4,598,516 to $3,824,247[12] - Gross profit decreased from $1,087,704 to $694,135, and gross profit margin was 18.2% in 2025 compared to 23.7% in 2024[12] Condensed Consolidated Statement of Shareholders' Equity (2025) Shareholders' equity increased to $6,974,032 by June 30, 2025, from $5,163,711, driven by $1,810,321 net income | Metric | April 1, 2025 | June 30, 2025 | | :-------------------- | :------------ | :------------ | | Total Shareholders' Equity | $5,163,711 | $6,974,032 | | Net Income | | $1,810,321 | | Accumulated Deficit | $(7,745,259) | $(5,934,938) | Condensed Consolidated Statement of Shareholders' Equity (2024) Shareholders' equity decreased from $4,963,027 to $4,520,821 in Q1 2024, due to a $442,206 net loss | Metric | April 1, 2024 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Total Shareholders' Equity | $4,963,027 | $4,520,821 | | Net Loss | | $(442,206) | | Accumulated Deficit | $(7,945,943) | $(8,388,149) | Condensed Consolidated Statements of Cash Flows The company generated significant cash from operating and investing activities in Q1 2025, primarily from an asset sale, increasing cash | Cash Flow Activity | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net Cash Provided by (Used in) Operating Activities | $2,752,110 | $(1,198,108) | | Net Cash Provided by Investing Activities | $2,820,668 | — | | Net Cash (Used in) Provided by Financing Activities | $(2,100,458) | $1,454,566 | | Net Increase in Cash | $3,472,320 | $256,458 | | Cash at End of Period | $3,820,394 | $321,539 | - Operating activities provided $2,752,110 in cash in Q1 2025, a significant improvement from using $1,198,108 in Q1 2024[18] - Investing activities provided $2,820,668 in cash in Q1 2025, primarily from the sale of assets[18] - Financing activities used $2,100,458 in Q1 2025 due to net repayment of the line of credit, compared to providing $1,454,566 in Q1 2024 from net borrowings[18] Notes to Condensed Consolidated Financial Statements These notes provide essential context to the financial statements, detailing the company's business, asset sale, accounting policies, and key disclosures Statement of Management (Business Overview & Asset Sale) Universal Safety Products, Inc. sold its smoke and carbon monoxide alarm business on May 22, 2025, and is now exploring new product lines and business opportunities - Company designs and markets safety products, primarily smoke and carbon monoxide alarms, sold through retail and electrical distribution[20] - On May 22, 2025, the Company closed the asset sale of its smoke and carbon monoxide alarm business and non-tangible assets to Feit Electric Company, Inc. after shareholder approval on April 15, 2025[21] - The Company intends to continue importing and marketing product lines other than smoke and carbon monoxide alarms and is exploring other business opportunities[21] Line of Credit – Factor The company's factoring agreement saw available borrowing decrease to $45,000, with the outstanding balance reduced to $0 by June 30, 2025 - Agreement with Merchant Financial Group for factoring trade accounts receivable, allowing borrowing of 80% of eligible receivables, secured by all assets[23] | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------------- | :------------ | :------------- | | Amount available to borrow | ~$45,000 | ~$348,000 | | Borrowed and outstanding | $0 | $2,100,458 | | Effective interest rate | 9.5% | 9.5% | | Cash on deposit with Factor | $1,837,828 | $0 | Use of Estimates Financial statement preparation requires management estimates and assumptions, which can affect reported amounts, and actual results may differ - Financial statements require management estimates and assumptions affecting reported amounts of assets, liabilities, and disclosures[24] - Actual results could differ materially from these estimates[24] Revenue Recognition Revenue from safety and security product sales is recognized upon customer control, net of variable consideration, for short-term contracts - Primary revenue source is sale of safety and security products, recognized when customer obtains control (shipment/delivery)[25] - Revenue is recorded at transaction price net of variable consideration (trade discounts, allowances, returns, warranties) using the expected value method[26] - Most contracts are short-term (one year or less), utilizing the practical expedient for remaining performance obligations disclosure[25] Disaggregation of Revenue Revenue disaggregation shows Eyston product sales decreased by 8.4% YoY and GFCI/ventilation fan sales decreased by 66.6% YoY in Q1 2025 | Product Category | June 30, 2025 | June 30, 2024 | | :-------------------------------- | :------------ | :------------ | | Sales of products acquired from Eyston | $3,602,393 | $3,934,490 | | Sales of GFCI's and ventilation fans | $221,854 | $664,026 | | Total Revenue | $3,824,247 | $4,598,516 | - Sales of products acquired from Eyston decreased by $332,097 (8.4%) YoY[27] - Sales of GFCI's and ventilation fans decreased by $442,172 (66.6%) YoY[27] Concentrations The company relies on Eyston for all smoke and carbon monoxide alarms, with significant customer concentration, indicating supplier and customer risk - All smoke alarm and carbon monoxide alarm safety products are acquired from Eyston Company, Ltd[28] - Four customers represented 16.5%, 15.4%, 12.8%, and 10.1% of net sales for the three months ended June 30, 2025[28] - Two customers represented 19.1% and 12.5% of total trade accounts receivable at June 30, 2025[28] Related Party Transactions Inventory purchases and expenses charged to the CEO's credit card totaled $83,000 in Q1 2025, down from $560,000 in Q1 2024, and were fully reimbursed | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Inventory purchases & other expenses charged to CEO's credit card | ~$83,000 | ~$560,000 | | Maximum amount outstanding to CEO | $13,298 | $285,333 | - All charges to related party credit cards were subsequently reimbursed in full by the Company[30] Receivables Receivables are recorded upon unconditional right to consideration, with credit loss provisions and credit risk assessed by management - Receivables are recorded when the Company has an unconditional right to consideration[31] - A provision for credit losses is established based on historical experience and current/future economic conditions[31] - Management assesses credit risk of trade and financing receivables based on specific identification, considering customer creditworthiness, transaction history, industry trends, and payment terms[38][39] Income Taxes Interim tax provisions are calculated using an estimated annual effective tax rate, with a valuation allowance offsetting deferred tax assets due to prior losses - Interim tax provision is calculated using an estimated annual effective tax rate[32] - A valuation allowance fully offsets remaining deferred tax assets due to prior losses and uncertainty of future taxable income[34] - The Company expects to use approximately $1,950,000 of its net operating loss carry-forwards for the fiscal year ended March 31, 2026[34] Accounts Receivable, Amount Due From Factor, and Allowance for Credit Losses Most trade receivables are assigned non-recourse to Merchant Factors, transferring credit risk, with a $470,000 credit loss provision for trade accounts receivable - Majority of trade receivables are assigned on a pre-approved non-recourse basis to Merchant Factors Corporation, transferring credit risk to the factor[36] - A provision for credit losses of $470,000 was provided for uncollectible trade accounts receivable at June 30, 2025, and March 31, 2025[40] - No provision for credit losses related to Amounts Due from Factor has been provided due to the nature of the factoring agreement and prior experience[40] Earnings per Common Share Basic and diluted EPS are computed based on weighted average common shares outstanding, identical at 2,312,887 for Q1 2025 and 2024 - Basic and diluted EPS are computed based on weighted average common shares outstanding[41] | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Weighted average basic and diluted shares outstanding | 2,312,887 | 2,312,887 | - No potentially dilutive common stock equivalents were outstanding during the periods, making basic and diluted shares identical[41] Contingencies Management believes various claims and routine litigation will not materially adversely affect the company's financial position or results - Company is involved in various claims and routine litigation matters[42] - Management believes these matters will not have a material adverse effect on the Company's financial position, results of operations, or cash flows[42] Leases The company leases office and warehouse space, with an operating lease extended to October 2025 and another expired June 30, 2025 - Operating lease for Baltimore County office/warehouse extended to October 2025, with monthly rent approximating $15,000[44] - Naperville, Illinois office lease expired and was not renewed on June 30, 2025, with prior monthly rent of approximately $4,900[45] | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Rent expense (including common area maintenance) | ~$43,000 | ~$39,000 | - As of March 31, 2025, the Company had lease liabilities of $13,330 and a weighted-average remaining lease term of one month[47] Recent Accounting Pronouncements Not Yet Adopted FASB issued ASU 2023-09, 'Improvements to Income Tax Disclosures,' effective after December 15, 2024, with impact under evaluation - FASB issued ASU 2023-09, 'Improvements to Income Tax Disclosures,' effective for annual periods beginning after December 15, 2024[48] - The Company is evaluating the effect of this ASU on its consolidated financial statements and footnote disclosures[48] Subsequent Events On August 13, 2025, the company agreed to sell convertible promissory notes up to $2,750,000, with conversion exceeding 19.99% common stock subject to approval - On August 13, 2025, the Company entered into a Securities Purchase Agreement with SJC Lending LLC to sell convertible promissory notes up to $2,750,000 for a purchase price of up to $2.5 million[49] - Conversion of Convertible Notes exceeding 19.99% of common stock is subject to regulatory and Stockholder Approval[49] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on financial condition and operational results, discussing the asset sale's impact and key financial changes Forward-Looking Statements This section contains forward-looking statements about future operations and financial condition, which are estimates involving risks and uncertainties - The report contains forward-looking statements about operations, performance, and financial condition, identifiable by words like 'may', 'will', 'believes', 'expects'[53] - These statements are estimates based on management's judgment and involve risks and uncertainties, and actual results may differ materially[53] Overview (Business Context & Asset Sale) Universal Safety Products, Inc. sold its smoke and carbon monoxide alarm business on May 22, 2025, and now explores new product lines, facing tariff uncertainties - The Company is in the business of marketing and distributing safety and security products[54] - On May 22, 2025, the Company completed the sale of its smoke and carbon monoxide alarm business and non-tangible assets to Feit Electric Company, Inc[55] - The Company imports all its products, primarily from China, and is subject to tariffs (some at 55%), which create uncertainty regarding competitive pricing and sales[56] Results of Operations (Three Months Ended June 30, 2025 and 2024) Q1 2025 financial performance was significantly impacted by the asset sale, leading to net income despite declining sales and gross profit Sales Net sales for Q1 2025 decreased by $774,269 (16.8%) to $3,824,247, primarily due to the product line sale | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------- | :------------------------------- | :------------------------------- | | Net sales | $3,824,247 | $4,598,516 | - Net sales decreased by $774,269 (16.8%) YoY[57] - The decrease is attributed to the sale of a significant portion of the product line on May 22, 2025[57] Gross Profit Margin Gross profit margin decreased to 18.2% in Q1 2025 from 23.7% in Q1 2024, due to tariffs, product mix changes, and higher freight costs | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | | Gross Profit Margin | 18.2% | 23.7% | - Gross margins were negatively impacted by tariffs, product mix changes due to the business sale, and higher ocean freight costs[59] Expenses (Selling, General and Administrative) Selling, general and administrative expenses decreased to $1,113,303 in Q1 2025, from $1,397,421, and as a percentage of net sales, decreased from 30.4% to 29.1% | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Selling, general and administrative expenses | $1,113,303 | $1,397,421 | | As a percentage of net sales | 29.1% | 30.4% | Engineering and Product Development Engineering and product development expenses increased slightly to $112,007 for Q1 2025, compared to $87,601 in the prior year | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Engineering and product development expenses | $112,007 | $87,601 | Interest Expense The company reported $3,827 interest income for Q1 2025, a positive shift from $44,888 interest expense in Q1 2024 | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | | Interest income (expense) | $3,827 | $(44,888) | - Interest expense is dependent on total amounts borrowed from the Factor and interest rates[62] Gain on Sale of Assets The company recognized a gain of $2,820,668 from the asset sale, with a $4,955,000 purchase price reduced by basis and costs | Metric | Amount | | :-------------------------------- | :------------- | | Gain on sale of assets | $2,820,668 | | Purchase price | ~$4,955,000 | | Basis of assets held for sale | ~$1,682,000 | | Customary costs associated with sale | ~$834,000 | Provision for Income Taxes Current and deferred income tax provisions of $122,000 and $361,000 were recorded in Q1 2025, reflecting tax liability from the asset sale gain | Metric | Three Months Ended June 30, 2025 | | :-------------------- | :------------------------------- | | Current income tax provision | $122,000 | | Deferred income tax provision | $361,000 | | Total Provision | $483,000 | - The provisions were primarily due to the expected tax liability associated with net earnings from the gain on asset sale[64] Net Income (Loss) The company reported $1,810,321 net income for Q1 2025, a significant increase from a $442,206 net loss in Q1 2024, driven by an asset sale gain | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | | Net Income (Loss) | $1,810,321 | $(442,206) | - The increase in net income of $2,252,527 was primarily due to the $2,820,668 gain on the sale of a portion of the business[65] Cash Flow from Operating Activities Operating activities provided $2,752,110 cash in Q1 2025, a significant improvement from using $1,198,108 in Q1 2024 | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net Cash Provided by (Used in) Operating Activities | $2,752,110 | $(1,198,108) | - Key drivers for Q1 2025 cash provided: decrease in accounts receivable and amount due from factor ($1,579,321), decrease in inventories and prepaid expenses ($3,768,052), and net income ($1,810,321)[66] - Key drivers for Q1 2024 cash used: increase in inventories, prepaid expenses ($260,271), decrease in accounts payable and accrued liabilities ($852,240), and net loss ($442,206)[67] Cash Flow from Investing Activities Investing activities provided $2,820,668 cash in Q1 2025, primarily from asset sale proceeds | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net Cash Provided by Investing Activities | $2,820,668 | — | - Cash provided by investing activities in Q1 2025 was from the sale of assets, net of related liabilities[68] Cash Flow from Financing Activities Financing activities used $2,100,458 cash in Q1 2025 due to line of credit repayments, contrasting with $1,454,566 provided in Q1 2024 | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net Cash (Used in) Provided by Financing Activities | $(2,100,458) | $1,454,566 | - Q1 2025 cash used was comprised of net repayment of the line of credit - Factor[68] - Q1 2024 cash provided was comprised of borrowings net of advances from the factor[68] Liquidity and Capital Resources The company believes current cash, factoring funds, and operating cash will meet requirements for the next twelve months, with no material changes - The Company believes its cash, factoring agreement funds, and operating cash will satisfy cash requirements for the next twelve months and beyond[69] - Contractual cash requirements have not materially changed since the Form 10-K filing for the fiscal year ended March 31, 2025[69] Critical Accounting Policies No material changes occurred to critical accounting policies since the Form 10-K filing, and financial statements conform to US GAAP - No material changes to critical accounting policies since the filing of the Form 10-K[70] - Unaudited condensed consolidated financial statements conform to US GAAP[70] ITEM 4. CONTROLS AND PROCEDURES Disclosure controls and procedures were ineffective as of June 30, 2025, due to un-remediated material weaknesses, with no material changes in internal control Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures were ineffective as of June 30, 2025, due to un-remediated material weaknesses, with remediation plans underway - Disclosure controls and procedures were not effective as of June 30, 2025, due to un-remediated material weaknesses[71] - Material weaknesses include lack of segregation of duties due to limited accounting staff, deficiencies in management review controls over financial statement classification and disclosure, and inadequate documentation for general ledger entries[72][73][75] - Remediation plans include adding accounting personnel, changing reporting for proper classification and disclosures, engaging an independent expert for tax provisions, and implementing procedures to improve review and documentation of general ledger entries[72][73][74][75] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[76] PART II - OTHER INFORMATION This section covers legal proceedings, other information, and exhibits filed with the Form 10-Q ITEM 1. LEGAL PROCEEDINGS The company is involved in various lawsuits and legal matters, which management believes will not materially adversely affect its financial statements - The Company is involved in various lawsuits and legal matters from time to time[78] - Management believes these matters will not have a material adverse effect on the Company's financial statements[78] ITEM 5. OTHER INFORMATION No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors and officers during Q1 2025 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors and officers during Q1 2025[79] ITEM 6. EXHIBITS This section lists exhibits filed with the Form 10-Q, including organizational documents, CEO/CFO certifications, a press release, and XBRL data files - Exhibits include Articles of Incorporation, Bylaws, CEO/CFO Certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), a Press Release dated August 19, 2025, and Interactive Data Files (XBRL)[81] SIGNATURES The report is signed by Harvey B. Grossblatt, President and CEO, and James B. Huff, VP and CFO, on August 19, 2025 - The report was signed by Harvey B. Grossblatt, President, Chief Executive Officer, and James B. Huff, Vice President, Chief Financial Officer, on August 19, 2025[85]