UNIVERSAL SAFETY PRODUCTS, INC.

Previous wording

During the period covered by this Annual Report, we were in the business of marketing and distributing safety and security products which are primarily manufactured in the Peoples Republic of China (PRC). Our consolidated financial statements detail our sales and other operational results. Accordingly, the following discussion and analysis of the fiscal years ended March 31, 2025, and 2024 relate to the operational results of the Company and its consolidated subsidiary.

Current wording

During the period covered by this Annual Report, we were in the business of marketing and distributing safety and security products which are primarily manufactured in the Peoples Republic of China (PRC). Our consolidated financial statements detail our sales and other operational results. Accordingly, the following discussion and analysis of the fiscal years ended March 31, 2026, and 2025 relate to the operational results of the Company and its consolidated subsidiaries.

Previous wording

Our overall sales are primarily dependent upon the strength of the U.S. housing market. As stated elsewhere in this report, our Universal Electric subsidiary markets our products to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies); conditions that impact new home construction and new home sales directly impacts sales by our Universal Electric subsidiary. Our operating results for the fiscal years ended March 31, 2025, and 2024 continue to be dependent upon the economic conditions of the U.S. housing market.

Current wording

Our overall sales are primarily dependent upon the strength of the U.S. housing market. As stated elsewhere in this report, our Universal Electric subsidiary markets our products to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies); conditions that impact new home construction and new home sales directly impacts sales by our Universal Electric subsidiary. Our operating results for the fiscal years ended March 31, 2026, and 2025 continue to be dependent upon the economic conditions impacting the U.S. housing market.

Previous wording

The importation of certain wiring devices, carbon-monoxide alarms, and photo-electric alarms are currently subject to tariffs of 25%, and subsequent to March 31, 2025 tariffs on these products increased to 55%. The imposition of and modification of tariffs during the latter half of the current fiscal year ended March 31, 2025, and subsequent thereto, has increased uncertainty as to the short-term sustainability of importing products from our principal suppliers. If the Company is unable to import products at a competitive price point our sales could be adversely affected.

Current wording

The importation of certain wiring devices, carbon-monoxide alarms, and photo-electric alarms are currently subject to tariffs of twenty-five percent (25%). During the period covered by this Annual Report there has been unprecedented activity involving the implementation and imposition of global tariffs, the invalidation of those tariffs by the U.S. Supreme Court, and the subsequent implementation of new tariffs under different statutes. The imposition of and modification of tariffs has increased uncertainty as to the short-term sustainability of importing products from our principal suppliers. If the Company is unable to import products at a competitive price point our sales could be adversely affected.

Previous wording

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, 2025, was 29.0% compared to 28.7% in fiscal 2024. Changes in gross margin is generally attributed to variations in the mix of products sold as certain products are subject to tariff charges that directly impact gross margin.

Current wording

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, 2026, was 16.6% compared to 29.0% in fiscal 2025. Changes in gross margin are generally attributed to variations in the mix of products sold as certain products are subject to tariff charges that directly impact gross margin.

Previous wording

Selling, General and Administrative Expense. Selling, general and administrative expenses increased to $6,004,507 in fiscal 2025 from $5,735,584 in fiscal 2024. As a percentage of net sales, these expenses were 25.5% for the fiscal year ended March 31, 2025, and 29.4% for the fiscal year ended March 31, 2024. These expenses decreased as a percentage of net sales as they do not change in direct proportion to a change in sales. These expenses increased as a dollar amount due primarily to increased freight costs, insurance, and professional fees.

Current wording

Selling, General and Administrative Expense. Selling, general and administrative expenses decreased to $5,233,428 in fiscal 2026 from $6,004,507 in fiscal 2025. As a percentage of net sales, these expenses were 108.0% for the fiscal year ended March 31, 2026, and 25.5% for the fiscal year ended March 31, 2025. These expenses increased as a percentage of net sales as they do not change in direct proportion to a change in sales. In addition, for the fiscal year ended March 31, 2026, these expenses included stock based compensation expense associated with the issuance of incentive stock options, insurance, and professional fees associated with the consideration of other business opportunities as previously discussed.

Previous wording

Engineering and Product Development. Engineering and product development expense for the fiscal year ended March 31, 2025, was $424,849. Engineering and product development expense for the fiscal year ended March 31, 2024, was $427,234. Engineering and product development expense for the 2025 period was comparable to the 2024 period.

Current wording

**Engineering and Product Development.**Engineering and product development expense for the fiscal year ended March 31, 2026, was $223,794. Engineering and product development expense for the fiscal year ended March 31, 2025, was $424,849. Engineering and product development expense decreased as a significant portion related to the business unit we sold in the first fiscal quarter of the 2026 fiscal year end.

Previous wording

Interest Expense and Interest Income. For the fiscal years ended March 31, 2025, and 2024, the Company incurred interest expense of $262,365 and $155,731, respectively, related to borrowing costs associated with interest paid on amounts borrowed from our factor. The increase in interest expense resulted primarily from increased borrowing from our factor during the fiscal year ended March 31, 2025.

Current wording

**Interest Expense and Interest Income.**For the fiscal years ended March 31, 2026 and 2025, we incurred interest expense of $345,918 and $262,365, respectively. Interest is related to borrowing costs associated with convertible debt and interest paid on amounts borrowed from our factor. We earned $134,320 on cash deposits for the fiscal year ended March 31, 2026. The increase in interest expense resulted primarily from increased borrowing associated with the issuance of convertible debentures during the fiscal year ended March 31, 2026.

Previous wording

Income Taxes. For the fiscal years ended March 31, 2025, and 2024, our statutory Federal tax rate was 20.0%. The Company has accumulated net operating losses and other income tax credits for which a partial 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, 2025, and 2024, varies from the expected statutory rate. Footnote F 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.

Current wording

**Income Taxes.**For the fiscal years ended March 31, 2026 and 2025, our statutory Federal tax rate was 20.0%. We had accumulated net operating losses and other income tax credits for which a partial 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, 2026 and 2025, varies from the expected statutory rate. Footnote F 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.

Previous wording

**Net Income.**We reported net income of $500,684 for the fiscal year 2025, compared to a net loss of $695,790 for fiscal 2024, an increase in net income of $1,196,474 (172.0%). The increase in the net income for the fiscal year ended March 31, 2025, is attributed to the increase in sales associated with the initial placement sale to a large national retail customer and a deferred tax benefit attributed to the sale of certain assets to Feit as previously discussed.

Current wording

**Net Income.**We reported a net loss of $2,485,763 for the fiscal year 2026, compared to net income of $500,684 for fiscal 2025, a decrease in net income of $2,986,447 (596.5%). The decrease in the net income for the fiscal year ended March 31, 2026 is attributed to the decrease in sales associated with the sale of the smoke and carbon monoxide alarm portion of our business as previously discussed, and non-cash items including stock based compensation of $896,700, and an increase in the allowance for credit losses of $297,000, and partially offset by a gain on the sale of assets of $2,820,668.

Previous wording

The Company reported net income of $500,684, and a net loss of $695,790 for the years ended March 31, 2025, and 2024, respectively. As of March 31, 2025, working capital (computed as the excess of current assets over current liabilities) increased by $678,311 from $4,485,400 on March 31, 2024, to $5,163,711 on March 31, 2025.

Current wording

We reported a net loss of $2,485,763 and net income of $500,684 for the years ended March 31, 2026 and 2025, respectively. As of March 31, 2026, working capital (computed as the excess of current assets over current liabilities) decreased by $1,927,705, from $5,163,711 on March 31, 2025 to $3,236,006 on March 31, 2026.

Previous wording

Our operating activities provided cash of $604,076 for the year ended March 31, 2024. Operating activities provided cash principally by decreasing trade accounts receiveable and amounts due from factor of $186,806, by increasing accounts payable and accrued expenses by $1,472,394, and offset by increases in inventories of $688,194, increased prepaid expenses of $61,354, a decrease in operating lease liability of $151,230, and a net loss of $695,790. In addition, the following non-cash items are reflected in net cash provided by operating activities: depreciation and amortization amounted to $163,456 and was offset by changes in the allowance for credit losses of $377,988.

Current wording

Our operating activities provided cash of $536,185 for the year ended March 31, 2026. Operating activities provided cash principally by decreasing trade accounts receivable and amounts due from factor of $3,641,110, by decreasing inventories and assets held for sale by 2,543,262, and offset by decreasing accounts payable and accrued expenses by $2,179,879, increases to prepaid expenses of $197,300, and a net loss of $2,485,763. In addition, the following non-cash items are reflected in net cash provided by operating activities: stock based compensation of $896,700, a reversal of a provision for income tax benefits of $361,000, the change in the fair value of the derivative component of convertible debt of $75,000, the amortization of original issue discount on convertible debt of $309,053, a change in the allowance for credit losses of $297,000, an increase to the reserve for excess and obsolete inventory of $110,000, and a decrease in the operating lease liability of $13,330.

Previous wording

Financing activities provided cash of $1,331,605 reflecting the increase in net borrowing from the Factor during the fiscal year ended March 31, 2025. Financing activities used cash of $690,497 reflecting the decrease in net borrowing from the Factor during the fiscal year ended March 31, 2024.

Current wording

Financing activities during the fiscal year ended March 31, 2026 used cash of $1,913,245 resulting from the payment of dividends on common stock of $2,312,787, and the repayment of net borrowings from the factor of $2,100,458, and offset by the issuance of convertible debt of $2,500,000. Financing activities during the fiscal year ended March 31, 2025 provided cash of $1,331,605 reflecting the increase in net borrowing from the factor.

Previous wording

During the fiscal year ended March 31, 2025, and 2024, inventory purchases and other company expenses of approximately $1,097,000 and $1,699,000, 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, 2025, and 2024 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 $285,000 and $276,000, respectively, and the amount outstanding at March 31, 2025, and 2024 is approximately $0 and $0, respectively.

Current wording

During the fiscal year ended March 31, 2026 and 2025, inventory purchases and other company expenses of approximately $162,000 and $1,097,000, respectively, were charged to credit card accounts of Harvey B. Grossblatt, our Chief Executive Officer and certain of his immediate family members. We 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, 2026 and 2025 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 $23,000 and $285,000, respectively, and there were no amounts outstanding at March 31, 2026 or 2025.

Previous wording

*Assets Held for Sale:*As previously discussed in Part I, Item 1, the asset sale to Feit closed on May 22, 2025. Under the terms of the Asset Purchase Agreement, the Company sold finished good inventories of $1,655,000, and all of the Company’s fully amortized intangible assets including, but not limited to, all of the Company’s patents, trademarks, copyrights, and the trade name Universal Security Instruments, Inc. and USI Electric, Inc. Accordingly, the assets held for sale on March 31, 2025 pursuant to the terms of the Asset Purchase Agreement, are shown separately in the financial statements accompanying this Annual Report and are valued at the lower of the carrying value or fair value less selling cost.

Current wording

*Assets Held for Sale:*As previously discussed in Part I, Item 1, the asset sale to Feit closed on May 22, 2025. Under the terms of the Asset Purchase Agreement, we sold finished good inventories of $1,655,000, and all of our fully amortized intangible assets including, but not limited to, all of our patents, trademarks, copyrights, and the trade name Universal Security Instruments, Inc. and USI Electric, Inc. Accordingly, the assets held for sale on March 31, 2025 pursuant to the terms of the Asset Purchase Agreement, are shown separately in the financial statements accompanying this Annual Report and are valued at the lower of the carrying value or fair value less selling cost.

Previous wording

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. The Company expects to record a gain on the sale of assets, as previously discussed, of between $2,000,000 and $2,750,000, and accordingly, may be able to use existing operating loss carry-forwards to offset the expected gain on the sale with the filing of its tax returns for the fiscal year ending March 31, 2026. The amount of the operating loss carryforwards to be utilized is anticipated to be approximately $1,765,000 for the fiscal year ended March 31, 2025. The Company has established a deferred tax asset for this portion of its existing loss carry-forwards.

Current wording

Income Taxes: We recognize 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.

Previous wording

Further, after a review of projected taxable income, the remaining components of the deferred tax asset, and current global economic conditions, it was determined that it is more likely than not, that the tax benefits associated with the remaining components of deferred tax assets after the sale of a segment of the business, 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 remaining 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.

Current wording

Further, after a review of projected taxable income, the remaining components of the deferred tax asset, and current global economic conditions, it was determined that it is more likely than not, that the tax benefits associated with the remaining components of deferred tax assets after the sale of a segment of the business, will not be realized. This determination was made based on our prior history of losses from operations and the uncertainty as to whether we 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 remaining 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.

Previous wording

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.

Current wording

We follow 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.

Previous wording

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 of completing the sale and are recorded in selling, general and administrative expense.

Current wording

*Revenue Recognition:*Our 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 we have 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, we do 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 of completing the sale and are recorded in selling, general and administrative expense.

Previous wording

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.

Current wording

The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for products sold. Revenue is recorded at the transaction price net of estimates of variable consideration. We use 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.

Previous wording

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 two customers during the fiscal year ended March 31, 2025 that represented 21.7% and 14.9% of the Company’s net sales. The Company had three customers during the fiscal year ended March 31, 2024, that represented 13.7%, 13.7%, and 10.6% of the Company’s net sales. The Company had two customers during the fiscal year ended March 31, 2025 that represented 17.3% and 13.8% of the Company’s accounts receivable. The Company had no customers in the fiscal year ended March 31, 2024, that represented greater than 10% of the Company’s accounts receivable. During the period covered by this Annual Report, the Company acquired its inventory of smoke alarm and carbon monoxide alarm safety products from Eyston Company, Ltd. Products manufactured for us by Eyston amounted to approximately 96.3% and 84.3% of our purchases for the fiscal years ended March 31, 2025, and 2024, respectively. At March 31, 2025, and 2024, the Company had accounts receivable due from Eyston of $114,204 and $133,401, respectively. At March 31, 2025, and 2024, the Company had trade accounts payable due to Eyston of approximately $1,146,000 and $1,501,000, respectively. Subsequent to March 31, 2025, and in connection with the previously discussed asset sale to Feit, amounts due from, or due to Eyston were settled in full.

Current wording

We are primarily a distributor of safety products for use in home and business. We had three customers during the fiscal year ended March 31, 2026 that represented 13.0%, 12.5%, and 10.8% of our net sales, and two customers during the fiscal year ended March 31, 2025 that represented 21.7% and 14.9% of our net sales, respectively. We had three customers during the fiscal year ended March 31, 2026 that represented 20.0%, 19.0%, and 10.0% of our accounts receivable, and two customers during the fiscal year ended March 31, 2025 that represented 17.3% and 13.8% of our accounts receivable, respectively. Products manufactured for us by Eyston amounted to approximately 82.6% and 96.3% of our purchases for the fiscal years ended March 31, 2026 and 2025, respectively. At March 31, 2026 and 2025, we had accounts receivable due from Eyston of $0 and $114,204, and trade accounts payable due to Eyston of approximately $0 and $1,146,000, respectively.