UNIVERSAL SECURITY INSTRUMENTS INC

Previous wording

ITEM 2**.** MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

Current wording

ITEM 2**.** MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND****RESULTS OF OPERATIONS

Previous wording

We are in the business of marketing and distributing safety and security products. Our financial statements detail our sales and other operational results for the three and nine-month periods ended December 31, 2023, and 2022.

Current wording

We are in the business of marketing and distributing safety and security products. Our financial statements detail our sales and other operational results for the three-month periods ended June 30, 2024, and 2023.

Previous wording

Changes in international trade duties and other aspects of international trade policy, both in the U.S. and abroad, could materially impact the cost of our products. All of our products are imported from the Peoples Republic of China (PRC). To date, only certain of our products such as Carbon Monoxide and Photoelectric alarms, and certain wiring devices, have been subjected to tariffs of 25%. We are monitoring these developments and will determine our strategies as additional information becomes available. Any increase in tariffs that is not offset by an increase in our sales prices could have an adverse effect on our business, financial position, results of operations or cash flows.

Current wording

Changes in international trade duties and other aspects of international trade policy, both in the U.S. and abroad, could materially impact the cost of our products. All of our products are imported from the Peoples Republic of China (PRC). To date, only certain of our products such as Carbon Monoxide and Photoelectric alarms, and wiring devices, have been subjected to tariffs of 25%. We are monitoring these developments and will determine our strategies as additional information becomes available. Any increase in tariffs that is not offset by an increase in our sales prices could have an adverse effect on our business, financial position, results of operations or cash flows.

Previous wording

Gross Profit Margin. Gross profit margin is calculated as net sales less cost of goods sold expressed as a percentage of net sales. Our gross profit margin was 32.3% and 29.5% of sales for the quarters ended December 31, 2023, and 2022, respectively. Gross margins for the three-month period ended December 31, 2023, increased principally due to variations in the mix of products sold.

Current wording

Gross Profit Margin. Gross profit margin is calculated as net sales less cost of goods sold expressed as a percentage of net sales. Our gross profit margin was 23.7% and 25.5% of sales for the quarters ended June 30, 2024, and 2023, respectively. Gross margins were negatively impacted in the periods ended June 30, 2024, and 2023 principally due to the mix of products sold and higher ocean freight costs.

Previous wording

Expenses. Selling, general and administrative expenses were $1,310,872 for the three months ended December 31, 2023, compared to $1,178,502 for the comparable three months in the prior year. As a percentage of net sales, these expenses increased to 28.2% for the three-month period ended December 31, 2023, from 20.5% for the 2022 period. These expenses increased as a percentage of net sales principally since net sales were lower while selling, general, and administrative expenses do not decrease in direct proportion to a decrease in sales.

Current wording

Expenses. Selling, general and administrative expenses were $1,397,421 for the three months ended June 30, 2024, and $1,422,939 for the comparable three months in the prior year. As a percentage of net sales, these expenses increased to 30.4% for the three-month period ended June 30, 2024, from 21.2% for the 2023 period. These expenses increased as a percentage of net sales since selling, general, and administrative expenses do not fluctuate in direct proportion to sales.

Previous wording

Engineering and product development expenses were $77,295 for the three-month period ended December 31, 2023, and $101,670 for the comparable quarter of the prior year, a $24,375 (24.0%) decrease. These expenses decreased primarily due to a reduction in product development costs.

Current wording

Engineering and Product Development. Engineering and product development expenses were $87,601 for the three-month period ended June 30, 2024, compared to $64,963 for the comparable quarter of the prior year.

Previous wording

Interest Income (Expense). Interest income of $24,746 was recorded in the three months ended December 31, 2023 on refunded customs charges. Our interest expense was $36,310 for the quarter ended December 31, 2023, compared to interest expense of $76,755 for the quarter ended December 31, 2022. Interest expense is dependent upon the total amounts borrowed from the Factor and changes in interest rates during the period as compared to the corresponding period of the prior year.

Current wording

Interest Expense. Our interest expense was $44,888 for the quarter ended June 30, 2024, compared to interest expense of $50,496 for the quarter ended June 30, 2023. Interest expense is dependent upon the total amounts borrowed from the Factor and interest rates during the period as compared to the corresponding period of the prior year.

Previous wording

Net Income. We reported net income of $102,176 for the quarter ended December 31, 2023, compared to a net income of $341,312 for the corresponding quarter of the prior fiscal year, a $239,136 (70.1%) decrease in net income.

Current wording

Net (Loss) Income. We reported a net loss of $442,206 for the quarter ended June 30, 2024, compared to a net income of $165,130 for the corresponding quarter of the prior fiscal year, a $607,336 (367.8%) decrease in net income. The primary reason for the decrease in the net income is the Company’s inability to purchase a sufficient supply of components to allow the Company to fulfil orders during the three months ended June 30, 2024, resulting in lower sales and lower gross margins as discussed above.

Previous wording

Operating activities provided cash of $225,962 for the nine months ended December 31, 2023. This was primarily due to a decrease in accounts receivable and amount due from factor of $311,821, and an increase in accounts payable and accrued expenses of $874,648, and partially offset by an increase in inventories, prepaid expenses of $1,050,814 and net income of $80,881. Operating activities provided cash of $347,270 for the nine months ended December 31, 2022. This was primarily due to net income of $435,776, a decrease in inventories and prepaid expenses of $1,719,546, and a decrease in accounts receivable and amount due from factor of $98,698. This was partially offset by a decrease in accounts payable and accrued expenses of $1,921,596.

Current wording

Operating activities used cash of $1,198,108 for the three months ended June 30, 2024. This was primarily due to an increase in inventories, prepaid expenses and other of $260,271, a decrease in accounts payable and accrued liabilities of $852,240, and a net loss of $442,206, and offset by a decrease in accounts receivable and amount due from factor of $354,990. Operating activities provided cash of $178,366 for the three months ended June 30, 2023. This was primarily due to a decrease in inventories, prepaid expenses and other of $1,070,043, and net income of $165,130, and offset by an increase in accounts receivable and amount due from factor of $1,005,999, and a decrease in accounts payable and accrued expenses of $54,123.

Previous wording

There were no investing activities for the nine months ended December 31, 2023, or 2022.

Current wording

There were no investing activities for the three months ended June 30, 2024, or 2023.

Previous wording

Financing activities used cash of $338,286 during the nine months ended December 31, 2023, which is comprised of repayments net of borrowings from the factor. Financing activities used cash of $585,850 during the nine months ended December 31, 2022, from net borrowing in excess of repayments from the factor of $314,150, offset by repayments of the note payable to Eyston Company, Ltd. of $900,000.

Current wording

Financing activities provided cash of $1,454,566 during the three months ended June 30, 2024, which is comprised of borrowings net of advances from the factor. Financing activities used cash of $89,051 during the three months ended June 30, 2023, which is comprised of advances net of borrowings from the factor.