UUU Universal Security Instruments Inc

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended September 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-31747

UNIVERSAL SECURITY INSTRUMENTS, INC.

(Exact name of registrant as specified in its charter)

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Registrant’s telephone number, including area code: (410) 363-3000

Inapplicable

(Former name, former address and former fiscal year if changed from last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-Accelerated Filer ☒ Smaller Reporting Company ☒ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

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At November 20, 2023, the number of shares outstanding of the registrant’s common stock was 2,312,887.

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PART I - FINANCIAL INFORMATION

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED SEPTEMBER 30, 2023

(Unaudited)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED SEPTEMBER 30, 2022

(Unaudited)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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As used throughout this Report, “we,” “our,” “the Company” “USI” and similar words refers to Universal Security Instruments, Inc.

FORWARD-LOOKING STATEMENTS

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This Quarterly Report on Form 10-Q contains certain forward-looking statements reflecting our current expectations with respect to our operations, performance, financial condition, and other developments. These forward-looking statements may generally be identified by the use of the words “may”, “will”, “believes”, “should”, “expects”, “anticipates”, “estimates”, and similar expressions. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a number of risks and uncertainties. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, those risks identified in our periodic reports filed with the Securities and Exchange Commission.

OVERVIEW

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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 six-month periods ended September 30, 2023, and 2022.

The Company has developed products based on new smoke and gas detection technologies, with what the Company believes are improved sensing technology and product features. Most of our new technologies and features have been trademarked under the trade name IoPhic.

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.

RESULTS OF OPERATIONS

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Three Months Ended September 30, 2023 and 2022

Sales. Net sales for the three months ended September 30, 2023, were $3,717,455 compared to $5,857,141 for the comparable three months in the prior year, a decrease of $2,139,686 (36.5)%. Sales decreased principally due to the timing of orders and delays in both manufacturing, due to supply chain disruptions, and to delays in shipping and handling of containers at California ports of entry. While delays in manufacturing and shipping have improved somewhat over the past fiscal year, we continue to experience significant delays in receiving inventory for sale.

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 35.2% and 26.7% of sales for the quarters ended September 30, 2023, and 2022, respectively. Gross margins for the three-month period ended September 30, 2023, increased due to variations in the mix of products sold and to continued increases in the cost of certain electronic components. Gross margins were negatively impacted in the period ended September 30, 2022, principally due to increases in the cost of certain electronic components.

Expenses. Selling, general and administrative expenses were $1,334,351 for the three months ended September 30, 2023, compared to $1,189,243 for the comparable three months in the prior year. As a percentage of net sales, these expenses increased to 35.9% for the three-month period ended September 30, 2023, from 20.3% for the 2022 period. These expenses increased as a percentage of net sales principally since selling, general, and administrative expenses do not decrease in direct proportion to a decrease in sales. In addition, during the three months ended September 30, 2023, the Company recorded additional product liability insurance costs as a

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result of increased sales exposure in the prior fiscal year, while the prior year period included a reduction in salaries expense of approximately $181,000 resulting from recording an employee retention credit under the CARES Act.

Engineering and product development expenses were $131,415 for the three-month period ended September 30, 2023, and $103,245 for the comparable quarter of the prior year, a $28,170 (27.3%) increase. These expenses increased primarily due to additional product development costs.

Interest Expense. Our interest expense was $33,509 for the quarter ended September 30, 2023, compared to interest expense of $68,525 for the quarter ended September 30, 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.

Net (Loss) Income. In addition to the differences between the 2023 and 2022 periods discussed above, the Company’s net income for the quarter ended September 30, 2022, included a reduction in salaries expense resulting from recoding an employee retention credit under the CARES Act. For all of the above reasons, we reported a net loss of $186,425 for the quarter ended September 30, 2023, compared to a net income of $200,602 for the corresponding quarter of the prior fiscal year, a $387,027 (192.9%) decrease in net income.

Six Months Ended September 30, 2023 and 2022

Sales. Net sales for the six months ended September 30, 2023, were $10,416,226 compared to $10,492,445 for the comparable six months in the prior period, a decrease of $76,219 (0.7)%. Sales decreased principally due to the timing of orders and delays in both manufacturing, due to supply chain disruptions, and to delays in shipping and handling of containers at California ports of entry. While delays in manufacturing and shipping have improved somewhat over the past fiscal year, we continue to experience significant delays in receiving inventory for sale.

Gross Profit Margin. The gross profit margin is calculated as net sales less cost of goods sold expressed as a percentage of net sales. The Company’s gross profit margin was 29.0% for the period ended September 30, 2023, and 28.4% for the period ended September 30, 2022. Gross margins are impacted by variations in the mix of products sold and due to continued increases in the cost of certain electronic components.

Expenses. Selling, general and administrative expenses were $2,757,290 for the six months ended September 30, 2023, compared to $2,571,846 for the comparable six months in the prior year. As a percentage of sales, these expenses were 26.5% for the six-month period ended September 30, 2023, and 24.5% for the comparable 2022 period. As a dollar amount these expenses increased by $185,444 principally as a result of recording additional product liability insurance costs due to increased sales exposure in the prior fiscal year.

Engineering and product development expenses were comparable at $196,378 for the six months ended September 30, 2023, to $192,507 for the comparable period of the prior year.

Interest Expense. Our interest expense was $84,005 for the six months ended September 30, 2023, compared to interest expense of $124,021 for the six months ended September 30, 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.

Net (Loss) Income. In addition to the differences between the 2023 and 2022 periods discussed above, the Company’s net income for the quarter ended September 30, 2022, included a reduction in salaries expense resulting from recoding an employee retention credit under the CARES Act. For all of the above reasons, we reported a net loss of $21,295 for the six months ended September 30, 2023, compared to a net income of $94,464 for the corresponding period of the prior fiscal year, a decrease in net income of $115,759 (122.5%).

Operating activities provided cash of $650,519 for the six months ended September 30, 2023. This was primarily due to a decrease in accounts receivable and amount due from factor of $534,490, and an increase in accounts payable and accrued expenses and of $1,239,275, and partially offset by an increase in inventories, prepaid expenses of $1,105,053 and a net loss of $21,295. Operating activities used cash of $378,841 for the six months ended September 30, 2022. This was primarily due to an increase in accounts receivable and amount due from factor of $1,276,912 and a decrease in accounts payable and accrued expenses of $177,454 offset by a decrease in inventories and prepaid expenses of $970,998, and net income of $94,464.

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There were no investing activities for the six months ended September 30, 2023, or 2022.

Financing activities used cash of $547,203 during the six months ended September 30, 2023, which is comprised of repayments net of borrowings from the factor. Financing activities provided cash of $118,984 during the six months ended September 30, 2022, which is comprised of borrowings net of repayments from the factor of $718,984, and repayment of a note payable to Eyston Company Ltd. of $600,000 for the six months ended September 30, 2022.

Liquidity and Capital Resources

The Company believes its balances of cash, funds available to borrow under the terms of its factoring agreement, and cash generated by ongoing operations will be sufficient to satisfy its cash requirements over the next twelve months and beyond. The Company’s contractual cash requirements have not changed materially since it filed its Form 10-K for the period ended March 31, 2023.

CRITICAL ACCOUNTING POLICIES

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In the notes to the consolidated financial statements, and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K, we have disclosed those accounting policies that we consider to be significant in determining our results of Operations and financial condition. There have been no material changes to those policies that we consider to be significant since the filing of our Form 10-K. The accounting principles used in preparing our unaudited condensed consolidated financial statements conform in all material respects to accounting principles generally accepted in the United States of America.

ITEM 4.CONTROLS AND PROCEDURES

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Evaluation of Disclosure Controls and Procedures

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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.

A material weakness arose in the management review controls over classification of and disclosure of amounts within the financial statements. The Company plans to remediate the material weakness by clarification of the classification of amounts and inclusion of the required disclosures.

A material weakness in the management review controls over the classification of and accounting for income taxes. The Company plans to remediate the material weakness by clarification of the classification of amounts and inclusion of the required disclosures.

Changes in Internal Control over Financial Reporting

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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 September 30, 2023.

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PART II - OTHER INFORMATION

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From time to time, the Company is involved in various lawsuits and legal matters. It is the opinion of management, based on the advice of legal counsel, that these matters will not have a material adverse effect on the Company’s financial statements.

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As previously announced, while the Company continues to generate sufficient capital to satisfy the ongoing cash requirements for its current operations, management believes that access to additional funding or other resources, or identifying the right strategic business combination, would allow the Company to drive long term value for its shareholders while taking advantage of sales growth opportunities that the Company seeks to execute. Management believes that it would be advantageous to the Company and its shareholders to explore strategic alternatives as the Company pursues additional sources of capital. There is no deadline or definitive timetable set for completion of the strategic alternatives process, and there can be no assurance any proposal will be made or accepted, any agreement will be executed, or any transaction will be consummated.

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SIGNATURES

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Pursuant to the requirements 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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Exhibit 31.1

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CERTIFICATION

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I, Harvey B. Grossblatt, certify that:

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1.I have reviewed this Quarterly Report on Form 10-Q of Universal Security Instruments, Inc.;

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2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

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3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

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4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

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5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

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Exhibit 31.2

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CERTIFICATION

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I, James B. Huff, certify that:

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1.I have reviewed this Quarterly Report on Form 10-Q of Universal Security Instruments, Inc.;

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2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

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3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

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4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

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5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

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Exhibit 32.1

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SECTION 1350 CERTIFICATIONS

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In connection with the Quarterly Report of Universal Security Instruments, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2023, as filed with the Securities and Exchange Commission and to which this Certification is an exhibit (the “Report”), the undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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Exhibit 99.1

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For Immediate Release

Contact: Harvey Grossblatt, CEO

Universal Security Instruments, Inc.

(410) 363-3000, Ext. 224

or

Zachary Mizener

Lambert & Co.

(315) 529-2348

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Universal Security Instruments Reports Second-Quarter Results

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OWINGS MILLS, Md. November 20, 2023 - Universal Security Instruments, Inc. (NYSE AMEX: UUU) today announced results for its fiscal second quarter and six months ended September 30, 2023.

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For the three months ended September 30, 2023, sales decreased 36.5% to $3,717,455 compared to sales of $5,857,141 for the same period last year. The Company reported a net loss of $186,425, or $0.08 per basic and diluted share, compared to net income of $200,602 or $0.09 per basic and diluted share for the same period last year.

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For the six months ended September 30, 2023, sales decreased 0.7% to $10,416,226 versus $10,492,445 for the same period last year. The Company reported a net loss of $21,295, or $0.01 per basic and diluted share, compared to net income of $94,464 or $0.04, per basic and diluted share for the corresponding 2022 period.

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“Sales were lower this quarter due to delays in getting cargo off the pier in California and supply chain issues. Our net loss was also partially due to an additional premium expense of $148,000 in the 2023 period following an insurance audit, and lower net income for the 2023 period when compared to the 2022 period due to a Federal Employee Retention Credit of approximately $181,000 in the 2022 period which was not repeated in the 2023 period.” said Harvey Grossblatt, President.

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UNIVERSAL SECURITY INSTRUMENTS, INC. is a U.S.-based manufacturer and distributor of safety and security devices. Founded in 1969, the Company has an over 54-year heritage of developing innovative and easy-to-install products, including smoke, fire and carbon monoxide alarms.  For more information on Universal Security Instruments, visit our website at www.universalsecurity.com.

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"Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Certain matters discussed in this news release may constitute forward-looking statements within the meaning of the federal securities laws that inherently include certain risks and uncertainties.  Actual results could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, among other items, currency fluctuations, the impact of current and future laws and governmental regulations affecting us and other factors which may be identified from time to time in our Securities and Exchange Commission filings and other public announcements.  We do not undertake and specifically disclaim any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.  We will revise our outlook from time to time and frequently will not disclose such revisions publicly.

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UNIVERSAL SECURITY INSTRUMENTS, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

(UNAUDITED)

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CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

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