10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended June 30, 2019

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)

Maryland 52-0898545

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.)

11407 Cronhill Drive, Suite A
Owings Mills, Maryland	21117

(Address of principal executive offices) (Zip Code)

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

Inapplicable

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

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

Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock	UUU	NYSE MKT LLC

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 x 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 x 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 x Smaller Reporting CompanyxEmerging 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 x

At August 19, 2019, the number of shares outstanding of the registrant’s common stock was 2,312,887.

TABLE OF CONTENTS

		Page
Part I - Financial Information
Item 1.	Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets at June 30, 2019 (unaudited) and March 31, 2019	3
	Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2019 and 2018 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended June 30, 2019 and 2018 (unaudited)	5
	Condensed Consolidated Statements of Shareholders’ Equity Three Months Ended June 30, 2019	6
	Condensed Consolidated Statements of Shareholders’ Equity Three Months Ended June 30, 2018	7
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2019 and 2018 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 4.	Controls and Procedures	17
Part II - Other Information
Item 1.	Legal Proceedings	18
Item 6.	Exhibits	18
	Signatures	20

2

PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

	(unaudited)			(audited)
	June 30, 2019			March 31, 2019
ASSETS
CURRENT ASSETS
Cash	$	223,598		$	374,472
Accounts receivable:
Trade, less allowance for doubtful accounts		482,963			365,293
Receivables from employees		54,930			54,916
Receivable from Hong Kong Joint Venture		12,144			45,217
		550,037			465,426
Amount due from factor		1,943,961			2,549,986
Inventories – finished goods		7,487,800			6,852,305
Prepaid expenses		130,163			145,190
TOTAL CURRENT ASSETS		10,335,559			10,387,379
INVESTMENT IN HONG KONG JOINT VENTURE		7,923,355			8,441,889
INTANGIBLE ASSET – NET		52,542			53,660
PROPERTY AND EQUIPMENT – NET		465,883			19,998
OTHER ASSETS		4,000			4,000
TOTAL ASSETS	$	18,781,339		$	18,906,926
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Line of credit – factor	$	1,695,381		$	1,851,591
Short-term portion of lease asset liability		162,906			-
Accounts payable – Hong Kong Joint Venture		5,625,164			4,962,023
Accounts payable – trade		391,823			616,444
Accrued liabilities:
Accrued payroll and employee benefits		99,401			132,132
Accrued commissions and other		407,544			470,876
TOTAL CURRENT LIABILITIES		8,382,219			8,033,066
LONG-TERM PORTION OF LEASE ASSET LIABILITY		283,784			-
COMMITMENTS AND CONTINGENCIES		-			-
SHAREHOLDERS’ EQUITY
Common stock, $.01 par value per share; authorized 20,000,000 shares; 2,312,887 shares issued and outstanding at June 30, 2019 and March 31, 2019		23,129			23,129
Additional paid-in capital		12,885,841			12,885,841
Accumulated Deficit		(3,255,820	)		(2,646,866	)
Accumulated other comprehensive income		462,186			611,756
TOTAL SHAREHOLDERS’ EQUITY		10,115,336			10,873,860
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	18,781,339		$	18,906,926

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

3

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,
	2019			2018
Net sales	$	4,343,291		$	4,045,996
Cost of goods sold – acquired from Joint Venture		2,793,539			2,618,867
Cost of goods sold – other		304,923			186,985
GROSS PROFIT		1,244,829			1,240,144
Selling, general and administrative expense		1,236,839			1,197,771
Research and development expense		140,643			153,387
Operating loss		(132,653	)		(111,014	)
Other expense:
Loss from investment in Hong Kong Joint Venture		368,964			244,400
Interest expense		107,337			83,419
NET LOSS	$	(608,954	)	$	(438,833	)
Loss per share:
Basic and diluted	$	(0.26	)	$	(0.19	)
Shares used in computing net loss per share:
Weighted average basic and diluted shares outstanding		2,312,887			2,312,887

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

4

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS

(Unaudited)

	Three Months Ended June 30,
	2019			2018
NET LOSS	$	(608,954	)	$	(438,833	)
Other Comprehensive Loss
Company’s portion of Hong Kong Joint Venture’s other
Comprehensive loss:
Currency translation		(100,773	)		(379,479	)
Unrealized loss on investment securities		(48,797	)		(9,291	)
Total Other Comprehensive Loss		(149,570	)		(388,770	)
COMPREHENSIVE LOSS	$	(758,524	)	$	(827,603	)

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

5

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED JUNE 30, 2019 (Unaudited)

	Common Shares		Stock Amount		Additional Paid-In Capital		Accumulated Deficit			AOCI*			Total
Balance at April 1, 2019		2,312,887	$	23,129	$	12,885,841	$	(2,646,866	)	$	611,756		$	10,873,860
Currency translation											(100,773	)		(100,773	)
Unrealized loss on investment securities											(48,797	)		(48,797	)
Net loss								(608,954	)					(608,954	)
Balance at June 30, 2019		2,312,887	$	23,129	$	12,885,841	$	(3,255,820	)	$	462,186		$	10,115,336

* Accumulated Other Comprehensive Income

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

6

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED JUNE 30, 2018 (Unaudited)

	Common Shares		Stock Amount		Additional Paid-In Capital		Accumulated Deficit			AOCI*			Total
Balance at April 1, 2018		2,312,887	$	23,129	$	12,885,841	$	(1,298,880	)	$	1,143,246		$	12,753,336
Currency translation											(379,479	)		(379,479	)
Unrealized loss on investment securities											(9,291	)		(9,291	)
Net loss								(438,833	)					(438,833	)
Balance at June 30, 2018		2,312,887	$	23,129	$	12,885,841	$	(1,737,713	)	$	754,476		$	11,925,733

* Accumulated Other Comprehensive Income

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

7

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended June 30,
	2019			2018
OPERATING ACTIVITIES
Net loss	$	(608,954	)	$	(438,833	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		1,923			7,092
Loss from investment in Hong Kong Joint Venture		368,964			244,400
Changes in operating assets and liabilities:
Decrease in accounts receivable and amounts due from factor		521,414			333,004
Increase in inventories, prepaid expenses, and other		(620,468	)		(317,637	)
Increase in accounts payable and accrued expenses		342,457			527,640
NET CASH PROVIDED BY OPERATING ACTIVITIES		5,336			355,666
FINANCING ACTIVITIES
Net repayment of Line of Credit - Factor		(156,210	)		(406,755	)
NET CASH USED IN FINANCING ACTIVITIES		(156,210	)		(406,755	)
NET DECREASE IN CASH		(150,874	)		(51,089	)
Cash at beginning of period		374,472			128,161
CASH AT END OF PERIOD	$	223,598		$	77,072
Supplemental disclosures of cash flow information:
Interest paid	$	107,290		$	96,367
Income taxes paid		-			-
Supplemental disclosures of non-cash activities:
Right-of-use asset in exchange for operating lease liability	$	475,538			-

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

8

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Statement of Management

The condensed consolidated financial statements include the accounts of Universal Security Instruments, Inc. (USI or the Company) and its wholly-owned subsidiary. Except for the condensed consolidated balance sheet as of March 31, 2019, 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, 2019 audited financial statements filed with the Securities and Exchange Commission on Form 10-K on July 16, 2019. The interim operating results are not necessarily indicative of the operating results for the full fiscal year.

Management Plans

The Company had net losses of $608,954 for the three months ended June 30, 2019 and $1,347,986 and $2,262,310 for the years ended March 31, 2019 and 2018, respectively. Furthermore, as of June 30, 2019, working capital (computed as the excess of current assets over current liabilities) decreased by $400,973 from $2,354,313 at March 31, 2019, to $1,953,340 at June 30, 2019.

Our short-term borrowings to finance operating losses, trade accounts receivable, and foreign inventory purchases are provided pursuant to the terms of our Factoring Agreement with Merchant Factors Corporation (Merchant or Factor). Borrowings under our Factoring Agreement bear interest at prime plus 2% and are secured by trade accounts receivable and inventory. Advances from Merchant are at the sole discretion of Merchant based on their assessment of the Company’s receivables, inventory and financial condition at the time of each request for an advance. The unused availability of this facility totaled approximately $268,500 at June 30, 2019. In addition, we have secured extended payment terms for purchases up to $4,000,000 from our Hong Kong Joint Venture for the purchase of sealed battery alarms. These amounts are unsecured, bear interest at 5.5% per annum, and provide for repayment terms of 120 days for each purchase. The balance outstanding under this agreement at June 30, 2019 was $5,625,164 with $2,301,890 of this amount being beyond agreed repayment terms. The Hong Kong Joint Venture has provided discretionary approval to allow the Company to exceed the agreed upon repayment terms and has indicated it has no plans or intentions that would materially impact the financial position, operations, or cash flows of the Company.

The Company has a history of sales that are insufficient to generate profitable operations, and has limited sources of financing. Management’s plan in response to these conditions includes increasing sales resulting from the delivery of the Company’s line of sealed battery ionization smoke alarms, carbon monoxide products, and ground fault circuit interrupters. In addition the Company is seeking improved terms on its credit facility with the Hong Kong Joint Venture. The Company has seen positive results on this plan during the fiscal years ended March 31, 2019 and 2018 and through June 30, 2019 due to sales of its product offerings and management expects this growth to continue going forward. Though no assurances can be given, if management’s plan continues to be successful over the next twelve months, the Company anticipates that it should be able to meet its cash needs. Cash flows and credit availability is expected to be adequate to fund operations for one year from the issuance date of this report.

Line of Credit – Factor

On January 15, 2015, the Company entered into the Agreement with Merchant for the purpose of factoring the Company’s trade accounts receivable and to provide financing secured by finished goods inventory. Under the Agreement the Company may borrow eighty percent (80%) of eligible accounts receivable. Additional funding, characterized by Merchant as an over advance, may be provided up to one hundred percent (100%) of eligible accounts receivable. The over advance portion, if any, may not exceed fifty percent (50%) of eligible inventory up to a maximum of $500,000. The Agreement expires on January 6, 2020, and provides for continuation of the program for successive two year periods until terminated by one of the parties to the Agreement. As of June 30, 2019, the Company had borrowings of $1,695,381 under the Agreement, and the Company had remaining availability under the Agreement of approximately $268,500. Advances on factored trade accounts receivable are secured by all of the Company’s trade accounts receivable and inventories, 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 7.50% at June 30, 2019). Advances under the factoring agreement are made at the sole discretion of Merchant, based on their assessment of the receivables, inventory and our financial condition at the time of each request for an advance.

9

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 fulfillment cost and are recorded in selling, general and administrative expense.

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.

We have established allowances to cover anticipated doubtful accounts based upon historical experience.

Disaggregation of Revenue

The Company presents revenue associated with sales of products acquired from our Hong Kong Joint Venture separately from revenue associated with sales of ground fault circuit interrupters (GFCI’s) and ventilation fans. The Company believes this disaggregation best depicts how our various product lines perform and are affected by economic factors. Revenue recognized by these categories for the fiscal quarters ended June 30, 2019 and 2018 are as follows:

	Three months ended
	June 30, 2019		June 30, 2018
Sales of products acquired from our HKJV	$	3,939,841	$	3,764,416
Sales of GFCI’s and ventilation fans		403,450		281,580
	$	4,343,291	$	4,045,996

Receivables

Receivables are recorded when the Company has an unconditional right to consideration. We have established allowances to cover anticipated doubtful accounts based upon historical experience.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of firm orders for satisfied or partially satisfied performance obligations on contracts with an original expected duration of one year or more. The Company’s contracts are predominantly short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient in ASC Topic 606 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

10

Joint Venture

The Company and its joint venture partner, a Hong Kong corporation, each owns a 50% interest in the Hong Kong joint venture that manufactures security products in its facilities located in the People’s Republic of China. There are no material differences between US-GAAP and the basis of accounting used by the Hong Kong Joint Venture. The following represents summarized balance sheet and income statement information of the Hong Kong Joint Venture as of and for the three months ended June 30, 2019 and 2018:

	2019 (Unaudited)			2018 (Unaudited)
Net sales	$	3,149,100		$	3,266,557
Gross profit		161,680			346,111
Net loss		(808,833	)		(546,959	)
Total current assets		12,875,232			13,189,847
Total assets		18,982,477			22,082,883
Total current liabilities		2,159,436			2,990,291
Total liabilities		2,902,978			3,378,728

During the three months ended June 30, 2019 and 2018 the Company purchased $2,859,967 and $2,804,372, respectively, of products directly from the Hong Kong Joint Venture for resale. For the three months ended June 30, 2019 the Company has decreased its equity in the net loss of the Joint Venture to reflect a decrease of $35,453 in inter-Company profit on purchases held by the Company in inventory. For the three months ended June 30, 2018 the Company has decreased its equity in the net loss of the Joint Venture to reflect a decrease of $29,079 in inter-company profit on purchases held by the Company in inventory.

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 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. After a review of projected taxable income and the components of the deferred tax asset in accordance with applicable accounting guidance 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 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 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 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.

The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of our Hong Kong Joint Venture. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the Hong Kong Joint Venture, as well as the amount of non-U.S. income taxes paid on such earnings. The Company has determined that it does not owe a Transition Tax since it has sufficient net operating loss carryforwards and foreign tax credit carryforwards to offset the E&P of its Hong Kong Joint Venture that are subject to the tax.

11

Accounts Receivable and Amount Due From Factor

The Company assigns the majority of its short-term receivables arising in the ordinary course of business to our factor. 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 delivery or warranty issues related to the products sold.

Management assesses the credit risk of both its trade accounts receivable and its financing receivables based on the specific identification of accounts that have exceeded credit terms. An allowance for uncollectible receivables is provided based on that assessment. Changes in the allowance account 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 allowance account in the period that the receivables’ status is determined to be uncollectible.

Based on the nature of the factoring agreement and prior experience, no allowance related to Amounts Due from Factor has been provided. At June 30, 2019 and 2018, an allowance of approximately $57,000 has been provided for uncollectible trade accounts receivable.

Net Loss per Common Share

Basic net loss 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. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on the Company’s average stock price. There were no potentially dilutive common stock equivalents outstanding during the three month periods ended June 30, 2019 or 2018. As a result, basic and diluted weighted average common shares outstanding are identical for the three month periods ended June 30, 2019 and 2018.

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.

Recently Adopted Accounting Standards

Changes to US-GAAP are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates (ASU’s) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASU’s.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less are accounted for similar to previous guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to previous guidance for sales-type leases, direct financing leases and operating leases. The Company adopted the standard on April 1, 2019, the date it became effective for public companies based on the Company’s fiscal year, using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of April 1, 2019 as a result of this adoption. Upon adoption, the Company elected the package of practical expedients permitted within the standard, which among other things, allows for the carryforward of historical lease classification. The Company also elected the practical expedient provided in a subsequent amendment to the standard that removed the requirement to separate lease and non-lease components, provided certain conditions were met.

12

The impact of the adoption of this guidance on the Company’s condensed consolidated financial statements is discussed below:

The Company is a lessee in lease agreements for office space. Certain of the Company’s leases contain provisions that provide for one or more options to renew 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. 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. None of the Company’s lease agreements contain any residual value guarantees or material restrictive covenants. As a result of the Company’s election of the package of practical expedients permitted within ASC 842, which among other things, allows for the carryforward of historical lease classification, all of the Company’s lease agreements in existence at the date of adoption that were classified as operating leases under ASC 840 have been classified as operating leases under ASC 842. Lease expense for payments related to the Company’s operating leases is recognized on a straight-line basis over the related lease term, which includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments as specified in the lease. Right-of-use assets and lease liabilities related to the Company’s operating leases are recognized at the lease commencement date based on the present value of the remaining lease payments over the lease term and amounted to $475,538 at the date of adoption. When the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available surrounding the Company’s borrowing rates at the lease commencement date in determining the present value of lease payments. The right-of use asset also includes any lease payments made at or before lease commencement less any lease incentives. As of June 30, 2019, the Company had right-of-use assets of $446,690 and lease liabilities of $446,690 related to its operating leases. Right-of-use assets are included in property and equipment, net, on the condensed consolidated balance sheet and lease liabilities related to the Company’s operating leases are included in short-term and long-term lease asset liability on the condensed consolidated balance sheet. As of June 30, 2019 the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases were 2.83 years and 6.0%, respectively. During the three months ended June 30, 2019, the cash paid for amounts included in the measurement of lease liabilities related to the Company’s operating leases was $35,192, which is included as an operating cash outflow within the consolidated statements of cash flows. During the three months ended June 30, 2019, the operating lease costs related to the Company’s operating leases was $28,848, which is included in operating costs and expenses in the condensed consolidated statements of operations. During the three months ended June 30, 2019, the Company did not enter into any lease agreements set to commence in the future and there were no newly leased assets for which a right-of use asset was recorded in exchange for a new lease liability, other than those lease assets recorded upon implementation.

The future minimum payments under operating leases were as follows at June 30, 2019 for the fiscal year ending March 31, 2020:

2020 (remainder)	$	125,413
2021		171,440
2022		175,770
2023		14,670
Total minimum operating lease payments		487,293
Less: amounts representing interest		(40,603	)
Present value of net minimum operating lease payments		446,690
Less: current portion		162,906
Long-term portion of operating lease obligations		283,784

13

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

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

Forward-Looking Statements

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

We are in the business of marketing and distributing safety and security products which are primarily manufactured through our 50%-owned Hong Kong Joint Venture. Our financial statements detail our sales and other operational results only, and report the financial results of the Hong Kong Joint Venture using the equity method. Accordingly, the following discussion and analysis of the three month periods ended June 30, 2019 and 2018 relate to the operational results of the Company. A discussion and analysis of the Hong Kong Joint Venture’s operational results for these periods is presented below under the heading “Joint Venture.”

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. To date we have applied for thirteen patents on these new technologies and features. We have been granted ten patents (including six for new technologies and 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, our ground fault circuit interrupters (GFCI), which constitute only a small portion of our sales, have been included in products subject to a 25% tariff effective August 23, 2018. Additionally, tariffs of 25% have been imposed on our Carbon Monoxide and Photoelectric alarms and additional tariffs of 10% have been proposed on the remainder of items the Company imports beginning after September 1, 2019. 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

Three Months Ended June 30, 2019 and 2018

Sales. Net sales for the three months ended June 30, 2019 were $4,343,291 compared to $4,045,996 for the comparable three months in the prior year, an increase of $297,295 (7.3%). Sales increased principally due to the increased sales of ground fault circuit interrupters and other electrical devices and accessories.

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 28.7% and 30.7% of sales for the quarters ended June 30, 2019 and 2018, respectively. The decrease in gross profit margin was primarily due to the increase in tariffs as discussed above.

14

Expenses. Selling, general and administrative expenses were $1,236,839 for the three months ended June 30, 2019, compared to $1,197,771 for the comparable three months in the prior year. As a percentage of net sales, these expenses decreased to 28.5% for the three month period ended June 30, 2019, from 29.6% for the 2018 period. These expenses decreased as a percentage of net sales since selling, general, and administrative expenses do not increase in direct proportion to increased sales.

Research and development expenses were $140,643 for the three month period ended June 30, 2019 compared to $153,387 for the comparable quarter of the prior year, a decrease of $12,744 (8.3%). The primary reasons for the decrease are decreased expenditures paid to independent testing facilities as the sealed product line has been completed.

Interest Expense and Other. Our interest expense was $107,337 for the quarter ended June 30, 2019, compared to interest expense of $83,419 for the quarter ended June 30, 2018. Interest expense is dependent upon the total amounts borrowed on average from the Factor and on extended trade payables due to the Hong Kong Joint Venture. Amounts due to the Hong Kong Joint Venture increased in the current fiscal year’s three month period as compared to the same period in the prior fiscal year.

Net Loss. We reported a net loss of $608,954 for the quarter ended June 30, 2019, compared to a net loss of $438,833 for the corresponding quarter of the prior fiscal year, a $170,121 (38.8%) increase in the net loss. The net loss increased principally due to the increase in the Company’s equity in the loss of the Hong Kong Joint Venture.

Joint Venture

Net Sales. Net sales of the Joint Venture for the three months ended June 30, 2019 were $3,149,100, compared to $3,266,557, for the comparable period in the prior fiscal year. The net sales of the Joint Venture were generally comparable with the three month period of the prior fiscal year. While sales to the Company increased during this period when compared to the prior year, the Joint Venture’s net sales to other unaffiliated customers decreased from the prior year’s period.

Gross Profit Margin. Gross margins of the Joint Venture for the three month period ended June 30, 2019 decreased to 5.1% from 10.6% for the 2018 corresponding period. Gross margins depend on sales volume of various products, with varying margins, accordingly, increased sales of higher margin products and decreased sales of lower margin products positively affect the overall gross margins.

Expenses. Selling, general and administrative expenses were $1,077,299 for the three month periods ended June 30, 2019, compared to $1,137,851 in the comparable period in the prior year. As a percentage of sales, expenses were 34.2% for the three month period ended June 30, 2019, compared to 34.8% for the three month period ended June 30, 2018.

Interest Income. Interest income on assets held for investment was $64,384 for the three month period ended June 30, 2019, compared to interest income of $40,046 for the prior year’s period. Interest income is dependent on the average balance of assets held for investment.

Net Loss. Net loss for the three months ended June 30, 2019 was $808,833 compared to a net loss of $546,959 in the comparable period last year. The increase in the net loss for the three month period is due primarily to decreased gross profit margins.

Liquidity. Cash needs of the Joint Venture are currently met by funds generated from operations and existing cash and marketable securities. During the three months ended June 30, 2019, working capital decreased by $1,586,215 from $11,608,698 on March 31, 2019 to $10,022,483 on June 30, 2019.

Management Plans and Liquidity

The Company had net losses of $608,954 for the three months ended June 30, 2019 and $1,347,986 and $2,262,310 for the years ended March 31, 2019 and 2018, respectively. Furthermore, as of June 30, 2019, working capital (computed as the excess of current assets over current liabilities) decreased by $400,973 from $2,354,313 at March 31, 2019, to $1,953,340 at June 30, 2019.

Our short-term borrowings to finance operating losses, trade accounts receivable, and foreign inventory purchases are provided pursuant to the terms of our Factoring Agreement with Merchant Factors Corporation (Merchant or Factor). Borrowings under our Factoring Agreement bear interest at prime plus 2% and are secured by trade accounts receivable and inventory. Advances from Merchant are at the sole discretion of Merchant based on their assessment of the Company’s receivables, inventory and financial condition at the time of each request for an advance. The unused availability of this facility totaled approximately $268,500 at June 30, 2019. In addition, we have secured extended payment terms for purchases up to $4,000,000 from our Hong Kong Joint Venture for the purchase of sealed battery alarms. These amounts are unsecured, bear interest at 5.5% per annum, and provide for repayment terms of 120 days for each purchase. The balance outstanding under this agreement at June 30, 2019 was $5,625,164 with $2,301,890 of this amount being beyond agreed repayment terms. The Hong Kong Joint Venture has provided discretionary approval to allow the Company to exceed the agreed upon repayment terms and has indicated it has no plans or intentions that would materially impact the financial position, operations, or cash flows of the Company.

15

The Company has a history of sales that are insufficient to generate profitable operations, and has limited sources of financing. Management’s plan in response to these conditions includes increasing sales resulting from the delivery of the Company’s line of sealed battery ionization smoke alarms, carbon monoxide products, and ground fault circuit interrupters. In addition the Company is seeking improved terms on its credit facility with the Hong Kong Joint Venture. The Company has seen positive results on this plan during the fiscal years ended March 31, 2019 and 2018 and through June 30, 2019 due to sales of its product offerings and management expects this growth to continue going forward. Though no assurances can be given, if management’s plan continues to be successful over the next twelve months, the Company anticipates that it should be able to meet its cash needs. Cash flows and credit availability is expected to be adequate to fund operations for one year from the issuance date of this report.

Operating activities provided cash of $5,336 for the three months ended June 30, 2019. This was primarily due to an increase in accounts payable and accrued expenses of $342,457 and a decrease in accounts receivable and amounts due to factor of $521,414 offset by a net loss of $608,954 and an increase in inventories, prepaid expenses and other of $620,468. The net loss includes a non-cash loss from the investment in the Hong Kong Joint Venture of $368,964. Operating activities provided cash of $355,666 for the three months ended June 30, 2018. This was primarily due to an increase in accounts payable and accrued expenses of $527,640 and a decrease in accounts receivable and amounts due to factor of $333,004 offset by a net loss of $438,833 and an increase in inventories, prepaid expenses and other of $317,637. The net loss includes a non-cash loss from the investment in the Hong Kong Joint Venture of $244,400.

Investing activities did not use or provide cash during the period ended June 30, 2019 or 2018.

Financing activities used cash of $156,210 and $406,755 during the three months ended June 30, 2019 and 2018, respectively, which is comprised of repayments net of advances on the line of credit from our factor.

Critical Accounting Policies and Estimates

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. Except as disclosed below, 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 U.S.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less are accounted for similar to previous guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to previous guidance for sales-type leases, direct financing leases and operating leases. The Company adopted the standard on April 1, 2019, the date it became effective for public companies based on the Company’s fiscal year, using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of April 1, 2019 as a result of this adoption. Upon adoption, the Company elected the package of practical expedients permitted within the standard, which among other things, allows for the carryforward of historical lease classification. The Company also elected the practical expedient provided in a subsequent amendment to the standard that removed the requirement to separate lease and non-lease components, provided certain conditions were met.

16

The impact of the adoption of this guidance on the Company’s condensed consolidated financial statements is discussed below:

The Company is a lessee in lease agreements for office space. Certain of the Company’s leases contain provisions that provide for one or more options to renew 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. 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.

None of the Company’s lease agreements contain any material residual value guarantees or material restrictive covenants. As a result of the Company’s election of the package of practical expedients permitted within ASC 842, which among other things, allows for the carryforward of historical lease classification, all of the Company’s lease agreements in existence at the date of adoption that were classified as operating leases under ASC 840 have been classified as operating leases under ASC 842. Lease expense for payments related to the Company’s operating leases is recognized on a straight-line basis over the related lease term, which includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments as specified in the lease. Right-of-use assets and lease liabilities related to the Company’s operating leases are recognized at the lease commencement date based on the present value of the remaining lease payments over the lease term and amount to $475,538 at the date of adoption. When the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available surrounding the Company’s borrowing rates at the lease commencement date in determining the present value of lease payments. The right-of use asset also includes any lease payments made at or before lease commencement less any lease incentives.

ITEM 4. CONTROLS AND PROCEDURES 

Evaluation of Disclosure Controls and Procedures

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 quarterly report, and have concluded that disclosure controls and procedures were not effective because of the material weakness in internal control over financial reporting as discussed below.

Material weaknesses arose in our oversight of the accounting function as well as the disclosure controls and procedures of the Hong Kong Joint Venture (HKJV). The HKJV is a material component of the Company’s consolidated financial statements. With respect to our internal control over financial reporting, these matters above are being discussed among management, the HKJV and our Audit Committee. Management intends to review, revise and improve our internal controls over financial reporting until the material weaknesses in internal control over financial reporting are eliminated. Management’s specific remediation to address these material weaknesses will include among other items: a) enhancing corporate financial reporting resources, particularly for oversight, and process improvement, and b) reinforcing internal policies with all process owners.

Changes in Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

17

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

ITEM 6. EXHIBITS

Exhibit No.

3.1	Articles of Incorporation (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 1988, File No. 1-31747)
3.2	Articles Supplementary, filed October 14, 2003 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed October 31, 2002, file No. 1-31747)
3.3	Bylaws, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed July 13, 2011, File No. 1-31747)
10.1	2011 Non-Qualified Stock Option Plan (incorporated by reference to the Company’s Proxy Statement with respect to the Company’s 2011 Annual Meeting of Shareholders, filed July 26, 2011, File No. 1-31747)
10.2	Hong Kong Joint Venture Agreement, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003, File No. 1-31747)
10.3	Discount Factoring Agreement between the Registrant and Merchant Factors Corp., dated January 6, 2015 (substantially identical agreement entered into by USI’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 16, 2015, file No. 1-31747)
10.4	Lease between Universal Security Instruments, Inc. and St. John Properties, Inc. dated November 4, 2008 for its office and warehouse located at 11407 Cronhill Drive, Suites A-D, Owings Mills, Maryland 21117 (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2008, File No. 1-31747)
10.5	Amendment to Lease between Universal Security Instruments, Inc. and St. John Properties, Inc. dated June 23, 2009 (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2009, File No. 1-31747)
10.6	Amended and Restated Employment Agreement dated July 18, 2007 between the Company and Harvey B. Grossblatt (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2007, File No. 1-31747), as amended by Addendum dated November 13, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 15, 2007, File No. 1-31747), by Addendum dated September 8, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 8, 2008, File No. 1-31747), by Addendum dated March 11, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 12, 2010, File No. 1-31747), by Addendum dated July 19, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 20, 2012, File No. 1-31747), by Addendum dated July 3, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 8, 2013, File No. 1-31747), and by Addendum dated July 21, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 21, 2014, File No. 1-31747) ), by addendum dated July 23, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 28, 2015, File No. 1-31747), by addendum dated July 12, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 12, 2016, File No. 1-31747) by addendum dated July 18, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 20, 2017, File No. 1-31747), and by addendum dated July 9, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s  Current Report on Form 8-K filed July 9, 2018, File No. 1-31747).

18

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
32.1	Section 1350 Certifications*
99.1	Press Release dated August 19, 2019*
101	Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the fiscal year ended March 31, 2019 in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of June 30, 2019 and March 31, 2019; (ii) Consolidated Statements of Operations for the three month periods ended June 30, 2019 and 2018; (iii) Consolidated Statements of Shareholders’ Equity for the three month periods ended June 30, 2019 and 2018; (iv) Consolidated Statements of Cash Flows for the three month periods ended June 30, 2019 and 2018; and (v) Notes to Consolidated Financial Statements*

*Filed herewith

19

SIGNATURES

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.

		UNIVERSAL SECURITY INSTRUMENTS, INC.
		(Registrant)
Date:     August 19, 2019	By:	/s/ Harvey B. Grossblatt
		Harvey B. Grossblatt
		President, Chief Executive Officer
	By:	/s/ James B. Huff
		James B. Huff
		Vice President, Chief Financial Officer

20

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Harvey B. Grossblatt, certify that:

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

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;

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;

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:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

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):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

August 19, 2019	/s/ Harvey B. Grossblatt
	Harvey B. Grossblatt
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, James B. Huff, certify that:

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

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;

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;

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:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

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):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

August 19, 2019	/s/ James B. Huff
	James B. Huff
	Chief Financial Officer

EX-32.1

Exhibit 32.1

SECTION 1350 CERTIFICATIONS

In connection with the Quarterly Report of Universal Security Instruments, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2019 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:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company for the periods reflected therein.

August 19, 2019	/s/ Harvey B. Grossblatt
	Harvey B. Grossblatt
	Chief Executive Officer
	/s/ James B. Huff
	James B. Huff
	Chief Financial Officer

EX-99.1

Exhibit 99.1 

 

For Immediate Release

Contact: Harvey Grossblatt, CEO

Universal Security Instruments, Inc.

410-363-3000, Ext. 224

or

Don Hunt, Jeff Lambert

Lambert, Edwards & Associates, Inc.

616-233-0500

Universal Security Instruments Reports First-Quarter Results

OWINGS MILLS, Md. August 19, 2019 - Universal Security Instruments, Inc. (NYSE Amex: UUU) today announced results for its fiscal quarter ended June 30, 2019.

The Company reported sales rose approximately 7.3% to $4,343,291 for the quarter ended June 30, 2019 versus $4,045,996 for the comparable period of last year. The Company reported a net loss of $608,954, or $0.26 per basic and diluted share, compared to a net loss of $438,833 or $0.19 per basic and diluted share, for the same period last year.

“The primary reason for the higher loss was an increase in Joint Venture loss and higher interest expense in the amount of $148,482 . Additionally, the Company’s gross margins were lower compared to the comparable quarter due to the impact of tariffs,” said Harvey Grossblatt - President and CEO.

UNIVERSAL SECURITY INSTRUMENTS, INC. is a U.S.-based manufacturer (through its Hong Kong Joint Venture) and distributor of safety and security devices. Founded in 1969, the Company has an over 50-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.

------------------------------------------------------------

“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, our Hong Kong Joint Venture's respective ability to maintain operating profitability, currency fluctuations, the impact of current and future laws and governmental regulations affecting us and our Hong Kong Joint Venture 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/Page 2

UNIVERSAL SECURITY INSTRUMENTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30,
	2019			2018
Sales	$	4,343,291		$	4,045,996
Net loss:		(608,954	)		(438,833	)
Net loss per share – basic and diluted		(0.26	)		(0.19	)
Weighted average number of common shares outstanding:
Basic and diluted		2,312,887			2,312,887

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30, 2019			June 30, 2018
ASSETS
Cash	$	223,598		$	77,072
Accounts receivable and amount due from factor		2,493,998			2,551,794
Inventory		7,487,800			5,863,773
Prepaid expense		130,163			223,856
TOTAL CURRENT ASSETS		10,335,559			8,716,495
INVESTMENT IN HONG KONG JOINT VENTURE		7,923,355			9,390,105
PROPERTY, EQUIPMENT AND INTANGIBLE ASSET– NET		518,425			86,625
OTHER ASSETS		4,000			4,000
TOTAL ASSETS	$	18,781,339		$	18,197,225
LIABILITIES AND SHAREHOLDERS’ EQUITY
Line of credit – factor	$	1,695,381		$	1,204,399
Short-term portion of lease obligation		162,906			-
Accounts payable and accrued expenses		6,016,987			4,946,391
Accrued liabilities		506,945			120,702
TOTAL CURRENT LIABILITIES		8,382,219			6,271,492
LONG TERM LEASE OBLIGATION		283,784			-
SHAREHOLDERS’ EQUITY:
Common stock, $.01 par value per share; authorized 20,000,000 shares; issued and outstanding 2,312,887 at June 30, 2019 and 2018		23,129			23,129
Additional paid-in capital		12,885,841			12,885,841
Accumulated Deficit		(3,255,820	)		(1,737,713	)
Accumulated other comprehensive (loss) income		462,186			754,476
TOTAL SHAREHOLDERS’ EQUITY		10,115,336			11,925,733
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	18,781,339		$	18,197,225

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Document And Entity Information - shares	3 Months Ended
	Jun. 30, 2019	Aug. 19, 2019
Document And Entity Information
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Entity Registrant Name	UNIVERSAL SECURITY INSTRUMENTS INC
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		2,312,887
Entity Central Index Key	0000102109
Current Fiscal Year End Date	--03-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Trading Symbol	UUU

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2019	Mar. 31, 2019
CURRENT ASSETS
Cash	$ 223,598	$ 374,472
Accounts receivable:
Trade, less allowance for doubtful accounts	482,963	365,293
Receivables from employees	54,930	54,916
Receivable from Hong Kong Joint Venture	12,144	45,217
Accounts, Notes, Loans and Financing Receivable, Net, Current	550,037	465,426
Amount due from factor	1,943,961	2,549,986
Inventories - finished goods	7,487,800	6,852,305
Prepaid expenses	130,163	145,190
TOTAL CURRENT ASSETS	10,335,559	10,387,379
INVESTMENT IN HONG KONG JOINT VENTURE	7,923,355	8,441,889
INTANGIBLE ASSET - NET	52,542	53,660
PROPERTY AND EQUIPMENT - NET	465,883	19,998
OTHER ASSETS	4,000	4,000
TOTAL ASSETS	18,781,339	18,906,926
CURRENT LIABILITIES
Line of credit - factor	1,695,381	1,851,591
Short-term portion of lease asset liability	162,906
Accounts payable - Hong Kong Joint Venture	5,625,164	4,962,023
Accounts payable - trade	391,823	616,444
Accrued liabilities:
Accrued payroll and employee benefits	99,401	132,132
Accrued commissions and other	407,544	470,876
TOTAL CURRENT LIABILITIES	8,382,219	8,033,066
LONG-TERM PORTION OF LEASE ASSET LIABILITY	283,784
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per share; authorized 20,000,000 shares; 2,312,887 shares issued and outstanding at June 30, 2019 and March 31, 2019	23,129	23,129
Additional paid-in capital	12,885,841	12,885,841
Accumulated Deficit	(3,255,820)	(2,646,866)
Accumulated other comprehensive income	462,186	611,756
TOTAL SHAREHOLDERS' EQUITY	10,115,336	10,873,860
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 18,781,339	$ 18,906,926

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2019	Mar. 31, 2019
CONDENSED CONSOLIDATED BALANCE SHEETS
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	2,312,887	2,312,887
Common stock, shares outstanding	2,312,887	2,312,887

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales	$ 4,343,291	$ 4,045,996
Cost of goods sold - acquired from Joint Venture	2,793,539	2,618,867
Cost of goods sold - other	304,923	186,985
GROSS PROFIT	1,244,829	1,240,144
Selling, general and administrative expense	1,236,839	1,197,771
Research and development expense	140,643	153,387
Operating loss	(132,653)	(111,014)
Other expense:
Loss from investment in Hong Kong Joint Venture	368,964	244,400
Interest expense	107,337	83,419
NET LOSS	$ (608,954)	$ (438,833)
Loss per share:
Basic and diluted	$ (0.26)	$ (0.19)
Shares used in computing net loss per share:
Weighted average basic and diluted shares outstanding	2,312,887	2,312,887

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($)	3 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
NET LOSS	$ (608,954)	$ (438,833)
Other Comprehensive Loss Company's portion of Hong Kong Joint Venture's other Comprehensive loss :
Currency translation	(100,773)	(379,479)
Unrealized loss on investment securities	(48,797)	(9,291)
Total Other Comprehensive Loss	(149,570)	(388,770)
COMPREHENSIVE LOSS	$ (758,524)	$ (827,603)

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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings (Accumulated Deficit) [Member]	AOCI [Member]	Total
Balance at Mar. 31, 2018	$ 23,129	$ 12,885,841	$ (1,298,880)	$ 1,143,246	$ 12,753,336
Balance (in shares) at Mar. 31, 2018	2,312,887
Currency translation				(379,479)	(379,479)
Unrealized loss on investment securities				(9,291)	(9,291)
Net loss			(438,833)		(438,833)
Balance at Jun. 30, 2018	$ 23,129	12,885,841	(1,737,713)	754,476	11,925,733
Balance (in shares) at Jun. 30, 2018	2,312,887
Balance at Mar. 31, 2018	$ 23,129	12,885,841	(1,298,880)	1,143,246	12,753,336
Balance (in shares) at Mar. 31, 2018	2,312,887
Net loss					1,347,986
Balance at Mar. 31, 2019	$ 23,129	12,885,841	(2,646,866)	611,756	10,873,860
Balance (in shares) at Mar. 31, 2019	2,312,887
Currency translation				(100,773)	(100,773)
Unrealized loss on investment securities				(48,797)	(48,797)
Net loss			(608,954)		(608,954)
Balance at Jun. 30, 2019	$ 23,129	$ 12,885,841	$ (3,255,820)	$ 462,186	$ 10,115,336
Balance (in shares) at Jun. 30, 2019	2,312,887

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
OPERATING ACTIVITIES
Net loss	$ (608,954)	$ (438,833)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	1,923	7,092
Loss from investment in Hong Kong Joint Venture	368,964	244,400
Changes in operating assets and liabilities:
Decrease in accounts receivable and amounts due from factor	521,414	333,004
Increase in inventories, prepaid expenses, and other	(620,468)	(317,637)
Increase in accounts payable and accrued expenses	342,457	527,640
NET CASH PROVIDED BY OPERATING ACTIVITIES	5,336	355,666
FINANCING ACTIVITIES
Net repayment of Line of Credit - Factor	(156,210)	(406,755)
NET CASH USED IN FINANCING ACTIVITIES	(156,210)	(406,755)
NET DECREASE IN CASH	(150,874)	(51,089)
Cash at beginning of period	374,472	374,472
CASH AT END OF PERIOD	223,598	77,072
Supplemental disclosures of cash flow information:
Interest paid	107,290	96,367
Income taxes paid	0	0
Supplemental disclosures of non-cash activities:
Right-of-use asset in exchange for operating lease liability	$ 475,538	$ 0

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Statement of Management

3 Months Ended

Jun. 30, 2019

Statement of Management

Statement of Management

Statement of Management

The condensed consolidated financial statements include the accounts of Universal Security Instruments, Inc. (USI or the Company) and its wholly-owned subsidiary. Except for the condensed consolidated balance sheet as of March 31, 2019, 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, 2019 audited financial statements filed with the Securities and Exchange Commission on Form 10‑K on July 16, 2019. The interim operating results are not necessarily indicative of the operating results for the full fiscal year.

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Management Plans

3 Months Ended

Jun. 30, 2019

Management Plans

Management Plans

Management Plans

The Company had net losses of $608,954 for the three months ended June 30, 2019 and $1,347,986 and $2,262,310 for the years ended March 31, 2019 and 2018, respectively. Furthermore, as of June 30, 2019, working capital (computed as the excess of current assets over current liabilities) decreased by $400,973 from $2,354,313 at March 31, 2019, to $1,953,340 at June 30, 2019.

Our short-term borrowings to finance operating losses, trade accounts receivable, and foreign inventory purchases are provided pursuant to the terms of our Factoring Agreement with Merchant Factors Corporation (Merchant or Factor).  Borrowings under our Factoring Agreement bear interest at prime plus 2% and are secured by trade accounts receivable and inventory.  Advances from Merchant are at the sole discretion of Merchant based on their assessment of the Company’s receivables, inventory and financial condition at the time of each request for an advance. The unused availability of this facility totaled approximately $268,500 at June 30, 2019. In addition, we have secured extended payment terms for purchases up to $4,000,000 from our Hong Kong Joint Venture for the purchase of sealed battery alarms. These amounts are unsecured, bear interest at 5.5% per annum, and provide for repayment terms of 120 days for each purchase. The balance outstanding under this agreement at June 30, 2019 was $5,625,164 with $2,301,890 of this amount being beyond agreed repayment terms. The Hong Kong Joint Venture has provided discretionary approval to allow the Company to exceed the agreed upon repayment terms and has indicated it has no plans or intentions that would materially impact the financial position, operations, or cash flows of the Company.

The Company has a history of sales that are insufficient to generate profitable operations, and has limited sources of financing. Management’s plan in response to these conditions includes increasing sales resulting from the delivery of the Company’s line of sealed battery ionization smoke alarms, carbon monoxide products, and ground fault circuit interrupters. In addition the Company is seeking improved terms on its credit facility with the Hong Kong Joint Venture. The Company has seen positive results on this plan during the fiscal years ended March 31, 2019 and 2018 and through June 30, 2019 due to sales of its product offerings and management expects this growth to continue going forward. Though no assurances can be given, if management’s plan continues to be successful over the next twelve months, the Company anticipates that it should be able to meet its cash needs. Cash flows and credit availability is expected to be adequate to fund operations for one year from the issuance date of this report.

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Line of Credit - Factor

3 Months Ended

Jun. 30, 2019

Line of Credit - Factor

Line of Credit - Factor

Line of Credit – Factor

On January 15, 2015, the Company entered into the Agreement with Merchant for the purpose of factoring the Company’s trade accounts receivable and to provide financing secured by finished goods inventory. Under the Agreement the Company may borrow eighty percent (80%) of eligible accounts receivable. Additional funding, characterized by Merchant as an over advance, may be provided up to one hundred percent (100%) of eligible accounts receivable. The over advance portion, if any, may not exceed fifty percent (50%) of eligible inventory up to a maximum of $500,000. The Agreement expires on January 6, 2020, and provides for continuation of the program for successive two year periods until terminated by one of the parties to the Agreement. As of June 30, 2019, the Company had borrowings of $1,695,381 under the Agreement, and the Company had remaining availability under the Agreement of approximately $268,500. Advances on factored trade accounts receivable are secured by all of the Company’s trade accounts receivable and inventories, 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 7.50% at June 30, 2019). Advances under the factoring agreement are made at the sole discretion of Merchant, based on their assessment of the receivables, inventory and our financial condition at the time of each request for an advance.

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Use of Estimates

3 Months Ended

Jun. 30, 2019

Use of Estimates

Use of Estimates

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.

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Revenue Recognition

3 Months Ended

Jun. 30, 2019

Revenue Recognition

Revenue Recognition

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 fulfillment cost and are recorded in selling, general and administrative expense.

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.

We have established allowances to cover anticipated doubtful accounts based upon historical experience.

Disaggregation of Revenue

The Company presents revenue associated with sales of products acquired from our Hong Kong Joint Venture separately from revenue associated with sales of ground fault circuit interrupters (GFCI’s) and ventilation fans. The Company believes this disaggregation best depicts how our various product lines perform and are affected by economic factors. Revenue recognized by these categories for the fiscal quarters ended June 30, 2019 and 2018 are as follows:

	Three months ended
	June 30, 2019		June 30, 2018
Sales of products acquired from our HKJV	$	3,939,841	$	3,764,416
Sales of GFCI’s and ventilation fans		403,450		281,580
	$	4,343,291	$	4,045,996

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Receivables

3 Months Ended

Jun. 30, 2019

Receivables

Receivables

Receivables

Receivables are recorded when the Company has an unconditional right to consideration. We have established allowances to cover anticipated doubtful accounts based upon historical experience.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of firm orders for satisfied or partially satisfied performance obligations on contracts with an original expected duration of one year or more. The Company’s contracts are predominantly short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient in ASC Topic 606 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

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Joint Venture

3 Months Ended

Jun. 30, 2019

Joint Venture

Joint Venture

Joint Venture

The Company and its joint venture partner, a Hong Kong corporation, each owns a 50% interest in the Hong Kong joint venture that manufactures security products in its facilities located in the People’s Republic of China. There are no material differences between US-GAAP and the basis of accounting used by the Hong Kong Joint Venture. The following represents summarized balance sheet and income statement information of the Hong Kong Joint Venture as of and for the three months ended June 30, 2019 and 2018:

	2019		2018
	(Unaudited)		(Unaudited)
Net sales	$	3,149,100	$	3,266,557
Gross profit		161,680		346,111
Net loss		(808,833)		(546,959)
Total current assets		12,875,232		13,189,847
Total assets		18,982,477		22,082,883
Total current liabilities		2,159,436		2,990,291
Total liabilities		2,902,978		3,378,728

During the three months ended June 30, 2019 and 2018 the Company purchased $2,859,967 and $2,804,372, respectively, of products directly from the Hong Kong Joint Venture for resale. For the three months ended June 30, 2019 the Company has decreased its equity in the net loss of the Joint Venture to reflect a decrease of $35,453 in inter-Company profit on purchases held by the Company in inventory. For the three months ended June 30, 2018 the Company has decreased its equity in the net loss of the Joint Venture to reflect a decrease of $29,079 in inter-company profit on purchases held by the Company in inventory.

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Income Taxes

3 Months Ended

Jun. 30, 2019

Income Taxes

Income Taxes

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 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. After a review of projected taxable income and the components of the deferred tax asset in accordance with applicable accounting guidance 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 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 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 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.

The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of our Hong Kong Joint Venture. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the Hong Kong Joint Venture, as well as the amount of non-U.S. income taxes paid on such earnings. The Company has determined that it does not owe a Transition Tax since it has sufficient net operating loss carryforwards and foreign tax credit carryforwards to offset the E&P of its Hong Kong Joint Venture that are subject to the tax.

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Accounts Receivable and Amount Due From Factor

3 Months Ended

Jun. 30, 2019

Accounts Receivable and Amount Due From Factor

Accounts Receivable and Amount Due From Factor

Accounts Receivable and Amount Due From Factor

The Company assigns the majority of its short-term receivables arising in the ordinary course of business to our factor. 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 delivery or warranty issues related to the products sold.

Management assesses the credit risk of both its trade accounts receivable and its financing receivables based on the specific identification of accounts that have exceeded credit terms. An allowance for uncollectible receivables is provided based on that assessment. Changes in the allowance account 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 allowance account in the period that the receivables’ status is determined to be uncollectible.

Based on the nature of the factoring agreement and prior experience, no allowance related to Amounts Due from Factor has been provided. At June 30, 2019 and 2018, an allowance of approximately $57,000 has been provided for uncollectible trade accounts receivable.

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Net Loss per Common Share

3 Months Ended

Jun. 30, 2019

Net Loss per Common Share

Net Loss per Common Share

Net Loss per Common Share

Basic net loss 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. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on the Company’s average stock price. There were no potentially dilutive common stock equivalents outstanding during the three  month periods ended June 30, 2019 or 2018. As a result, basic and diluted weighted average common shares outstanding are identical for the three  month periods ended June 30, 2019 and 2018.

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Contingencies

3 Months Ended

Jun. 30, 2019

Contingencies

Contingencies

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.

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Recently Adopted Accounting Standards

3 Months Ended

Jun. 30, 2019

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

Changes to US-GAAP are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates (ASU’s) to the FASB’s Accounting Standards Codification.  The Company considers the applicability and impact of all ASU’s.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.   Leases with a term of 12 months or less are accounted for similar to previous guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to previous guidance for sales-type leases, direct financing leases and operating leases. The Company adopted the standard on April 1, 2019, the date it became effective for public companies based on the Company’s fiscal year, using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of April 1, 2019 as a result of this adoption. Upon adoption, the Company elected the package of practical expedients permitted within the standard, which among other things, allows for the carryforward of historical lease classification. The Company also elected the practical expedient provided in a subsequent amendment to the standard that removed the requirement to separate lease and non-lease components, provided certain conditions were met.

The impact of the adoption of this guidance on the Company’s condensed consolidated financial statements is discussed below:

The Company is a lessee in lease agreements for office space.   Certain of the Company’s leases contain provisions that provide for one or more options to renew 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.  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.  None of the Company’s lease agreements contain any residual value guarantees or material restrictive covenants. As a result of the Company’s election of the package of practical expedients permitted within ASC 842, which among other things, allows for the carryforward of historical lease classification, all of the Company’s lease agreements in existence at the date of adoption that were classified as operating leases under ASC 840 have been classified as operating leases under ASC 842. Lease expense for payments related to the Company’s operating leases is recognized on a straight-line basis over the related lease term, which includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments as specified in the lease.  Right-of-use assets and lease liabilities related to the Company’s operating leases are recognized at the lease commencement date based on the present value of the remaining lease payments over the lease term and amounted to $475,538 at the date of adoption.  When the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available surrounding the Company’s borrowing rates at the lease commencement date in determining the present value of lease payments. The right-of use asset also includes any lease payments made at or before lease commencement less any lease incentives. As of June 30, 2019, the Company had right-of-use assets of $446,690 and lease liabilities of $446,690 related to its operating leases. Right-of-use assets are included in property and equipment, net, on the condensed consolidated balance sheet and lease liabilities related to the Company’s operating leases are included in short-term and long-term lease asset liability on the condensed consolidated balance sheet. As of June 30, 2019 the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases were 2.83 years and 6.0%, respectively. During the three months ended June 30, 2019, the cash paid for amounts included in the measurement of lease liabilities related to the Company’s operating leases was $35,192, which is included as an operating cash outflow within the consolidated statements of cash flows. During the three months ended June 30, 2019, the operating lease costs related to the Company’s operating leases was $28,848, which is included in operating costs and expenses in the condensed consolidated statements of operations.   During the three months ended June 30, 2019, the Company did not enter into any lease agreements set to commence in the future and there were no newly leased assets for which a right-of use asset was recorded in exchange for a new lease liability, other than those lease assets recorded upon implementation.

The future minimum payments under operating leases were as follows at June 30, 2019 for the fiscal year ending March 31, 2020:

2020 (remainder)	$	125,413
2021		171,440
2022		175,770
2023		14,670

Total minimum operating lease payments	487,293
Less: amounts representing interest	(40,603)
Present value of net minimum operating lease payments	446,690
Less: current portion	162,906
Long-term portion of operating lease obligations	283,784

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Revenue Recognition (Tables)

3 Months Ended

Jun. 30, 2019

Revenue Recognition

Schedule of revenue recognized by these categories

	Three months ended
	June 30, 2019		June 30, 2018
Sales of products acquired from our HKJV	$	3,939,841	$	3,764,416
Sales of GFCI’s and ventilation fans		403,450		281,580
	$	4,343,291	$	4,045,996

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Joint Venture (Tables)

3 Months Ended

Jun. 30, 2019

Joint Venture

Schedule of the Hong Kong Joint Venture

	2019		2018
	(Unaudited)		(Unaudited)
Net sales	$	3,149,100	$	3,266,557
Gross profit		161,680		346,111
Net loss		(808,833)		(546,959)
Total current assets		12,875,232		13,189,847
Total assets		18,982,477		22,082,883
Total current liabilities		2,159,436		2,990,291
Total liabilities		2,902,978		3,378,728

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Recently Adopted Accounting Standards (Tables)

3 Months Ended

Jun. 30, 2019

Recently Adopted Accounting Standards

Summary of future minimum payments under operating leases

The future minimum payments under operating leases were as follows at June 30, 2019 for the fiscal year ending March 31, 2020:

2020 (remainder)	$	125,413
2021		171,440
2022		175,770
2023		14,670

Total minimum operating lease payments	487,293
Less: amounts representing interest	(40,603)
Present value of net minimum operating lease payments	446,690
Less: current portion	162,906
Long-term portion of operating lease obligations	283,784

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Management Plans (Details) - USD ($)	3 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Mar. 31, 2019	Mar. 31, 2018	Jan. 15, 2015
Organization Consolidation And Presentation OF Financial Statements [Line Items]
Decrease in Working Capital	$ 400,973
Working Capital	$ 1,953,340		$ 2,354,313
Variable spread rate (as a percent)	2.00%
Long-term Line of Credit	$ 268,500
Accounts Payable, Related Parties	5,625,164
Line of Credit Facility, Capacity Available for Trade Purchases					$ 500,000
Net Income (Loss) Attributable to Parent	(608,954)	$ (438,833)	$ 1,347,986	$ 2,262,310
Line of Credit Facility, Remaining Borrowing Capacity	$ 1,695,381
Prime Rate
Organization Consolidation And Presentation OF Financial Statements [Line Items]
Variable spread rate (as a percent)	2.00%
Hong Kong Joint Venture [Member]
Organization Consolidation And Presentation OF Financial Statements [Line Items]
Line of Credit Facility, Interest Rate at Period End	5.50%
Accounts Payable, Related Parties	$ 2,301,890
Line of Credit Facility, Capacity Available for Trade Purchases	$ 4,000,000
Repayment term for each advance	120 days
Line of Credit Facility, Remaining Borrowing Capacity	$ 268,500

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Line of Credit - Factor (Details) - USD ($)		3 Months Ended
	Jan. 15, 2015	Jun. 30, 2019
Line of Credit - Factor
Percentage of maximum borrowing capacity of eligible accounts receivables under the line of credit	80.00%
Over advance percentage of maximum borrowing capacity of eligible accounts receivables under the line of credit	100.00%
Over advance maximum percentage of maximum borrowing capacity of eligible accounts receivables under the line of credit	50.00%
Line of Credit Facility, Capacity Available for Trade Purchases	$ 500,000
Accounts Receivables Factoring Agreement Term		2 years
Line of Credit Facility, Remaining Borrowing Capacity		$ 1,695,381
Long-term Line of Credit		$ 268,500
Variable rate on the debt instrument (as a percent)		2.00%
Effective interest rate (as a percent)		7.50%

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Revenue Recognition (Details) - USD ($)	3 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Revenues	$ 4,343,291	$ 4,045,996
Products Acquired From Our H K J V [Member]
Revenues	3,939,841	3,764,416
G F C I s And Ventilation Fans [Member]
Revenues	$ 403,450	$ 281,580

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Joint Venture (Details) - USD ($)	3 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Joint Venture
Net sales	$ 3,149,100	$ 3,266,557
Gross profit	161,680	346,111
Net loss	(808,833)	(546,959)
Total current assets	12,875,232	13,189,847
Total assets	18,982,477	22,082,883
Total current liabilities	2,159,436	2,990,291
Total liabilities	$ 2,902,978	$ 3,378,728

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Joint Venture - Additional Information (Details) - USD ($)	3 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Increase Or Decrease In Inter Company Profit In Inventory	$ 35,453	$ 29,079
Hong Kong Joint Venture [Member]
Equity Method Investment, Ownership Percentage	50.00%
Products Purchased From Joint Venture	$ 2,859,967	$ 2,804,372

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Accounts Receivable and Amount Due From Factor (Details) - USD ($)	Jun. 30, 2019	Jun. 30, 2018
Accounts Receivable and Amount Due From Factor
Allowance for Doubtful Accounts Receivable, Current	$ 57,000	$ 57,000

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Net Loss per Common Share (Details)	15 Months Ended
	Jun. 30, 2019 shares
Net Loss per Common Share
Number of potentially dilutive common stock equivalents outstanding	0

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Recently Adopted Accounting Standards (Details)	Jun. 30, 2019 USD ($)
Operating Lease Liabilities, Payments Due [Abstract]
2020 (remainder)	$ 125,413
2021	171,440
2022	175,770
2023	14,670
Total minimum operating lease payments	487,293
Less: amounts representing interest	(40,603)
Present value of net minimum operating lease payments	446,690
Less: current portion	162,906
Long-term portion of operating lease obligations	$ 283,784

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Recently Adopted Accounting Standards- Additional Information (Details) - USD ($)	3 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Recently Adopted Accounting Standards
Non Cash Right Of Use Asset In Exchange For Operating Lease Liability	$ 475,538	$ 0
Right-of-use assets	446,690
Lease liabilities	$ 446,690
Weighted-average remaining lease term	2 years 9 months 29 days
Weighted-average discount rate	6.00%
Cash paid for amounts included in measurement of lease liabilities	$ 35,192
Operating lease costs	$ 28,848