10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended September 30, 2022

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.)

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

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

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

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

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

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

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

At November 21, 2022, the number of shares outstanding of the registrant’s common stock was 2,312,887.

TABLE OF CONTENTS

Part I - Financial Information			Page
	Item 1.	Condensed Consolidated Financial Statements:
		Condensed Consolidated Balance Sheets at September 30, 2022 (unaudited) and March 31, 2022	3
		Condensed Consolidated Income Statements for the Three Months Ended September 30, 2022 and 2021 (unaudited)	4
		Condensed Consolidated Income Statements for the Six Months Ended September 30, 2022 and 2021 (unaudited)	5
		Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Ended September 30, 2022 (unaudited)	6
		Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Ended September 30, 2021 (unaudited)	7
		Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2022 and 2021 (unaudited)	8
		Notes to Condensed Consolidated Financial Statements (unaudited)	9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 4.	Controls and Procedures	18
Part II - Other Information
	Item 1.	Legal Proceedings	19
	Item 6.	Exhibits	20
		Signatures	21

2

PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS	(unaudited)		(audited)
	September 30, 2022		March 31, 2022
CURRENT ASSETS
Cash	$	178,878	$	438,735
Accounts receivable:
Trade, less allowance for doubtful accounts		631,205		1,290,481
Other receivables		409,198		—
Receivables from employees		7,631		6,731
		1,048,034		1,297,212
Amount due from factor		4,318,991		2,792,901
Inventories – finished goods		5,171,217		6,229,061
Prepaid expenses		328,188		241,342
TOTAL CURRENT ASSETS		11,045,308		10,999,251
INTANGIBLE ASSETS - NET		38,009		40,243
PROPERTY AND EQUIPMENT – NET		398,133		477,627
OTHER ASSETS		4,000		4,000
TOTAL ASSETS	$	11,485,450	$	11,521,121
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Line of credit - factor	$	2,876,070	$	2,157,086
Note payable - Eyston Company Ltd.		481,440		1,081,440
Short-term portion of operating lease liability		147,593		131,880
Accounts payable - trade		1,896,110		1,572,356
Accounts payable – Eyston Company Ltd.		709,434		985,077
Accrued liabilities:
Accrued payroll and employee benefits		163,007		160,025
Accrued commissions and other		230,893		459,440
TOTAL CURRENT LIABILITIES		6,504,547		6,547,304
LONG-TERM PORTION OF OPERATING LEASE LIABILITY		248,033		335,411
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 September 30, 2022 and March 31, 2022		23,129		23,129
Additional paid-in capital		12,885,841		12,885,841
Accumulated Deficit		(8,176,100)		(8,270,564)
TOTAL SHAREHOLDERS’ EQUITY		4,732,870		4,638,406
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	11,485,450	$	11,521,121

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

3

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

(Unaudited)

	Three Months Ended September 30,
	2022		2021
Net sales	$	5,857,141	$	5,272,223
Cost of goods sold		4,295,526		3,696,045
GROSS PROFIT		1,561,615		1,576,178
Selling, general and administrative expense		1,189,243		1,357,103
Research and development expense		103,245		97,070
Operating income		269,127		122,005
Other expense:
Interest expense		(68,525)		(14,309)
NET INCOME	$	200,602	$	107,696
Earnings per share:
Basic and diluted	$	0.09	$	0.05
Shares used in computing earnings 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 SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

(Unaudited)

	Six Months Ended September 30,
	2022		2021
Net sales	$	10,492,445	$	9,940,221
Cost of goods sold		7,509,607		7,105,718
GROSS PROFIT		2,982,838		2,834,503
Selling, general and administrative expense		2,571,846		2,490,242
Research and development expense		192,507		198,126
Operating income		218,485		146,135
Other expense:
Interest expense		(124,021)		(23,798)
NET INCOME	$	94,464	$	122,337
Earnings per share:
Basic and diluted	$	0.04	$	0.05
Shares used in computing earnings 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.

5

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED SEPTEMBER 30, 2022

(Unaudited)

				Additional
	Common	Stock		Paid-In		Accumulated
	Shares	Amount		Capital		Deficit		Total
Balance at April 1, 2022	2,312,887	$	23,129	$	12,885,841	$	(8,270,564)	$	4,638,406
Net loss							(106,138)		(106,138)
Balance at June 30, 2022	2,312,887	$	23,129	$	12,885,841	$	(8,376,702)	$	4,532,268
Net income							200,602		200,602
Balance at September 30, 2022	2,312,887	$	23,129	$	12,885,841	$	(8,176,100)	$	4,732,870

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

6

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

SIX MONTHS ENDED SEPTEMBER 30, 2021

(Unaudited)

				Additional
	Common	Stock		Paid-In		Accumulated
	Shares	Amount		Capital		Deficit		Total
Balance at April 1, 2021	2,312,887	$	23,129	$	12,885,841	$	(8,192,414)	$	4,716,556
Net income							14,641		14,641
Balance at June 30, 2021	2,312,887	$	23,129	$	12,885,841	$	(8,177,773)	$	4,731,197
Net income							107,696		107,696
Balance at September 30, 2021	2,312,887	$	23,129	$	12,885,841	$	(8,070,077)	$	4,838,893

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

7

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended September 30,
	2022		2021
OPERATING ACTIVITIES:
Net Income	$	94,464	$	122,337
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		10,063		6,193
Changes in operating assets and liabilities:
Increase in accounts receivable and amount due from factor		(1,276,912)		(1,298,992)
Decrease (Increase) in inventories, prepaid expenses, and other		970,998		(977,530)
Decrease in accounts payable and accrued expenses		(177,454)		(238,585)
NET CASH USED IN OPERATING ACTIVITIES		(378,841)		(2,386,577)
FINANCING ACTIVITIES:
Net borrowing - Line of Credit – Factor		718,984		2,394,543
Repayment of Note Payable – Eyston Company Ltd		(600,000)		—
NET CASH PROVIDED BY FINANCING ACTIVITIES		118,984		2,394,543
NET (DECREASE) INCREASE IN CASH		(259,857)		7,966
Cash at beginning of period		438,735		160,604
CASH AT END OF PERIOD	$	178,878	$	168,570
SUPPLEMENTAL INFORMATION:
Interest paid	$	124,021	$	23,798

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

8

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

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 subsidiaries. Except for the condensed consolidated balance sheet as of March 31, 2022, 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, 2022, audited financial statements filed with the Securities and Exchange Commission on Form 10-K as filed on July 14, 2022. The interim operating results are not necessarily indicative of the operating results for the full fiscal year.

As previously reported, on February 25, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company (USI), a wholly owned subsidiary of the Company D-U Merger Sub, Inc. a Delaware corporation (“Merger Sub”) and Infinite Reality, Inc., a Delaware corporation (“Infinite Reality”). On May 16, 2022, the Company filed with the United States Securities Exchange Commission (SEC) a proxy statement and Form S-4 registration statement in connection with the Merger. Subsequent to March 31, 2022, the Company became aware of a lawsuit filed by Thomas Henderson against Universal Security Instruments, Inc. and its directors in the U.S. District Court for the Southern District of New York, Civil Action No. 22cv4354. The plaintiff claims to be a shareholder in the Company and alleges that the registration statement on Form S-4 filed by the Company on May 16, 2022 (which, when declared effective, will also be the merger proxy statement distributed to the shareholders of the Company and of Infinite Reality in connection with the proposed Merger) is materially deficient and misleading in omitting material information and, therefore, violates the provisions of the Securities Exchange Act of 1934 (the “Exchange Act”) and the regulations promulgated thereunder. The suit seeks to enjoin the Merger, direct the defendants to comply with the provisions of the Exchange Act, award costs and fees to the plaintiff, and grant such other relief as the court may deem just and proper. The Company believes that the suit is wholly without merit and will aggressively defend the suit.

Liquidity and Management Plans

In light of the shutdowns, quarantines and other restrictions and delays in operations and travel caused by or related to COVID-19 in Hong Kong, the PRC and the United States, the Company has experienced delays in shipping and receiving of products.

Our short-term borrowings to finance any operating losses, trade accounts receivable, and foreign inventory purchases are provided pursuant to the terms of its Factoring Agreement with Merchant Factors Corporation (Merchant or Factor). Borrowings under the 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 Merchant’s assessment of the Company’s receivables, inventory, and financial condition at the time of each request for an advance. The Company had approximately $135,000 of availability of this facility on September 30, 2022. The Company’s non-factored trade and other accounts receivable net of allowance for uncollectible amounts totaled approximately $1,040,000 on September 30, 2022. We anticipate that future availability provided from Merchant, cash flows from operations, and the collection of non-factored trade accounts receivable will provide sufficient working capital for the next twelve months following the date of this report.

In addition, the Company has a short-term note payable due to its principal supplier (Eyston Company Ltd.) that requires monthly payments beginning April, 2022 of $100,000 per month and until the remaining principal balance of approximately $481,000 is repaid. The Company has a long history of working closely with Eyston and believes that forbearance or extension of the payment terms of the short-term note payable can be achieved if required to meet short-term cash flow requirements. Further, the Company’s factor has withheld financing on certain of the Company’s accounts receivable subject to resolution of any disputes. The resolution of disputed items is ongoing and, subsequent to September 30, 2022 the Company continues to provide support for resolution of any disputed items. The Company expects that all amounts in dispute will be resolved satisfactorily. In addition, the Company has filed requests for refunds of customs payments with US Customs and Border Protection for approximately $300,000 (including interest expected) for overpayments of tariff. The Company expects this refund to be available during the fiscal year ending March 31, 2023. Finally, the

9

Company has filed requests for refunds of payroll taxes paid for approximately $181,000 for Employee Retention Credits under the provisions of The Coronavirus Aid Relief, and Economic Security Act (CARES Act). The Company expects this refund to be available during the fiscal year ending March 31, 2024. 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 for the next twelve months following the issuance date of this report. 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

In 2015, the Company entered into a Factoring Agreement (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 has been extended and now expires on January 6, 2024, and provides for continuation of the program for successive two year periods until terminated by one of the parties to the Agreement. As of September 30, 2022, the Company had borrowings under the Agreement of approximately $2,876,000, and the Company had approximately $135,000 of availability under the Agreement at September 30, 2022. 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 8.25% on September 30, 2022). 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.

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.

10

Disaggregation of Revenue

The Company presents below revenue associated with sales of products acquired from Eyston Company Ltd. (Eyston) 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 three and six months ended September 30, 2022, and 2021 are as follows:

	Three months ended				Six months ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021
Sales of products acquired from Eyston	$	5,232,538	$	4,409,054	$	8,737,887	$	8,676,345
Sales of GFCI’s and ventilation fans		624,603		863,169		1,754,558		1,263,876
	$	5,857,141	$	5,272,223	$	10,492,445	$	9,940,221

Concentrations

The Company is primarily a distributor of safety products for use in home and business under both its trade names and private labels for other companies. The Company acquires all of the smoke alarm and carbon monoxide alarm safety products that it sells from Eyston Company, Ltd. In addition, the Company had two customers in the three and six month periods ended September 30, 2022, that represented 16.0% and 10.2%, and 10.9% and 10.4% of the Company’s net sales, respectively. The Company had two customers in the three and six-month periods ended September 30, 2021, that represented 18.4% and 10.1%, and 12.6% and 12.3% of the Company’s net sales, respectively.

Related Party Transactions

During the three and six-month periods ended September 30, 2022, inventory purchases and other company expenses of approximately $353,000 and $990,000 respectively, were charged to credit card accounts of Harvey B. Grossblatt, the Company's Chief Executive Officer and certain of his immediate family members. During the three and six-month periods ended September 30, 2021, inventory purchases and other company expenses of approximately $244,000 and $823,000 respectively, were charged to credit card accounts of Harvey B. Grossblatt, the Company's Chief Executive Officer and certain of his immediate family members. The Company subsequently reimbursed these charges in full. Mr. Grossblatt receives mileage benefits from these charges. The maximum amount outstanding and due to Mr. Grossblatt at any point during the six-month period ended September 30, 2022, and 2021 amounted to $217,066 and $210,773, respectively. No amounts were due to Mr. Grossblatt at September 30, 2022.

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.

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.

11

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 condensed 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 condensed 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.

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 sales to customers that are denied credit by the factor, dispute delivery, and/or have 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 September 30, 2022 and March 31, 2022, an allowance of approximately $157,000 has been provided for uncollectible trade accounts receivable.

Earnings per Common Share

Basic earnings 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 six months ended September 30, 2022, or 2021. As a result, basic and diluted weighted average common shares outstanding are identical for the three and six months ended September 30, 2022, and 2021.

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.

12

Note Payable - Eyston Company Ltd.

On March 31, 2020, the Company sold its fifty percent ownership interest in the Hong Kong Joint Venture and converted $1,081,440 of trade accounts payable due to the Hong Kong Joint Venture to an unsecured long-term interest only note payable with the principal balance due in April 2022. The terms of the note payable were amended subsequent to March 31, 2022, to provide for monthly payments of $100,000 beginning April 2022 and until the note payable is paid in full. The principal balance outstanding on the note payable on September 30, 2022, is $481,440. Interest is based on the Shanghai Commercial Bank Limited in Hong Kong US Dollar prime rate published on the first day of each calendar month plus 2% (7.5% effective rate on September 30, 2022) and is payable monthly.

Leases

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 terminate or extend the lease 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. The Company utilizes certain practical expedients for short-term leases, including the election not to reassess its prior conclusions about lease identification, lease classification and initial direct costs, as well as the election not to separate lease and non-lease components for arrangements where the Company is a lessee. 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.

Effective March 2022, we extended our operating lease for a 15,000 square foot office and warehouse located in Baltimore County, Maryland to expire in April 2025 subject to a right to terminate the lease if the Company enters into a binding agreement to sell the assets of the Company. No option to continue the lease beyond April 2025 has been provided in the lease extension. Monthly rental expense, with common area maintenance, currently approximates $14,500 and increases 3.0% per year.

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 approximately $485,000 at the date of adoption and increased by approximately $468,000 effective with the lease amendment and extension dated March 2022. 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 September 30, 2022, the Company had right-of-use assets of $389,409 and lease liabilities of $395,626 related to its operating leases. Right-of-use assets are included in property and equipment, net, on the consolidated balance sheet and lease liabilities related to the Company’s operating leases are included in short-term and long-term lease liability on the consolidated balance sheet. As of September 30, 2022, the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases is two years, six months and 5.5%, respectively. During the six-month period ended September 30, 2022, the cash paid for amounts included in the measurement of lease liabilities related to the Company’s operating leases was $75,675, which is included as an operating cash outflow within the condensed consolidated statements of cash flows. During the six-month period ended September 30, 2022, the operating lease costs related to the Company’s operating leases was $76,779 which is included in operating costs and expenses in the consolidated statements of operations.

13

The future minimum payments under operating leases were as follows for the fiscal periods ended March 31:

2023	$	63,063
2024		155,512
2025		160,179
2026		26,760
Total operating lease payments	$	405,514
Less: amounts representing interest		(9,888)
Present value of net operating lease payments	$	395,626
Less: current portion		147,593
Long-term portion of operating lease obligations	$	248,033

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. Management determined that recently issued ASU’s did not have a material impact on the consolidated financial statements at September 30, 2022.

14

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. Our financial statements detail our sales and other operational results for the three and six-month periods ended September 30, 2022 and 2021.

In light of the shutdowns, quarantines and other restrictions and delays in operations and travel caused by or related to COVID-19 in Hong Kong, the PRC and the United States, the Company has experienced delays in shipping and receiving of products.

As the Company’s products are sold primarily to the construction industry and do-it-yourself centers, restrictions and limitations imposed by the COVID-19 pandemic have had a negative impact on the Company’s sales. The Company is not yet able to quantify the full impact of the COVID-19 pandemic on its sales and financial results.

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

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

As previously reported, on February 25, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company (USI), a wholly owned subsidiary of the Company D-U Merger Sub, Inc. a Delaware corporation (“Merger Sub”) and Infinite Reality, Inc., a Delaware corporation (“Infinite Reality”). On May 16, 2022, the Company filed with the United States Securities Exchange Commission (SEC) a proxy statement and Form S-4 registration statement in connection with the Merger.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2022 and 2021

Sales. Net sales for the three months ended September 30, 2022, were $5,857,141 compared to $5,272,223 for the comparable three months in the prior year, an increase of $584,918 (11.1%). Sales increased principally due to the Company’s ability to fill orders as delays in unloading inventory at California ports of entry began to abate during the period.

15

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 26.7% and 29.9% of sales for the quarters ended September 30, 2022, and 2021, respectively.  Gross margins were negatively impacted in the period ended September 30, 2022, principally due to increases in the cost of certain electronic components.

Expenses. Selling, general and administrative expenses were $1,189,243 for the three months ended September 30, 2022, compared to $1,357,103 for the comparable three months in the prior year.  As a percentage of net sales, these expenses decreased to 20.3% for the three-month period ended September 30, 2022, from 25.7% for the 2021 period.  These expenses decreased as a percentage of net sales principally due to a reduction in salaries expense resulting from recording the employee retention credit of $181,000 under the CARES Act.

Research and development expenses were comparable at $103,245 for the three-month period ended September 30, 2022 to $97,070 for the comparable quarter of the prior year.

Interest Expense. Our interest expense was $68,525 for the quarter ended September 30, 2022, compared to interest expense of $14,309 for the quarter ended September 30, 2021.  Interest expense is dependent upon the total amounts borrowed from the Factor and the increase in interest rates during the period as compared to the corresponding period of the prior year.

Net Income. We reported net income of $200,602 for the quarter ended September 30, 2022, compared to a net income of $107,696 for the corresponding quarter of the prior fiscal year, a $92,906 (86.3%) increase in net income.  The primary reasons for the increase in the net income is a reduction in salaries expense resulting from recording the employee retention credit under the CARES Act.

Six Months Ended September 30, 2022 and 2021

Sales. Net sales for the six months ended September 30, 2022, were $10,492,445 compared to $9,940,221 for the comparable six months in the prior period, an increase of $552,224 (5.6%). Sales increased principally due to the Company’s ability to fill orders as delays in unloading inventory at California ports of entry began to abate during the period.

Gross Profit Margin. The gross profit margin is calculated as net sales less cost of goods sold expressed as a percentage of net sales. The Company’s gross profit margin was 28.4% for the period ended September 30, 2022, and 28.5% for the period ended September 30, 2021. Gross margins were negatively impacted in the six-month period ended September 30, 2022, principally due to the cost of certain electronic components.

Expenses. Selling, general and administrative expenses were $2,571,846 for the six months ended September 30, 2022, compared to $2,490,242 for the comparable six months in the prior year.  As a percentage of sales, these expenses were 24.5% for the six-month period ended September 30, 2022, and 25.1% for the comparable 2021 period. These expenses decreased as a percentage of net sales since selling, general, and administrative expenses do not fluctuate in direct proportion to sales.

Research and development expenses were comparable at $192,507 for the six months ended September 30, 2022, to $198,126 for the comparable period of the prior year.

Interest Expense. Our interest expense was $124,021 for the six months ended September 30, 2022, compared to interest expense of $23,798 for the six months ended September 30, 2021. Interest expense is dependent upon the total amounts borrowed from the Factor and the increase in interest rates during the period as compared to the corresponding period of the prior year.

Net Income. We reported net income of $94,464 for the six months ended September 30, 2022, compared to a net income of $122,337 for the corresponding period of the prior fiscal year, a decrease in the net income of $27,873 (22.8%).  The primary reasons for the decrease in the net income is increased costs for certain electronic components caused by supply chain disruptions and higher interest expense, partially offset by the inclusion of approximately $181,000 of Employee Retention Credit under the provisions of the Coronavirus Aid Relief, and Economic Security Act.

16

Management Plans and Liquidity

In light of the shutdowns, quarantines and other restrictions and delays in operations and travel caused by or related to COVID-19 in Hong Kong, the PRC and the United States, the Company has experienced delays in shipping and receiving of products.

Our short-term borrowings to finance any operating losses, trade accounts receivable, and foreign inventory purchases are provided pursuant to the terms of its Factoring Agreement with Merchant Factors Corporation (Merchant or Factor). Borrowings under the 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 Merchant’s assessment of the Company’s receivables, inventory, and financial condition at the time of each request for an advance. The Company had approximately $135,000 of availability of this facility on September 30, 2022. The Company’s non-factored trade and other accounts receivable net of allowance for uncollectible amounts totaled approximately $1,040,000 on September 30, 2022. We anticipate that future availability provided from Merchant, cash flows from operations, and the collection of non-factored trade accounts receivable will provide sufficient working capital for the next twelve months following the date of this report.

In addition, the Company has a short-term note payable due to its principal supplier (Eyston Company Ltd.) that requires monthly payments beginning April, 2022 of $100,000 per month and until the remaining principal balance of approximately $481,000 is repaid. The Company has a long history of working closely with Eyston and believes that forbearance or extension of the payment terms of the short-term note payable can be achieved if required to meet short-term cash flow requirements. Further, the Company’s factor has withheld financing on certain of the Company’s accounts receivable subject to resolution of any disputes. The resolution of disputed items is ongoing and, subsequent to September 30, 2022 the Company continues to provide support for resolution of any disputed items. The Company expects that all amounts in dispute will be resolved satisfactorily. In addition, the Company has filed requests for refunds of customs payments with US Customs and Border Protection for approximately $300,000 (including interest expected) for overpayments of tariff. The Company expects this refund to be available during the fiscal year ending March 31, 2023. Finally, the Company has filed requests for refunds of payroll taxes paid for approximately $181,000 for Employee Retention Credits under the provisions of The Coronavirus Aid Relief, and Economic Security Act (CARES Act). The Company expects this refund to be available during the fiscal year ending March 31, 2024. 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 for the next twelve months following the issuance date of this report. 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 used cash of $378,841 for the six months ended September 30, 2022. This was primarily due to an increase in accounts receivable and amount due from factor of $1,276,912, a decrease in accounts payable and accrued expenses of $177,454, and partially offset by a decrease in inventories, prepaid expenses and other of $970,998 and by net income of $94,464. Operating activities used cash of $2,386,577 for the six months ended September 30, 2021. This was primarily due to an increase in accounts receivable and amount due from factor of $1,298,992, an increase in inventories, prepaid expenses and other of $977,530, a decrease in accounts payable and accrued expenses of $238,585, and partially offset by net income of $122,337.

There were no investing activities for the six-month periods ended September 30, 2022, or 2021.

Financing activities provided cash of $118,984 during the six months ended September 30, 2022, from net borrowing in excess of repayments from the factor of $718,984, offset by repayments of the note payable to Eyston Company, Ltd. of $600,000.   Financing activities provided cash of $2,394,543 during the six months ended September 30, 2021 from net borrowing in excess of repayments from the factor.

CRITICAL ACCOUNTING POLICIES

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

17

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 a material weakness in internal control over financial reporting as discussed below.

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

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 September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

18

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.

19

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	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)
10.3	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)
10.4	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)
10.5	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), by addendum dated July 12, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 16, 2019, file No. 1-31747), by addendum dated July 27, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 27, 2020, file No. 1-31747). by addendum dated July 18, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 28, 2021, file No. 1-31747), and by addendum dated July 22, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 28, 2022, file No. 1-31747).
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 November 21, 2022*
101	Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of September 30, 2022 and March 31, 2022, (ii) Condensed Consolidated Income Statements for the three and six months ended September 30, 2022 and 2021, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2022 and 2021, (v) Condensed Consolidated Statements of Shareholders’ Equity for the six months ended September 30, 2022 and 2021, and (vi) Notes to Condensed Consolidated Financial Statements*

*Filed herewith

20

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: November 21, 2022	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

21

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.

November 21, 2022		/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.

November 21, 2022		/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 September 30, 2022 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.

November 21, 2022		/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

Zachary Mizener

Lambert & Co.

(315) 529-2348

Universal Security Instruments Reports Second-Quarter Results

OWINGS MILLS,Md. November 21, 2022 - Universal Security Instruments, Inc. (NYSE AMEX: UUU) today announced results for its fiscal second quarter and six months ended September 30, 2022.

For the three months ended September 30, 2022, sales increased 11.1% to $5,857,141 compared to sales of $5,272,223 for the same period last year.   The Company reported net income of $200,602, or $0.09 per basic and diluted share, compared to net income of $107,696 or $0.05 per basic and diluted share for the same period last year.

For the six months ended September 30, 2022, sales increased 5.6% to $10,492,445 versus $9,940,221 for the same period last year.  The Company reported net income of $94,464, or $0.04 per basic and diluted share, compared to net income of $122,337 or $0.05, per basic and diluted share for the corresponding 2021 period.

“The primary reason for the sales increase in the September quarter was improvement in our deliveries from China.  Our gross margins decreased for the September quarter which was caused by increases in the cost of certain electrical components caused by supply chain disruptions.   Our net income increased for the September quarter due to the inclusion of approximately $181,000 of Employee Retention Credit under the provisions of the Coronavirus Aid Relief, and Economic Security Act which was partially offset by the lower gross margins,” said Harvey Grossblatt - President and CEO.

UNIVERSAL SECURITY INSTRUMENTS, INC. is a U.S.-based manufacturer and distributor of safety and security devices. Founded in 1969, the Company has an over 53-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, currency fluctuations, the impact of current and future laws and governmental regulations affecting us and other factors which may be identified from time to time in our Securities and Exchange Commission filings and other public announcements. We do not undertake and specifically disclaim any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements. We will revise our outlook from time to time and frequently will not disclose such revisions publicly.

-- more --

Universal/Page 2

UNIVERSAL SECURITY INSTRUMENTS, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

(UNAUDITED)

	Three Months Ended  September 30,
	2022		2021
Sales	$	5,857,141	$	5,272,223
Net income		200,602		107,696
Earnings per share:
Basic and diluted	$	0.09	$	0.05
Weighted average number of common shares outstanding:
Basic and diluted		2,312,887		2,312,887

	Six Months Ended September 30,
	2022		2021
Sales	$	10,492,445	$	9,940,221
Net income		94,464		122,337
Earnings per share:
Basic and diluted	$	0.04	$	0.05
Weighted average number of common shares outstanding:
Basic and diluted		2,312,887		2,312,887

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

ASSETS
	Sept. 30, 2022		Sept. 30, 2021
Cash	$	178,878	$	168,570
Accounts receivable and amount due from factor		5,367,025		3,882,455
Inventory		5,171,217		4,966,226
Prepaid expense		328,188		529,196
TOTAL CURRENT ASSETS		11,045,308		9,546,447
PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS–NET		436,142		139,987
OTHER ASSETS		4,000		4,000
TOTAL ASSETS	$	11,485,450	$	9,690,434
LIABILITIES AND SHAREHOLDERS’ EQUITY
Line of credit – factor	$	2,876,070	$	2,413,447
Note payable – Eyston Company Ltd.		481,440		1,081,440
Short-term portion of operating lease liability		147,593		87,908
Accounts payable		2,605,544		1,071,670
Accrued liabilities		393,900		197,076
TOTAL CURRENT LIABILITIES		6,504,547		4,851,541
LONG TERM PORTION OF OPERATING LEASE LIABILITY		248,033		—
TOTAL LONG-TERM LIABILITIES		248,033		—
SHAREHOLDERS’ EQUITY:
Common stock, $.01 par value per share; authorized 20,000,000 shares; issued and outstanding 2,312,887 at September 30, 2022 and 2021		23,129		23,129
Additional paid-in capital		12,885,841		12,885,841
Accumulated Deficit		(8,176,100)		(8,070,077)
TOTAL SHAREHOLDERS’ EQUITY		4,732,870		4,838,893
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	11,485,450	$	9,690,434

XML

Document And Entity Information - shares	6 Months Ended
	Sep. 30, 2022	Nov. 21, 2022
Document And Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2022
Document Transition Report	false
Entity File Number	001-31747
Entity Registrant Name	UNIVERSAL SECURITY INSTRUMENTS INC
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	52-0898545
Entity Address, Address Line One	11407 Cronhill Drive
Entity Address, Address Line Two	Suite A
Entity Address, City or Town	Owings Mills
Entity Address, Country	MD
Entity Address, Postal Zip Code	21117
City Area Code	410
Local Phone Number	363-3000
Title of 12(b) Security	Common Stock
Trading Symbol	UUU
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	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	2023
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2022	Mar. 31, 2022
CURRENT ASSETS
Cash	$ 178,878	$ 438,735
Accounts receivable:
Trade, less allowance for doubtful accounts	631,205	1,290,481
Other receivables	409,198
Receivables from employees	7,631	6,731
Total accounts receivable	1,048,034	1,297,212
Amount due from factor	4,318,991	2,792,901
Inventories - finished goods	5,171,217	6,229,061
Prepaid expenses	328,188	241,342
TOTAL CURRENT ASSETS	11,045,308	10,999,251
INTANGIBLE ASSETS - NET	38,009	40,243
PROPERTY AND EQUIPMENT - NET	398,133	477,627
OTHER ASSETS	4,000	4,000
TOTAL ASSETS	11,485,450	11,521,121
CURRENT LIABILITIES
Line of credit - factor	2,876,070	2,157,086
Note payable - Eyston Company Ltd.	481,440	1,081,440
Short-term portion of operating lease liability	147,593
Accounts payable - trade	1,896,110	1,572,356
Accounts payable - Eyston Company Ltd.	709,434	985,077
Accrued liabilities:
Accrued payroll and employee benefits	163,007	160,025
Accrued commissions and other	230,893	459,440
TOTAL CURRENT LIABILITIES	6,504,547	6,547,304
LONG-TERM PORTION OF OPERATING LEASE LIABILITY	248,033
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 September 30, 2022 and March 31, 2022	23,129	23,129
Additional paid-in capital	12,885,841	12,885,841
Accumulated Deficit	(8,176,100)	(8,270,564)
TOTAL SHAREHOLDERS' EQUITY	4,732,870	4,638,406
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 11,485,450	$ 11,521,121

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2022	Mar. 31, 2022
CONDENSED CONSOLIDATED BALANCE SHEETS
Common stock, par value	$ 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

XML

CONDENSED CONSOLIDATED INCOME STATEMENTS - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
CONDENSED CONSOLIDATED INCOME STATEMENTS
Net sales	$ 5,857,141	$ 5,272,223	$ 10,492,445	$ 9,940,221
Cost of goods sold	4,295,526	3,696,045	7,509,607	7,105,718
GROSS PROFIT	1,561,615	1,576,178	2,982,838	2,834,503
Selling, general and administrative expense	1,189,243	1,357,103	2,571,846	2,490,242
Research and development expense	103,245	97,070	192,507	198,126
Operating income	269,127	122,005	218,485	146,135
Other expense:
Interest expense	(68,525)	(14,309)	(124,021)	(23,798)
NET INCOME	$ 200,602	$ 107,696	$ 94,464	$ 122,337
Earnings per share:
Basic	$ 0.09	$ 0.05	$ 0.04	$ 0.05
Diluted	$ 0.09	$ 0.05	$ 0.04	$ 0.05
Shares used in computing earnings per share:
Weighted average basic shares outstanding	2,312,887	2,312,887	2,312,887	2,312,887
Weighted average diluted shares outstanding	2,312,887	2,312,887	2,312,887	2,312,887

XML

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - USD ($)	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Balance at Mar. 31, 2021	$ 23,129	$ 12,885,841	$ (8,192,414)	$ 4,716,556
Balance (in shares) at Mar. 31, 2021	2,312,887
Net (loss) income			14,641	14,641
Balance at Jun. 30, 2021	$ 23,129	12,885,841	(8,177,773)	4,731,197
Balance (in shares) at Jun. 30, 2021	2,312,887
Balance at Mar. 31, 2021	$ 23,129	12,885,841	(8,192,414)	4,716,556
Balance (in shares) at Mar. 31, 2021	2,312,887
Net (loss) income				122,337
Balance at Sep. 30, 2021	$ 23,129	12,885,841	(8,070,077)	4,838,893
Balance (in shares) at Sep. 30, 2021	2,312,887
Balance at Jun. 30, 2021	$ 23,129	12,885,841	(8,177,773)	4,731,197
Balance (in shares) at Jun. 30, 2021	2,312,887
Net (loss) income			107,696	107,696
Balance at Sep. 30, 2021	$ 23,129	12,885,841	(8,070,077)	4,838,893
Balance (in shares) at Sep. 30, 2021	2,312,887
Balance at Mar. 31, 2022	$ 23,129	12,885,841	(8,270,564)	4,638,406
Balance (in shares) at Mar. 31, 2022	2,312,887
Net (loss) income			(106,138)	(106,138)
Balance at Jun. 30, 2022	$ 23,129	12,885,841	(8,376,702)	4,532,268
Balance (in shares) at Jun. 30, 2022	2,312,887
Balance at Mar. 31, 2022	$ 23,129	12,885,841	(8,270,564)	4,638,406
Balance (in shares) at Mar. 31, 2022	2,312,887
Net (loss) income				94,464
Balance at Sep. 30, 2022	$ 23,129	12,885,841	(8,176,100)	4,732,870
Balance (in shares) at Sep. 30, 2022	2,312,887
Balance at Jun. 30, 2022	$ 23,129	12,885,841	(8,376,702)	4,532,268
Balance (in shares) at Jun. 30, 2022	2,312,887
Net (loss) income			200,602	200,602
Balance at Sep. 30, 2022	$ 23,129	$ 12,885,841	$ (8,176,100)	$ 4,732,870
Balance (in shares) at Sep. 30, 2022	2,312,887

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
OPERATING ACTIVITIES:
Net Income	$ 94,464	$ 122,337
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	10,063	6,193
Changes in operating assets and liabilities:
Increase in accounts receivable and amount due from factor	(1,276,912)	(1,298,992)
Decrease (Increase) in inventories, prepaid expenses, and other	970,998	(977,530)
Decrease in accounts payable and accrued expenses	(177,454)	(238,585)
NET CASH USED IN OPERATING ACTIVITIES	(378,841)	(2,386,577)
FINANCING ACTIVITIES:
Net borrowing Line of Credit - Factor	718,984	2,394,543
Repayments of Note Payable - Eyston Company Ltd	(600,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES	118,984	2,394,543
NET (DECREASE) INCREASE IN CASH	(259,857)	7,966
Cash at beginning of period	438,735	160,604
CASH AT END OF PERIOD	178,878	168,570
SUPPLEMENTAL INFORMATION:
Interest paid	$ 124,021	$ 23,798

XML

Statement of Management

6 Months Ended

Sep. 30, 2022

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 subsidiaries. Except for the condensed consolidated balance sheet as of March 31, 2022, 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, 2022, audited financial statements filed with the Securities and Exchange Commission on Form 10-K as filed on July 14, 2022. The interim operating results are not necessarily indicative of the operating results for the full fiscal year.

As previously reported, on February 25, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company (USI), a wholly owned subsidiary of the Company D-U Merger Sub, Inc. a Delaware corporation (“Merger Sub”) and Infinite Reality, Inc., a Delaware corporation (“Infinite Reality”). On May 16, 2022, the Company filed with the United States Securities Exchange Commission (SEC) a proxy statement and Form S-4 registration statement in connection with the Merger. Subsequent to March 31, 2022, the Company became aware of a lawsuit filed by Thomas Henderson against Universal Security Instruments, Inc. and its directors in the U.S. District Court for the Southern District of New York, Civil Action No. 22cv4354. The plaintiff claims to be a shareholder in the Company and alleges that the registration statement on Form S-4 filed by the Company on May 16, 2022 (which, when declared effective, will also be the merger proxy statement distributed to the shareholders of the Company and of Infinite Reality in connection with the proposed Merger) is materially deficient and misleading in omitting material information and, therefore, violates the provisions of the Securities Exchange Act of 1934 (the “Exchange Act”) and the regulations promulgated thereunder. The suit seeks to enjoin the Merger, direct the defendants to comply with the provisions of the Exchange Act, award costs and fees to the plaintiff, and grant such other relief as the court may deem just and proper. The Company believes that the suit is wholly without merit and will aggressively defend the suit.

XML

Liquidity and Management Plans

6 Months Ended

Sep. 30, 2022

Liquidity and Management Plans

Liquidity and Management Plans

Liquidity and Management Plans

In light of the shutdowns, quarantines and other restrictions and delays in operations and travel caused by or related to COVID-19 in Hong Kong, the PRC and the United States, the Company has experienced delays in shipping and receiving of products.

Our short-term borrowings to finance any operating losses, trade accounts receivable, and foreign inventory purchases are provided pursuant to the terms of its Factoring Agreement with Merchant Factors Corporation (Merchant or Factor). Borrowings under the 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 Merchant’s assessment of the Company’s receivables, inventory, and financial condition at the time of each request for an advance. The Company had approximately $135,000 of availability of this facility on September 30, 2022. The Company’s non-factored trade and other accounts receivable net of allowance for uncollectible amounts totaled approximately $1,040,000 on September 30, 2022. We anticipate that future availability provided from Merchant, cash flows from operations, and the collection of non-factored trade accounts receivable will provide sufficient working capital for the next twelve months following the date of this report.

In addition, the Company has a short-term note payable due to its principal supplier (Eyston Company Ltd.) that requires monthly payments beginning April, 2022 of $100,000 per month and until the remaining principal balance of approximately $481,000 is repaid. The Company has a long history of working closely with Eyston and believes that forbearance or extension of the payment terms of the short-term note payable can be achieved if required to meet short-term cash flow requirements. Further, the Company’s factor has withheld financing on certain of the Company’s accounts receivable subject to resolution of any disputes. The resolution of disputed items is ongoing and, subsequent to September 30, 2022 the Company continues to provide support for resolution of any disputed items. The Company expects that all amounts in dispute will be resolved satisfactorily. In addition, the Company has filed requests for refunds of customs payments with US Customs and Border Protection for approximately $300,000 (including interest expected) for overpayments of tariff. The Company expects this refund to be available during the fiscal year ending March 31, 2023. Finally, the

Company has filed requests for refunds of payroll taxes paid for approximately $181,000 for Employee Retention Credits under the provisions of The Coronavirus Aid Relief, and Economic Security Act (CARES Act). The Company expects this refund to be available during the fiscal year ending March 31, 2024. 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 for the next twelve months following the issuance date of this report. Cash flows and credit availability is expected to be adequate to fund operations for one year from the issuance date of this report.

XML

Line of Credit - Factor

6 Months Ended

Sep. 30, 2022

Line of Credit - Factor

Line of Credit - Factor

Line of Credit – Factor

In 2015, the Company entered into a Factoring Agreement (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 has been extended and now expires on January 6, 2024, and provides for continuation of the program for successive two year periods until terminated by one of the parties to the Agreement. As of September 30, 2022, the Company had borrowings under the Agreement of approximately $2,876,000, and the Company had approximately $135,000 of availability under the Agreement at September 30, 2022. 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 8.25% on September 30, 2022). 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.

XML

Use of Estimates

6 Months Ended

Sep. 30, 2022

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.

XML

Revenue Recognition

6 Months Ended

Sep. 30, 2022

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 below revenue associated with sales of products acquired from Eyston Company Ltd. (Eyston) 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 three and six months ended September 30, 2022, and 2021 are as follows:

	Three months ended				Six months ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021
Sales of products acquired from Eyston	$	5,232,538	$	4,409,054	$	8,737,887	$	8,676,345
Sales of GFCI’s and ventilation fans		624,603		863,169		1,754,558		1,263,876
	$	5,857,141	$	5,272,223	$	10,492,445	$	9,940,221

XML

Concentrations

6 Months Ended

Sep. 30, 2022

Concentrations

Concentrations

Concentrations

The Company is primarily a distributor of safety products for use in home and business under both its trade names and private labels for other companies. The Company acquires all of the smoke alarm and carbon monoxide alarm safety products that it sells from Eyston Company, Ltd. In addition, the Company had two customers in the three and six month periods ended September 30, 2022, that represented 16.0% and 10.2%, and 10.9% and 10.4% of the Company’s net sales, respectively. The Company had two customers in the three and six-month periods ended September 30, 2021, that represented 18.4% and 10.1%, and 12.6% and 12.3% of the Company’s net sales, respectively.

Related Party Transactions

During the three and six-month periods ended September 30, 2022, inventory purchases and other company expenses of approximately $353,000 and $990,000 respectively, were charged to credit card accounts of Harvey B. Grossblatt, the Company's Chief Executive Officer and certain of his immediate family members. During the three and six-month periods ended September 30, 2021, inventory purchases and other company expenses of approximately $244,000 and $823,000 respectively, were charged to credit card accounts of Harvey B. Grossblatt, the Company's Chief Executive Officer and certain of his immediate family members. The Company subsequently reimbursed these charges in full. Mr. Grossblatt receives mileage benefits from these charges. The maximum amount outstanding and due to Mr. Grossblatt at any point during the six-month period ended September 30, 2022, and 2021 amounted to $217,066 and $210,773, respectively. No amounts were due to Mr. Grossblatt at September 30, 2022.

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.

XML

Income Taxes

6 Months Ended

Sep. 30, 2022

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 condensed 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 condensed 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.

XML

Accounts Receivable and Amount Due from Factor

6 Months Ended

Sep. 30, 2022

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 sales to customers that are denied credit by the factor, dispute delivery, and/or have 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 September 30, 2022 and March 31, 2022, an allowance of approximately $157,000 has been provided for uncollectible trade accounts receivable.

XML

Earnings per Common Share

6 Months Ended

Sep. 30, 2022

Earnings per Common Share

Earnings per Common Share

Earnings per Common Share

Basic earnings 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 six months ended September 30, 2022, or 2021. As a result, basic and diluted weighted average common shares outstanding are identical for the three and six months ended September 30, 2022, and 2021.

XML

Contingencies

6 Months Ended

Sep. 30, 2022

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.

XML

Note Payable - Eyston Company Ltd.

6 Months Ended

Sep. 30, 2022

Note Payable - Eyston Company Ltd.

Note Payable - Eyston Company Ltd.

Note Payable - Eyston Company Ltd.

On March 31, 2020, the Company sold its fifty percent ownership interest in the Hong Kong Joint Venture and converted $1,081,440 of trade accounts payable due to the Hong Kong Joint Venture to an unsecured long-term interest only note payable with the principal balance due in April 2022. The terms of the note payable were amended subsequent to March 31, 2022, to provide for monthly payments of $100,000 beginning April 2022 and until the note payable is paid in full. The principal balance outstanding on the note payable on September 30, 2022, is $481,440. Interest is based on the Shanghai Commercial Bank Limited in Hong Kong US Dollar prime rate published on the first day of each calendar month plus 2% (7.5% effective rate on September 30, 2022) and is payable monthly.

XML

Leases

6 Months Ended

Sep. 30, 2022

Leases

Leases

Leases

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 terminate or extend the lease 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. The Company utilizes certain practical expedients for short-term leases, including the election not to reassess its prior conclusions about lease identification, lease classification and initial direct costs, as well as the election not to separate lease and non-lease components for arrangements where the Company is a lessee. 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.

Effective March 2022, we extended our operating lease for a 15,000 square foot office and warehouse located in Baltimore County, Maryland to expire in April 2025 subject to a right to terminate the lease if the Company enters into a binding agreement to sell the assets of the Company. No option to continue the lease beyond April 2025 has been provided in the lease extension. Monthly rental expense, with common area maintenance, currently approximates $14,500 and increases 3.0% per year.

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 approximately $485,000 at the date of adoption and increased by approximately $468,000 effective with the lease amendment and extension dated March 2022. 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 September 30, 2022, the Company had right-of-use assets of $389,409 and lease liabilities of $395,626 related to its operating leases. Right-of-use assets are included in property and equipment, net, on the consolidated balance sheet and lease liabilities related to the Company’s operating leases are included in short-term and long-term lease liability on the consolidated balance sheet. As of September 30, 2022, the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases is two years, six months and 5.5%, respectively. During the six-month period ended September 30, 2022, the cash paid for amounts included in the measurement of lease liabilities related to the Company’s operating leases was $75,675, which is included as an operating cash outflow within the condensed consolidated statements of cash flows. During the six-month period ended September 30, 2022, the operating lease costs related to the Company’s operating leases was $76,779 which is included in operating costs and expenses in the consolidated statements of operations.

The future minimum payments under operating leases were as follows for the fiscal periods ended March 31:

2023	$	63,063
2024		155,512
2025		160,179
2026		26,760
Total operating lease payments	$	405,514
Less: amounts representing interest		(9,888)
Present value of net operating lease payments	$	395,626
Less: current portion		147,593
Long-term portion of operating lease obligations	$	248,033

XML

Recently Adopted Accounting Standards

6 Months Ended

Sep. 30, 2022

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. Management determined that recently issued ASU’s did not have a material impact on the consolidated financial statements at September 30, 2022.

XML

Revenue Recognition (Tables)

6 Months Ended

Sep. 30, 2022

Revenue Recognition

Schedule of revenue recognized by these categories

	Three months ended				Six months ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021
Sales of products acquired from Eyston	$	5,232,538	$	4,409,054	$	8,737,887	$	8,676,345
Sales of GFCI’s and ventilation fans		624,603		863,169		1,754,558		1,263,876
	$	5,857,141	$	5,272,223	$	10,492,445	$	9,940,221

XML

Leases (Tables)

6 Months Ended

Sep. 30, 2022

Leases

Summary of future minimum payments under operating leases

The future minimum payments under operating leases were as follows for the fiscal periods ended March 31:

2023	$	63,063
2024		155,512
2025		160,179
2026		26,760
Total operating lease payments	$	405,514
Less: amounts representing interest		(9,888)
Present value of net operating lease payments	$	395,626
Less: current portion		147,593
Long-term portion of operating lease obligations	$	248,033

XML

Liquidity and Management Plans (Details)	6 Months Ended
	Sep. 30, 2022 USD ($)
Liquidity and Management Plans
Spread on variable interest rate (as a percent)	2.00%
Line of credit facility of remaining borrowing capacity	$ 135,000
Trade accounts receivable net	1,040,000
Short-term notes payable per month	100,000
Maximum short-term note payable	481,000
Refunds of customs payments including interest requested	300,000
Refund of payroll taxes	$ 181,000
Prime Rate
Liquidity and Management Plans
Spread on variable interest rate (as a percent)	2.00%

XML

Line of Credit - Factor (Details) - USD ($)	6 Months Ended	12 Months Ended
	Sep. 30, 2022	Mar. 31, 2015
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 of capacity available for trade purchases		$ 500,000
Accounts receivables factoring agreement term	2 years
Long-term line of credit	$ 2,876,000
Line of credit facility of remaining borrowing capacity	$ 135,000
Variable rate on the debt instrument (as a percent)	2.00%
Effective interest rate (as a percent)	8.25%

XML

Revenue Recognition (Details) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Revenue Recognition
Revenues	$ 5,857,141	$ 5,272,223	$ 10,492,445	$ 9,940,221
Products acquired from Eyston Company Ltd.
Revenue Recognition
Revenues	5,232,538	4,409,054	8,737,887	8,676,345
Sales of GFCI's and ventilation fans
Revenue Recognition
Revenues	$ 624,603	$ 863,169	$ 1,754,558	$ 1,263,876

XML

Concentrations (Details) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Concentrations
Purchase Of Inventory And Other Company	$ 353,000	$ 244,000	$ 990,000	$ 823,000
Maximum Amount Outstanding			$ 217,066	$ 210,773
One Customer | Net sales | Customer Concentration Risk
Concentrations
Concentration risk, percentage	16.00%	18.40%	10.90%	12.60%
Two Customer | Net sales | Customer Concentration Risk
Concentrations
Concentration risk, percentage	10.20%	10.10%	10.40%	12.30%

XML

Accounts Receivable and Amount Due From Factor (Details) - USD ($)	6 Months Ended
	Sep. 30, 2022	Mar. 31, 2022
Accounts Receivable and Amount Due From Factor
Amount of uncollectible trade accounts receivable	$ 157,000	$ 157,000
Allowance related to amounts due from factor	$ 0

XML

Earnings per Common Share (Details) - shares	6 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Earnings per Common Share
Number of potentially dilutive common stock equivalents outstanding	0	0

XML

Note Payable - Eyston Company Ltd. (Details)	1 Months Ended	6 Months Ended
	Mar. 31, 2020 USD ($)	Sep. 30, 2022 USD ($)	Mar. 31, 2022 USD ($)
Note Payable - Eyston Company Ltd.
Principal balance due and payable		$ 100,000
Notes payable outstanding		$ 481,440	$ 1,081,440
Spread on variable interest rate (as a percent)		2.00%
Effective interest rate (as a percent)		8.25%
Prime Rate [Member]
Note Payable - Eyston Company Ltd.
Spread on variable interest rate (as a percent)		2.00%
Unsecured long-term interest only note payable
Note Payable - Eyston Company Ltd.
Trade accounts payable converted to an unsecured long-term note payable	$ 1,081,440
Effective interest rate (as a percent)		7.50%
Unsecured long-term interest only note payable | Prime Rate [Member]
Note Payable - Eyston Company Ltd.
Spread on variable interest rate (as a percent)	2.00%
Hong Kong Joint Venture | Disposed by sale
Note Payable - Eyston Company Ltd.
Ownership interest disposed	50

XML

Leases (Details) - USD ($)	Sep. 30, 2022	Mar. 31, 2022
Future minimum payments under operating leases
2023		$ 63,063
2024		155,512
2025		160,179
2026		26,760
Total operating lease payments		405,514
Less: amounts representing interest		(9,888)
Present value of net operating lease payments	$ 395,626	$ 395,626
Less: current portion	147,593
Long-term portion of operating lease obligations	$ 248,033

XML

Leases - Additional Information (Details)	6 Months Ended
	Sep. 30, 2022 USD ($) ft²	Mar. 31, 2022 USD ($)
Leases
Monthly rental expense	$ 14,500
Operating lease rent increment percentage	3.00%
Lease, Practical Expedients, Package [true false]	true
Right-of-use asset in exchange for operating lease liability	$ 485,000
Adoption of lease payment increased	468,000
Right-of-use lease assets	$ 389,409
Right-of-use lease assets	Property, Plant and Equipment, Net
Lease liabilities	$ 395,626	$ 395,626
Weighted-average remaining lease term	2 years 6 months
Weighted-average discount rate	5.50%
Cash paid for amounts included in measurement of lease liabilities	$ 75,675
Operating lease costs	$ 76,779
Office In Baltimore
Leases
Land subject to ground leases | ft²	15,000