DeFi Capital Markets, Inc.: Form 10-Q for the period ended Dec 31, 2025

As used throughout this Report, “we,” “our,” “the Company” and similar words refers to Universal Safety Products, 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 nine-month periods ended December 31, 2025, and 2024.

Management had been seeking access to additional funding or other resources, or the right strategic business combination, which would allow the Company to drive long-term value for its shareholders while taking advantage of growth opportunities that the Company seeks to execute. In furtherance thereof, as previously announced on October 31, 2024, the Company entered into an Asset Purchase Agreement with Feit Electric Company, Inc. (“Feit”) pursuant to which Feit agreed to acquire the smoke and carbon monoxide alarm portion of the Company’s business and the non-tangible assets of the Company, including but not limited to the trade name of Universal Security Instruments, Inc. and Universal Electric, Inc. The Closing was subject to the approval of the transaction by the requisite vote of the shareholders of the Company. A special meeting of the shareholders to approve the sale and related actions was held on April 15, 2025, and the asset sale was approved. Accordingly on May 22, 2025, the Company closed on the asset sale to Feit pursuant to the terms of the Asset Purchase Agreement. The Company currently intends to continue importing and marketing its product lines other than smoke alarms and carbon monoxide alarms and is exploring other business opportunities to drive long-term value for our shareholders.

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. We import all our products. As an importer, we are subject to numerous tariffs which vary depending on types of products and country of origin, changes in economic and political conditions in the country of manufacture, potential trade restrictions, and currency fluctuations. Substantially all our safety products are imported from the People’s Republic of China. Certain of these products are currently subject to tariffs of from twenty (20%) to forty-five (45%) percent. The imposition of and modification of tariffs during the latter half of the fiscal year ended March 31, 2025, and subsequent thereto, has increased uncertainty as to the short-term sustainability of importing products from our principal suppliers. If the Company is unable to import products at a competitive price point our sales could be adversely affected.

RESULTS OF OPERATIONS

Three Months Ended December 31, 2025 and 2024

Sales. Net sales for the three months ended December 31, 2025, were $22,549 compared to $5,535,148 for the comparable three months in the prior year, a decrease of $5,512,599 (99.6%). Sales decreased principally due to the sale of the smoke and carbon monoxide alarm portion of the Company’s business as previously discussed. In addition, a one-time return of goods was approved for a large customer.

Gross Profit Margin. Gross profit margin is calculated as net sales less cost of goods sold expressed as a percentage of net sales. Gross margins for the three-month period ended December 31, 2025, decreased principally due to sales returns and allowances.

Expenses. Selling, general and administrative expenses were $1,896,159 for the three months ended December 31, 2025, compared to $1,762,446 for the comparable three months in the prior year. These expenses did not decrease in proportion to the decrease in sales or as a dollar amount principally due to the timing of expenditures related to efforts in the current quarter to pursue strategic alternatives and merger activities including approximately $600,000 of professional fees, as previously discussed. In addition, a charge of $896,700 to salaries expense associated with the granting of incentive stock options, and charges associated with reductions in the work force were recorded in the three-month period ended December 31, 2025. These increases were partially offset by a reduction of $220,000 in the allowance for credit losses at December 31, 2025.

Engineering and product development expenses were $14,193 for the three-month period ended December 31, 2025, and $130,395 for the comparable quarter of the prior year, a $116,202 (89.1%) decrease. These expenses decreased primarily due the cessation of engineering and product development activities during the current fiscal year due to the sale of the smoke and carbon monoxide portion of the Company’s business as previously discussed.

Other expense. Other expense recorded during the three-month period ended December 31, 2025, included the change in the fair value of the derivative component of convertible debentures issued in the period of $135,000. Net interest expense was $78,824 for the quarter ended December 31, 2025, compared to interest expense of $77,409 for the quarter ended December 31, 2024. Interest expense is dependent upon the total amounts borrowed from the Factor and changes in interest rates during the period as compared to the corresponding period for 2024.

Net Loss. We reported a net loss of $2,287,174 for the quarter ended December 31, 2025, compared to a net loss of $936,639 for the corresponding quarter of the prior fiscal year, a $1,350,535 (144.2%) increase in net loss. The net loss increased principally due to the sale of the smoke and carbon monoxide portion of the Company’s business, the recording of the charge for the issuance of incentive stock options, charges for reductions in work force, and the efforts in the current quarter to pursue strategic alternatives, and partially offset by the reduction in the allowance for credit losses, as previously discussed.

Nine Months Ended December 31, 2025 and 2024

Sales. Net sales for the nine months ended December 31, 2025, were $4,606,795 compared to $17,336,933 for the comparable nine months in the prior fiscal year, a decrease of $12,730,138 (73.4%). Sales decreased principally due to the sale of the smoke and carbon monoxide alarm portion of the Company’s business as previously discussed.

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 19.0% for the nine months ended December 31, 2025, and 23.7% for the nine months ended December 31, 2024. Gross margins for the nine-month period ended December 31, 2025, decreased principally due to the sale of the smoke and carbon monoxide alarm portion of the Company’s business as previously discussed.

Expenses. Selling, general and administrative expenses were $4,320,649 for the nine months ended December 31, 2025, compared to $4,369,219 for the comparable nine months in the prior year. These expenses did not change materially in proportion to the decrease in sales or as a dollar amount principally due to the timing of expenditures related to efforts in the current quarter to pursue strategic alternatives and merger activities, as previously discussed. These expenses included an increase in the allowance for credit losses of $180,000, a charge to salaries expense for $896,700 related to the issuance of incentive stock options, charges associated with reductions in work force, and the timing of expenditures related to efforts in the current nine-month period to pursue strategic alternatives as previously discussed.

Engineering and product development expenses were $202,882 for the nine months ended December 31, 2025, compared to $328,367 for the comparable period of the prior year. These expenses decreased primarily due the cessation of engineering and product development activities during the period due to the sale of the smoke and carbon monoxide portion of the Company’s business as previously discussed.

Other income (expense). Other expense for the nine-month period ended December 31, 2025, included the change in the fair value of the derivative component of convertible debentures issued of $182,000. Other income included the gain of the sale of inventory and intangible assets of $2,820,668. Our net interest expense was $86,049 for the nine months ended December 31, 2025, compared to interest expense of $211,939 for the nine months ended December 31, 2024. Interest expense is dependent upon the total amounts borrowed from the Factor and changes in interest rates during the period as compared to the corresponding period of the prior year.

Net Income. We reported a net loss of $1,476,633 for the nine months ended December 31, 2025, compared to a net loss of $801,867 for the corresponding period of the prior fiscal year, an increase in the net loss of $674,766 (84.1%). The net loss increased due principally to the sale of the smoke and carbon monoxide portion of the Company’s business, the recording of the charge for the issuance of incentive stock options, and the efforts in the current year to pursue strategic alternatives, as previously discussed.

Operating activities provided cash of $1,347,625 for the nine months ended December 31, 2025. This was primarily due to a decrease in accounts receivable and amount due from factor of $3,743,519, a decrease in inventories and prepaid expenses of $2,294,183, and partially offset by a component of the gain on the sale of assets of $2,820,668, a decrease in accounts payable and accrued expenses of $2,148,596, the non-cash changes in the fair value of the derivative component of convertible debt of $182,000, the non-cash amortization of accrued interest of $70,957, the increase in the allowance for credit losses of $180,000, the issuance of incentive stock options of $896,700, and $361,000 in deferred income taxes.

Operating activities used cash of $736,999 for the nine months ended December 31, 2024. This was primarily due to a decrease in accounts receivable and amount due from factor of $32,581, and an increase in accounts payable and accrued expenses of $1,233,487, offset by an increase in inventories and prepaid expenses of $1,505,513, and a net loss of $801,867.

Investing activities for the nine months ended December 31, 2025, provided cash from the sale of assets, net of the payment of related liabilities, of $4,502,605. There were no investing activities for the nine months ended December 31, 2024.

Financing activities used cash of $1,905,828 during the nine months ended December 31, 2025, which is comprised of net repayments to the factor of $2,093,041, a one-time special dividend to shareholders in the amount of $2,312,787 and partially offset by net borrowing of convertible debt of $2,500,000.

Financing activities provided cash of $730,800 during the nine months ended December 31, 2024, which is comprised of net borrowings from the factor net of repayments.

Liquidity and Capital Resources

The Company believes its balances of cash received from the sales of convertible debentures, funds available to borrow under the terms of its factoring agreement, and cash generated by ongoing operations will be sufficient to satisfy its cash requirements over the next twelve months and beyond. The Company’s contractual cash requirements have not changed materially since it filed its Form 10-K for the fiscal year ended March 31, 2025. Subsequent to December 31, 2025, $1,545,458 of convertible debt was converted to 405,000 shares of common stock.

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. With the exception of the adoption of accounting principles relating to convertible debt and the fair value of the derivative component thereof, 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.

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 the Company has not yet completed its remediation of the material weaknesses previously identified and disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2025, the end of its most recent fiscal year.

Material weaknesses arose during the fiscal quarter ended September 30, 2025, related to the accounting for complex instruments that continued to exist in the fiscal quarter ended December 31, 2025. The Company plans to remediate the material weakness by engaging an independent expert to calculate the impact of complex instruments presented in the Company’s financial statements.

Material weaknesses arose during the fiscal year ended March 31, 2025, that continued to exist in the fiscal quarter ended December 31, 2025, related to the inherent risk associated with the lack of segregation of duties due to limited staffing in the accounting function. The Company plans to remediate the material weakness by adding additional personnel to the accounting function, which has not yet occurred.

Material weaknesses arose during the fiscal year ended March 31, 2024, that continued to exist in the fiscal quarter ended December 31, 2025, in the management review controls over classification of and disclosure of amounts within the financial statements resulting in revisions of amounts previously published in the March 31, 2024, financial statements. The Company plans to remediate the material weakness by changing to the proper reporting of the classification of amounts, and inclusion of the required disclosures.

Material weaknesses arose during the fiscal year ended March 31, 2024, that continued to exist in the fiscal quarter ended December 31, 2025, in the management review controls over the classification of and accounting for income taxes. The Company plans to remediate the material weakness by engaging an independent expert to review the Company’s current and deferred tax provisions.

Material weaknesses arose during the fiscal year ended March 31, 2024, that continued to exist in the fiscal quarter ended December 31, 2025 in management’s review and control over documentation supporting entries posted to the Company’s general ledger. The Company plans to remediate the material weakness by implementing procedures to improve the review of, and documentation used to support, entries to the Company’s general ledger.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended December 31, 2025.