DeFi Capital Markets, Inc.: Form 10-Q for the period ended Jun 30, 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-month periods ended June 30, 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 fifty-five (55%) 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 June 30, 2025 and 2024

Sales. Net sales for the three months ended June 30, 2025, were $3,824,247 compared to $4,598,516 for the comparable three months in the prior year, a decrease of $774,269 (16.8%). As previously discussed, the Company sold the rights to sell a significant portion of its product line on May 22, 2025. Sales subsequent to this date include only those products which the Company continues to import and market.

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 18 2% and 23.7% of sales for the quarters ended June 30, 2025, and 2024, respectively. Gross margins were negatively impacted in the periods ended June 30, 2025, and 2024 principally due to tariffs, the mix of products sold due to the previously discussed sale of a portion of our business, and higher ocean freight costs.

Expenses. Selling, general and administrative expenses were $1,113,303 for the three months ended June 30, 2025, and $1,397,421 for the comparable three months in the prior year. As a percentage of net sales, these expenses decreased to 29.1% for the three-month period ended June 30, 2025, from 30.4% for the 2024 period. These expenses, as a percentage of net sales, were comparable to the same period of the prior fiscal year.

Engineering and Product Development. Engineering and product development expenses were $112,007 for the three-month period ended June 30, 2025, were comparable to $87,601 for the same quarter of the prior year.

Interest Expense. Our interest income was $3,827 for the quarter ended June 30, 2025, compared to interest expense of $44,888 for the quarter ended June 30, 2024. Interest expense is dependent upon the total amounts borrowed from the Factor and interest rates during the period as compared to the corresponding period of the prior year.

Gain on Sale of Assets. We reported a gain on the sale of assets previously held for sale in the amount of $2,820,668. The purchase price of approximately $4,955,000 was reduced by the basis of the assets held for sale amounting to approximately $1,682,000 and by certain customary costs associated with the sale, including commissions and consulting fees amounting to approximately $834,000.

Provision for Income Taxes. Current and deferred income tax provisions amounting to $122,000 and $361,000, respectively were provided in the current fiscal quarter ended June 30, 2025, to record the expected tax liability associated with net earnings, principally arising as a result of the gain on the sale of assets held for sale. The deferred tax liability is a reversal of the deferred tax asset recorded in the fiscal year ended March 31, 2025, related to the sale of assets held for sale.

Net Income (Loss). We reported net income of $1,810,321 for the quarter ended June 30, 2025, compared to a net loss of $442,206 for the corresponding quarter of the prior fiscal year, a $2,252,527 increase in net income. The primary reason for the increase in the net income is the Company’s sale of a portion of its business, as previously discussed, resulting in a gain on the sale of $2,820,668.

Operating activities provided cash of $2,752,110 for the three months ended June 30, 2025. This was primarily due to a decrease in accounts receivable and amounts due from factor or $1,579,321, a decrease in inventories and prepaid expenses of $3,768,052, net income of $1,810,321, a decrease in deferred tax assets of $361,000, and offset by a decrease in accounts payable and accrued expenses of $1,945,916 and the gain on sale of asset of $2,820,668.

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

Investing activities for the three months ended June 30, 2025, provided cash from the sale of assets, net of the payment of related liabilities, of $2,820,668.

Financing activities used cash of $2,100,458 during the three months ended June 30, 2025, which is comprised of repayments net of advances from the factor. Financing activities provided cash of $1,454,566 during the three months ended June 30, 2024, which is comprised of borrowings net of advances from the factor.

Liquidity and Capital Resources

The Company believes its balances of cash, funds available to borrow under the terms of its factoring agreement, and cash generated by ongoing operations will be sufficient to satisfy its cash requirements over the next twelve months and beyond. The Company’s contractual cash requirements have not changed materially since it filed its Form 10-K for the fiscal year ended March 31, 2025.

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.

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 year ended March 31, 2025, that continued to exist in the fiscal quarter ended June 30, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2025.