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Item 9A. Controls and Procedures

2023-07-14 compared with 2022-07-14 · 93 added, 306 removed, 396 unchanged (50% of the section changed)

7 unchanged sentences

Internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records

that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with US GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company;

4 unchanged sentences

Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of March 31, 2023, 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.

A material weakness arose during the fiscal year ended March 31, 2023, in the management review controls over classification of and disclosure of amounts within the financial statements.

The Company plans to remediate the material weakness by clarification of the classification of amounts and inclusion of the required disclosures.

A material weakness arose during the fiscal year ended March 31, 2023, in the management review controls over the classification of and accounting for income taxes.

The Company plans to remediate the material weakness by clarification of the classification of amounts and inclusion of the required disclosures.

Changes in Internal Control over Financial Reporting

Except for the material weakness noted above there have been no other changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended March 31, 2022.

Except for the material weaknesses noted above there have been no other changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended March 31, 2023.

OTHER INFORMATION

1 unchanged sentence

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

The Board currently consists of four directors.

The Company’s directors are divided into three classes and are elected for terms of three years each and until his successor is elected and qualifies.

The following table sets forth, for each director and executive officer of the Company, his name, age as of March 31, 2022, the year he first became a director and, if applicable, executive officer of the Company and the expiration of his current term.

There are no known arrangements or understandings between any director of the Company and any other person that has been selected as a director.

Presented below is certain information concerning the directors and executive officers of the Company.

Unless otherwise stated, all directors have held the positions indicated for at least the past five years.

Bormel has served as chief financial officer of Berman Enterprises LLC and related companies, a Maryland based owner, developer and manager of office and retail commercial properties, since 1999.

Bormel is also a former chief financial officer of the Company.

Bormel is well qualified to serve as a member of the Board due to his experience as chief financial officer of a multi-million dollar business and his familiarity with the Company’s business and industry.

Grossblatt was Chief Financial Officer of the Company from 1983 until August 2004, Secretary and Treasurer of the Company from 1988 until August 2004, Chief Operating Officer of the Company from April 2003 through August 2004, and Chief Executive Officer since August 2004.

Grossblatt is well qualified to serve as a member of the Board due to his more than a quarter century experience as a member of the Company’s senior management and detailed knowledge of the Company’s operations and home safety products industry.

Cary Luskin has been in the retail electronics business since 1978.

Since 1998, Mr.

Luskin has been President of The Big Screen Store, Inc., a chain of large-screen television retail stores.

Luskin is well qualified to serve as a member of the Board due to his extensive experience in the retail electronics business and senior executive of a public company.

has been in the private practice of ophthalmology since 1977.

From 1977 until 1998, Dr.

Seff practiced with, and was a senior executive of, a large medical practice with four offices in Maryland.

Seff is well qualified to serve as a member of the Board due to his extensive practical business experience gained as a senior executive of a large medical practice in which Dr.

Seff had responsibility for a wide range of business functions.

Seff serves on the Audit and Compensation Committees of the Company and has a broad understanding of the Company, its management, and its operations.

Huff was appointed Chief Financial Officer of the Company in August 2004 and Secretary and Treasurer in October 2004.

Audit Committee

The Audit Committee is appointed by the Board to assist the Board in its duty to oversee the Company’s accounting, financial reporting and internal control functions and the audit of the Company’s financial statements.

The Committee’s responsibilities include, among others, direct responsibility for hiring, firing, overseeing the work of and determining the compensation for the Company’s independent auditors, who report directly to the Audit Committee.

The members of the Audit Committee during the fiscal year ended

March 31, 2022, were Mr.

Bormel (Chairman), Dr.

None of the Audit Committee members is an employee of the Company and each is independent under existing NYSE MKT and SEC requirements.

The Board has examined the SEC’s definition of “audit committee financial expert” and determined that Mr.

Bormel satisfies this definition.

Accordingly, Mr.

Bormel has been designated by the Board as the Company’s audit committee financial expert.

During the fiscal year ended March 31, 2022, the Audit Committee met four times.

The Board has adopted a written charter for the Audit Committee, which is available on the Company’s website, www.universalsecurity.com , under the “Investor Relations” tab.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires that the Company’s directors and executive officers and each person who owns more than 10% of the Company’s Shares, file with the SEC an initial report of beneficial ownership and subsequent reports of changes in beneficial ownership of the Shares.

To the Company’s knowledge, based solely upon the review of the copies of such reports furnished to us, all reporting persons complied with the Section 16(a) filing requirements applicable to them with respect to transactions during the fiscal year ended March 31, 2022.

Code of Ethics

The Company has adopted a Code of Business Conduct and Ethics that is designed to promote the highest standards of ethical conduct by the Company’s directors, executive officers and employees.

The Code of Ethics is posted on the Company’s website, www.universalsecurity.com , under the “Investor Relations” tab.

The information with respect to the identity and business experience of the directors of the Company and their remuneration set forth in the section captioned “Election of Directors” in the Company’s definitive Proxy Statement filed pursuant to Regulation 14A and issued in conjunction with the 2023 Annual Meeting of Shareholders (the “Proxy Statement”) is incorporated herein by reference.

The information with respect to the identity and business experience of executive officers of the Company is set forth in Part I of this Form 10-K.

The information with respect to the Company’s Audit Committee is incorporated herein by reference to the section captioned “Meetings and Committees of the Board of Directors” in the Proxy Statement.

The information with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the section captioned “Compliance with Section 16(a) of the Exchange Act” in the Proxy Statement.

The information with respect to the Company’s Code of Ethics is incorporated herein by reference to the section captioned “Code of Ethics” in the Proxy Statement.

EXECUTIVE COMPENSATION

Summary Compensation Table

The individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during the fiscal year ended March 31, 2022, as well as two of the Company’s most highly compensated employees whose total compensation during the fiscal year exceeded $100,000 (listed in the Summary Compensation Table below), are referred to as the “named executive officers.”

The following table sets forth information regarding the total compensation paid or earned by the named executive officers as compensation for their services in all capacities during the fiscal years ended March 31, 2022, and 2021.

Principal Position

President and CEO

Secretary/Treasurer/CFO

Glenda Anderson,

Sales Manager

Phillip Haigh

Sales Manager

(1) All other compensation for Mr.

Grossblatt for 2022 and 2021, respectively, includes employer 401(k) contributions of $40,815 and $37,852, medical reimbursement and health insurance premiums of $25,209 and $24,858, group life and disability premiums of $5,166 and $5,166, and auto lease value of $852 and $852.

(2) All other compensation for Mr.

Huff for 2022 and 2021, respectively, includes employer match of 401(k) contributions of $5,526 and $5,526, group life and disability premiums of $5,529 and $5,529 and auto lease value or reimbursement allowance of $7,800 and $7,800.

(3) All other compensation for Ms.

Anderson for 2022 and 2021 respectively, includes employer match of 401(k) contributions of $5,461 and $5,461, medical reimbursement and health insurance premiums of $3,304 and $3,304, group life and disability premiums of $3,523 and $3,523, and auto reimbursement allowances of $7,000 and $6,000.

(4) All other compensation for Mr.

Haigh for 2022 and 2021 respectively, includes employer match of 401(k) contributions of $6,000 and $5,010, medical reimbursement and health insurance premiums of $12,600 and $12,600, group life and disability premiums of $3,568 and $3,568, and auto reimbursement allowances of $5,100 and $10,800.

The Company has a defined contribution profit sharing plan covering eligible employees.

The Plan is voluntary with respect to participation and is subject to the provisions of ERISA.

The plan provides for participant contributions of up to 25% of annual compensation, as defined by the plan.

The Company contributes an amount equal to a match of the first three percent (3%) contributed by the employee plus fifty percent (50%) of the next two percent (2%) contributed by the employee with a maximum contribution of four percent (4%).

The Company may contribute an additional amount from its profits as authorized by the Board.

The Company made no additional contributions in fiscal 2022.

Participants in the plan are immediately vested in their and the Company’s contributions, plus actual earnings thereon.

The Company’s fiscal 2022 contributions to the plan on behalf of named executive officers are included in the “All Other Compensation” column in the “Summary Compensation Table” above.

Executive Employment Agreements

The Chief Executive Officer’s compensation is governed largely by his employment agreement with the Company, originally effective April 1, 2002, as amended.

The current employment agreement expires on July 31, 2022.

The employment agreement currently provides that Mr.

Grossblatt’s base annual salary (since April 1, 2007) is $350,000.

Additionally, Mr.

Grossblatt is entitled to bonus compensation for each fiscal year of the Company in which the Company earned pre-tax net income in such fiscal year in excess of a percentage, pre-determined by the Board, of shareholders’ equity as of the start of the fiscal year (which is 4% for the fiscal years ended March 31 2022 and 2021), as follows:

3% of all (after the 4% threshold) pre-tax net income up to $1 million, 4% of pre-tax net income from $1-$2 million, 5% of pre-tax net income from $2-$3 million, 6% of pre-tax net income from $3-$4 million, 7% of pre-tax net income over $4 million.

Grossblatt is also entitled to life, health and disability insurance benefits, medical reimbursement, automobile allowance, and Company paid retirement plan contributions.

If the Employment Agreement is not renewed by the Company or is terminated by Mr.

Grossblatt for good reason, Mr.

Grossblatt is entitled to receive his compensation through any balance of the employment term plus a lump sum payment equal to his last 12 months base salary and bonus, health benefits for three years, and an additional lump sum payment payable on each of the first three anniversaries of the termination equal to the 401(k) plan contribution the Company would have made on behalf of the Company had he remained employed by the Company.

Grossblatt’s employment is terminated following or in anticipation of a “change of control” of the Company, Mr.

Grossblatt will be entitled to receive a lump sum payment equal to his base salary for the balance of the Employment Agreement’s term and the amount of Mr.

Grossblatt’s last bonus plus three times Mr.

Grossblatt’s last 12 months base salary and bonus.

In addition, Mr.

Grossblatt is entitled to receive health benefits for three years, and an additional lump sum payment payable on the anniversary of the termination equal to the 401(k) plan contribution the Company would have made on behalf of the Company had he remained employed by the Company for three years.

In the event of a change in control Mr.

Grossblatt will receive an amount equal to three times his base salary for the last 12 months and the amount of his last bonus, limited to 2.99 times Mr.

Grossblatt’s average annual taxable compensation from the Company which is included in his gross income for the five taxable years of the Company ending before the date on which the change of control occurs.

If the Employment Agreement is terminated by the Company due to Mr.

Grossblatt’s death, Mr.

Grossblatt’s estate is entitled to receive a lump sum payment equal to his base salary for the greater of the balance of the Employment Agreement’s term or one year, reduced by any individual life insurance benefits the premiums for which are paid for by the Company, plus the amount of his last bonus and the amount of the Company’s last 401(k) plan contribution made on behalf of Mr.

In addition, Mr.

Grossblatt’s estate is entitled to the health insurance and medical reimbursement benefits for the longer of the balance of the term or three years following the date of death, or the cash equivalent thereof.

If the Employment Agreement is terminated by the Company due to Mr.

Grossblatt’s disability, Mr.

Grossblatt is entitled to the continuation of the payment of his base salary for the balance of the term, reduced by any group or individual disability income insurance benefits the premiums for which are paid for by the Company and Social Security disability benefits paid to Mr.

In addition, Mr.

Grossblatt is entitled to the health insurance and medical reimbursement benefits and a payment equal to the 401(k) plan

contribution the Company would have made on behalf of the Company had he remained employed by the Company, for the longer of the balance of the term or three years following the date of disability, or the cash equivalent thereof.

The Employment Agreement generally prohibits Mr.

Grossblatt from competing with the Company during the term and during any subsequent period during which he receives compensation from the Company.

Potential Payments upon Termination or Change in Control

The table below shows the estimated incremental value transfer to Harvey B.

Grossblatt, the only named executive officer who is contractually entitled to compensation upon termination or a change in control, under various scenarios relating to a termination of employment.

Please refer to the discussion titled “Executive Employment Agreements”, above, in this Executive Compensation Section for a description of the circumstances that would trigger payments and benefits upon termination or a change in control.

The tables below assume that such termination occurred on March 31, 2022, the last day of the Company’s 2022 fiscal year.

The Company’s stock price on the last business day of its 2022 fiscal year was $4.25.

The actual amounts that would be paid to any named executive officer can only be determined at the time of an actual termination of employment and would vary from those listed below.

The estimated and approximate amounts listed below are in addition to any other benefits that are available to employees generally.

minus benefits

Health Benefits

401(k) Contribution

(1) Limited to 2.99 times Mr.

(2) Lump sum payment equal to Mr.

Grossblatt’s last 12 months base salary and bonus.

(3) The aggregate of the health benefits for the first three years following the termination.

(4) The aggregate of the respective annual lump sum payments, payable on each of the first three anniversaries of the termination, equal to the 401(k) plan contribution the Company would have made on behalf of the Company had Mr.

Grossblatt remained employed by the Company.

(5) Lump sum payment equal to Mr.

Grossblatt’s annual base salary for the balance of the employment period and last bonus, plus three times Mr.

Grossblatt’s last 12 months base salary and bonus limited to 2.99 times Mr.

Grossblatt’s average annual taxable compensation.

Grossblatt’s estate is entitled to the health insurance and medical reimbursement benefits for the longer of the balance of the employment term or three years following the date of death, or the cash equivalent thereof.

(7) This amount assumes a disability occurs on the date of signing of the agreement.

Director Compensation

The following table summarizes the compensation paid to directors for the fiscal year ended March 31, 2022:

The information required by this item is incorporated herein by reference to the sections captioned “Director Compensation” and “Executive Compensation” in the Proxy Statement.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table reflects the names and addresses of the only persons known to the Company to be the beneficial owners of 5% or more of the Shares outstanding as of June 30, 2022.

For purposes of calculating beneficial ownership, Rule 13d-3 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) requires inclusion of Shares that may be acquired within sixty days of June 30, 2022.

Unless otherwise indicated in the footnotes to this table, beneficial ownership of Shares represents sole voting and investment power with respect to those Shares.

Name and Address

of Beneficial Owner

Beneficially Owned

The following table sets forth information with respect to the beneficial ownership of the Shares on June 30, 2022, by (i) each executive officer of the Company named in the Summary Compensation Table, (ii) each current director and each nominee for election as a director and (iii) all directors and executive officers of the Company as a group.

For purposes of calculating beneficial ownership, Rule 13d-3 of the Exchange Act requires inclusion of Shares that may be acquired within sixty days of June 30, 2022.

Unless otherwise indicated in the footnotes to this table, beneficial ownership of Shares represents sole voting and investment power with respect to those Shares.

Shares Beneficially

Name of Beneficial Owner

Percent of Class

All directors and executive officers as a group (5 persons)

The information required by this item regarding security ownership is incorporated herein by reference to the sections captioned “Beneficial Ownership” and “Information Regarding Share Ownership of Management” in the Proxy Statement.

Information required by this item regarding our equity compensation plans is incorporated herein by reference to the Section entitled “Executive Compensation” in the Proxy Statement.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Pursuant to its written charter, the Audit Committee of the Board of Directors of the Company reviews and approves all transactions with related persons that are required to be disclosed under applicable regulation.

During the fiscal year ended March 31, 2022, and 2021, inventory purchases and other company expenses of approximately $1,582,000 and $1,206,000, 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.

Grossblatt receives travel mileage and other credit card benefits from these charges.

The maximum amount outstanding and due to Mr.

Grossblatt at any point during the fiscal year ended March 31, 2022, and 2021 may include amounts submitted for personal expense reimbursement and amounts paid by Mr.

Grossblatt for inventory purchases or other company expenses and amounted to approximately $211,000 and $158,000, respectively, and the amount outstanding at March 31, 2022 and 2021 is approximately $44,000 and $51,000, respectively.

The following table sets forth, for each director, whether such individual has been determined by the Board to be “independent” as defined in Section 803.A.

of the NYSE MKT LLC Company Guide.

The information required by this item is incorporated herein by reference to the sections captioned “Transactions with Management”, if any, and “Election of Directors” in the Proxy Statement.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following is a description of the fees billed to the Company by Marcum LLP (the “Auditor”) during the fiscal year ended March 31, 2022, and 2021:

Audit fees include fees billed by the Auditor, for the fiscal years ended March 31, 2022 and 2021, in connection with the annual audits of the Company’s consolidated financial statements, and review of the Company’s interim financial statements.

Audit fees also include fees for services performed by the Auditor that are closely related to the audit and in many cases could only be provided by the Auditor.

Such services include consents related to Securities and Exchange Commission and other regulatory filings.

The aggregate fees for audit services for the fiscal years ended March 31, 2022, and 2021 totaled approximately $208,000 and $196,000 respectively.

Audit Related Fees .

Audit related services include due diligence services related to accounting consultations, internal control reviews and employee benefit plan audits.

There were no fees billed for audit related services paid by the Company during the fiscal years ended March 31, 2022, and 2021.

Tax fees include corporate tax compliance, advisory and planning services.

There were no tax related services provided in fiscal years ended March 31, 2022, and 2021.

All Other Fees.

There were no other fees for services provided in the fiscal years ended March 31, 2022, and 2021.

The Company’s Audit Committee reviews all fees charged by the Company’s independent auditors, and actively monitors the relationship between audit and non-audit services provided.

The Audit Committee must pre-approve all audit and non-audit services provided by the Company’s independent auditors and fees charged.

The information required by this item is incorporated herein by reference to the section captioned “Independent Registered Public Accountants” in the Proxy Statement.

Financial Statements .

Report of Independent Registered Public Accounting Firm PCAOB ID # 688

Report of Independent Registered Public Accounting Firm - PCAOB# 688

Consolidated Balance Sheets as of March 31, 2023, and 2022

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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.

Amendment to Lease between Universal Security Instruments, Inc.

1-31747) , as amended by Amendment to Lease 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) and Amendment to Lease between Universal Security Instruments, Inc.

John Properties, Inc.

dated March 3, 2022.*

dated March 3, 2022 (Amendment to Lease dated June 23, 2009 (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2022, File No.

Amended and Restated Employment Agreement dated July 18, 2007 between the Company and Harvey B.

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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 ), and by addendum dated July 28, 2021 ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 28, 2021, File No.

Subsidiaries of the Registrant*

1-31747), by addendum dated July 28, 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.

Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2022, File No.

Independent Registered Public Accounting Firm’s Consent

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and (v) Notes to Consolidated Financial Statements*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed herewith.

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Trade, less allowance for doubtful accounts

Receivables from employees

Other receivables

Amount due from factor

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TOTAL CURRENT LIABILITIES

NOTE PAYABLE – Eyston Company Ltd.

LONG-TERM PORTION OF OPERATING LEASE LIABILITY

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Selling, general and administrative expense

Research and development expense

Engineering and product development expense

Operating income

Other (expense) income:

Forgiveness of debt – PPP Loan

Other expense:

Interest expense, net

(Loss) Earnings before income taxes

Earnings (loss) before income taxes

Income tax expense

NET (LOSS) INCOME

(Loss) Earnings per share:

NET INCOME (LOSS)

Earnings (loss) per share:

Basic and diluted

Shares used in computing net (loss) earnings per share:

Weighted average basis and diluted shares outstanding

Shares used in computing net earnings (loss) per share:

Weighted average basic and diluted shares outstanding

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

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OPERATING ACTIVITIES:

Net (Loss) Income

Adjustments to reconcile net (loss) income to net cash (used by) provided by operating activities:

Net Income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities:

Depreciation and amortization

Forgiveness of debt – Paycheck Protection Program

Depreciation of right-of-use asset

(Decrease) Increase in allowance for inventory and accounts receivable reserves

Depreciation of right-of-use asset and decrease in other assets

Decrease in allowance for inventory reserve

Changes in operating assets and liabilities:

Increase in accounts receivable and amounts due from factor

Decrease (Increase) in accounts receivable and amounts due from factor

( 1,506,650 )

(Increase) Decrease in inventories

Decrease (Increase) in inventories

( 1,977,868 )

Decrease (Increase) in prepaid expenses

Increase in accounts payable and accrued expenses

Decrease in prepaid expenses

(Decrease) Increase in accounts payable and accrued expenses

( 1,918,493 )

Decrease in operating lease liability

NET CASH (USED BY) PROVIDED BY OPERATING ACTIVITIES

NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES

( 1,860,051 )

FINANCING ACTIVITIES:

Proceeds from – Paycheck Protection Program

Net borrowing (repayment) of line of credit - factor

Repayment of Note Payable - Eyston

( 1,081,440 )

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Net (repayment) borrowing of line of credit - factor

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

( 1,779,176 )

INCREASE IN CASH

Cash at beginning of period

CASH AT END OF PERIOD

(DECREASE) INCREASE IN CASH

Cash at beginning of year

CASH AT END OF YEAR

Supplemental information:

2 unchanged sentences

Supplemental disclosures of non-cash activities:

Conversion of trade accounts payable to note payable

Right-of-use asset in exchange for operating lease liability

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a Delaware corporation (“Merger Sub”) and Infinite Reality, Inc., a Delaware corporation (“Infinite Reality”).

The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Infinite Reality, with Infinite Reality continuing as the surviving corporation and wholly owned subsidiary of the Company (the “Merger”).

The Merger will become effective at the time when the certificate of merger has been duly filed or such later date specified in the filed certificate (the “Effective Time”).

As a result, immediately following the Effective Time, the former Infinite Reality stockholders will hold approximately 97.6 % of the outstanding shares of USI Common Stock and the stockholders of USI will retain ownership of approximately 2.4 % of the outstanding shares of USI Common Stock.

The directors and officers of Infinite Reality prior to the Effective Time will remain the directors and officers after the Effective Time, until their resignation or removal.

At the Effective Time, the Company will take the actions required to replace the officers and directors of the Company with designees by Infinite Reality.

At the Effective Time, the parties intend for the Company to convert from a Maryland corporation to a Delaware corporation.

Pursuant to the Merger Agreement, Infinite Reality shareholders acquire the right to convert their Infinite Reality common stock held immediately prior to the Merger into the Company common stock.

Holders of the Company’s common stock prior to the Effective Time (“Legacy Shareholders”) may also receive a dividend of the Company common stock if the market capitalization of the Company is less than $ 500 million within 180 days after the Effective Time.

Under the terms of the Merger Agreement, the Company current operating business will continue, and the Company has agreed to use its best efforts to sell or spin off its business operations prior to the Effective Time.

In the event the Company’s current business operations are not sold or otherwise divested by the Effective Time, a Contingent Value Rights Agreement will issue to each Legacy Shareholder.

The Merger Agreement includes customary rights of each party to terminate the Merger Agreement, including:

in the event shareholder approval is not obtained;

if the Company’s shares are not approved for continued listing by the NYSE MKT LLC following the Effective Time;

and if a party receives a superior offer and complies with the terms of the Merger Agreement regarding accepting such offer.

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.

If USI or Infinite Reality accepts a superior offer and terminates the Merger Agreement, the terminating party will pay a breakup fee to the non-terminating party covering its out-of-pocket expenses, subject to a cap of $ 100,000 , plus 4 % of the market capitalization of USI as of the Effective Date.

On December 12, 2022, Infinite Reality terminated the Merger Agreement.

Principles of Consolidation:

1 unchanged sentence

All significant intercompany accounts and transactions have been eliminated in consolidation.

Other accounts receivable for the fiscal year ended March 31, 2022, were reclassified to achieve uniformity with the presentation of other accounts receivable for the fiscal year ended March 31, 2023.

Use of Estimates:

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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.

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.

Shipping and handling costs associated with outbound freight, after control over a product has transferred to a customer, are accounted for as a cost to complete the sale and are recorded in selling, general and administrative expense.

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.

2 unchanged sentences

The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for products sold.

Purchase orders may contain stand-alone pricing applied to each of the multiple products ordered.

Revenue is recorded at the transaction price net of estimates of variable consideration.

3 unchanged sentences

The Company presents below revenue associated with sales of safety alarm products 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.

The Company believes this

disaggregation best depicts how our various product lines perform and are affected by economic factors.

Revenue recognized by these categories for the fiscal years ended March 31, 2023, and 2022 are as follows:

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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.

See Note E, Leases.

See Note D, Leases.

Income Taxes:

4 unchanged sentences

Interest and penalties, if any, related to income tax matters are recorded as income tax expenses.

See Note F, Income Taxes.

See Note E, Income Taxes.

We generally provide warranties, on the safety products, from one to ten years to the non-commercial end user on all products sold.

1 unchanged sentence

Claims for warranty replacement of products beyond the one-year warranty period covered by the manufacturers have not been historically material.

Research and Development:

Research and development costs are charged to operations as incurred.

Engineering and Product Development:

Engineering and product development costs are charged to operations as incurred.

Shipping and Handling Fees and Costs:

2 unchanged sentences

Shipping and handling costs associated with outbound freight are included in selling, general and administrative expenses and totaled $ 524,016 and $ 426,740 in fiscal years 2023 and 2022, respectively.

Net (Loss) Earnings per Share:

Basic net (loss) earnings per share is computed by dividing net (loss) income for the period by the weighted average number of common shares outstanding during the period.

Diluted (loss) earnings per share is computed by dividing net (loss) income for the period by the weighted average number of common shares and common share equivalents outstanding (unless their effect is anti-dilutive) for the period.

Net Earnings (Loss) per Share:

Basic net earnings (loss) per share is computed by dividing net income (loss) for the year by the weighted average number of common shares outstanding during the year.

Diluted earnings (loss) per share is computed by dividing net income (loss) for the year by the weighted average number of common shares and common share equivalents outstanding (unless their effect is anti-dilutive) for the year.

As a result, the weighted average number of common shares outstanding is identical for both basic and diluted shares.

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The Company considers the applicability and impact of all ASU’s.

In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments .” The guidance in ASU 2016-13 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

It replaces the existing incurred loss impairment model with an

expected loss methodology, which will result in more timely recognition of credit losses.

The Company adopted this guidance as of April 1, 2020, and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

NOTE B – LIQUIDITY AND MANAGEMENT’S PLAN

As the Company previously reported, on August 31, 2020, the Company received a letter from NYSE American LLC (the “Exchange”) stating that the Exchange has determined that the Company is not in compliance with the Exchange’s continued listing requirements as the result of the Company’s failure to maintain stockholders’ equity of $ 6.0 million after reporting losses from continuing operations and/or net losses in its five most recent fiscal years.

On October 1, 2021, the Company received a letter from the Exchange notifying the Company that it is now in compliance with the continued listing standards of the Exchange and that the Company has resolved the continued listing deficiency previously referenced.

The Company reported a net loss of $ 78,150 for the fiscal year ended March 31, 2022 and net income of $ 268,343 for the year ended March 31, 2021.

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

We are not yet able to quantify the full impact of the COVID-19 pandemic on our sales and financial results.

While sales increased when compared to sales for the comparable 2021 period, delivery schedules have been delayed and freight costs have increased significantly.

Sales growth has been due primarily to increased sales to electrical distributors reflecting increased housing demand and increased retail sales to large national retailers.

Short-term borrowings to finance operations, trade accounts receivable, and foreign inventory purchases are provided pursuant to the terms of the Factoring Agreement with Merchant.

Advances from the Company’s factor are at the sole discretion of Merchant based on their assessment of the Company’s receivables, inventory and financial condition at the time of each request for an advance.

The unused availability of this facility totaled approximately $ 11,000 at March 31, 2022.

Management expects our product offerings including sealed battery alarm and ground fault circuit interrupter products will compete on price and functionality with similar products offered by our larger competitors.

While we believe there will be market acceptance of our products, we cannot be assured of this.

Should our products not achieve the level of acceptance we anticipate, this could have a significant impact on our future operations, and our sales may decline, potentially impacting our ability to continue operating in our current fashion.

The Company has a history of sales that are insufficient to generate profitable operations and has limited sources of financing.

Management’s plan in response to these conditions continues to be to increase sales resulting from the delivery of the Company’s line of sealed battery ionization smoke alarms, carbon monoxide products, and ground fault circuit interrupters.

In addition, the Company 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 principal balance of approximately $ 1,081,000 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 approximately $ 560,000 of the Company's accounts receivable subject to resolution of delivery disputes with a major customer.

The resolution of these items has been ongoing and subsequent to March 31, 2022, the customer has been making payments as proof of delivery is confirmed.

The Company expects that all amounts in dispute will be resolved satisfactorily and that availability of approximately $ 560,000 in operating cash flow will become available under the factoring agreement subsequent to March 31, 2022.

Finally, 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 duty.

The Company expects this refund to be available during the second quarter of fiscal year 2023.

The Company has seen positive results on this plan as reflected by increased sales of its product offerings.

Management expects sales growth to continue going forward.

Though no assurances can be given, if management’s plan continues to be successful over the next twelve months, the Company anticipates that it should be able to meet its cash needs 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.

NOTE C – SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS

NOTE B – SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS

On January 15, 2015, the Company entered into an Agreement with Merchant for the purpose of factoring the Company’s trade accounts receivable and to provide financing secured by finished goods inventory.

2 unchanged sentences

The over advance portion, if any, may not exceed fifty percent (50%) of eligible inventory up to a maximum of $500,000.

Subject to a temporary modification agreement effective on August 11, 2021, and which subsequently expired on November 30, 2021, the over advance portion, if any, may not exceed fifty percent ( 50 %) of eligible inventory up to a maximum of $ 1,500,000 .

The Agreement, which was extended and expires on January 6, 2024 , provides for continuation of the program for successive two-year periods until terminated by one of the parties to the Agreement.

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The uncollected balance of receivables held by the factor amounted to $ 2,944,370 and $ 2,792,901 at March 31, 2023 and 2022.

Included in the uncollected balance of receivables held by the factor are amounts classified by the factor as amounts at client risk of $ 589,000 and $ 238,000 at March 31, 2022 and 2021, respectively.

Included in the uncollected balance of receivables held by the factor are amounts classified by the factor as amounts at client risk of approximately $ 633,000 and $ 589,000 at March 31, 2023 and 2022, respectively.

Collected cash maintained on deposit with the factor earns interest at the factor’s prime rate of interest less 2.5 percent (effective rate of 5.50% and 1.00% at March 31, 2023 and 2022, respectively.) There was no cash on deposit with the Factor at March 31, 2023 or 2022.

In May, 2020 the Company received a Paycheck Protection Program loan of $ 221,400 under the Coronavirus Aid, Relief and Economic Security Act (CARES) and during the fiscal year ended March 31, 2021, the loan was forgiven in compliance with the provisions of the CARES Act.

NOTE D – PROPERTY AND EQUIPMENT - NET

NOTE C – PROPERTY AND EQUIPMENT - NET

Property and equipment are recorded at cost, less accumulated depreciation and amortization.

22 unchanged sentences

Right-of-use lease assets of $ 311,527 and $ 467,291 , net, are included in leasehold improvements in Property and Equipment on the Consolidated Balance Sheets as of March 31, 2023, and 2022, respectively.

NOTE E – LEASES

NOTE D – LEASES

The Company is a lessee in lease agreements for office space.

3 unchanged sentences

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, and 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.

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.

3 unchanged sentences

The Company maintains an operating lease for office space in Naperville, Illinois.

This lease, consisting of 3,400 square feet, was renewed and extends through February 2023.

The monthly rental, with common area maintenance, approximated $ 4,900 per month during the current fiscal year.

Included are 2 additional one-year renewal options that are not included in the measurement of the lease term.

This lease, consisting of 3,400 square feet, and renews on a month-to-month basis.

The monthly rental, with common area maintenance, was approximately $ 4,900 per month during the current fiscal year.

Our operating leases for real estate are generally renewable with terms and conditions similar to the original lease.

1 unchanged sentence

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.

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 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.

1 unchanged sentence

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.

1 unchanged sentence

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 March 31, 2022 the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases is three years and 5.5 %, respectively.

As of March 31, 2023, the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases is two years and 5.5 %, respectively.

During the fiscal year ended March 31, 2023, the cash paid for amounts included in the measurement of lease liabilities related to the Company’s operating leases was $ 143,989 , which is included as an operating cash outflow within the consolidated statements of cash flows.

2 unchanged sentences

As of March 31, 2021 the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases is one year and 6.0 %, respectively.

As of March 31, 2022, the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases is three years and 5.5 %, respectively.

During the fiscal year ended March 31, 2022, the cash paid for amounts included in the measurement of lease liabilities related to the Company’s operating leases was $ 175,770 , which is included as an operating cash outflow within the consolidated statements of cash flows.

During the fiscal year ended March 31, 2022, the operating lease costs related to the Company’s operating leases was $ 175,770 which is included in operating costs and expenses in the consolidated statements of operations.

During the fiscal years ended March 31, 2021 the Company did not enter into a material lease agreement set to commence in the future and there were no newly leased assets for which a right-of use asset was recorded in exchange for a new lease liability, other than those lease assets recorded upon implementation.

The future minimum payments under operating leases were as follows at March 31, 2023:

4 unchanged sentences

Long-term portion of operating lease obligations

NOTE F – INCOME TAXES

NOTE E – INCOME TAXES

The Company files its income tax returns in the U.S.

4 unchanged sentences

The deferred tax liabilities and assets for the Company result primarily from net operating loss and tax credit carry forwards, reserves, and accrued liabilities.

At March 31, 2022, the Company has total net federal operating loss carry forwards of approximately $ 5,537,000 .

At March 31, 2023, the Company has total net federal operating loss carry forwards and of approximately $ 5,253,000 that has no fixed expiration date.

In addition, the Company has research and development tax credit carry forwards of approximately $62,000 that begin to expire in the fiscal year ending 2030.

There are certain limitations to the use and application of these items.

Management reviews net operating loss carry forwards and income tax credit carry forwards to evaluate if those amounts are recoverable.

After a review of projected taxable income and the components of the deferred tax assets 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.

After a review of projected taxable income, the components of the deferred tax asset, and the current global economic conditions including unresolved supply chain issues related to the acquisition of electronic microchips, 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 prior 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.

6 unchanged sentences

State income tax (benefit) – net of federal effect

Expiration of tax credits

Change in deferred tax asset valuation allowance

Current income tax expense

The individual components of the Company’s deferred tax assets are as follows:

1 unchanged sentence

Accruals and allowances

Non deductible capitalized inventory and reorganization expenditures

Non-deductible capitalized inventory

Net operating loss carry forward

Foreign tax credit carry forward

Research and development tax credit carry forward

3 unchanged sentences

Net deferred tax asset

NOTE G – COMMITMENTS AND CONTINGENCIES

NOTE F – COMMITMENTS AND CONTINGENCIES

From time to time, the Company is involved in various lawsuits and legal matters.

It is the opinion of management, based on consultation with legal counsel, that there are no outstanding material claims outside of the normal course of business.

The Company’s employment agreement with its CEO (the “CEO Agreement”) requires the Company to make certain post-employment payments to the CEO in the event of his termination following a change in control, death, disability, non-renewal, or resignation with “Good Reason” under terms of the CEO Agreement.

Additionally, the CEO Agreement requires the Company to make post-employment payments, which can range from approximately $ 74,000 to $ 2,048,000 , dependent upon the controlling event, as discussed above.

In July, 2021, the Company renewed the CEO Agreement through July 31, 2022.

NOTE H - CONCENTRATIONS

In June, 2023, the Company renewed the CEO Agreement through July 31, 2024.

NOTE G - 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 had no customers in the fiscal year that ended March 31, 2022, that represented greater than 10% of the Company’s net sales.

The Company had one customer in the fiscal year that ended March 31, 2022, that represented 13.6 % of the Company’s accounts receivable on March 31, 2022.The Company had a different customer during the fiscal year ended March 31, 2021 that represented 21.9 % of the Company's net sales.

The Company had one customer during the fiscal year ended March 31, 2023, that represented 18.2 % of the Company’s net sales, and no customers in the fiscal year that ended March 31, 2022, that represented greater than 10% of the Company’s net sales.

The Company had no customers in the fiscal year ended March 31, 2023, that represented greater than 10% of the Company’s accounts receivable, and one customer in the fiscal year ended 2022, that represented 13.6 % of the Company’s accounts receivable on March 31, 2022.

The Company acquires all the smoke alarm and carbon monoxide alarm safety products that it sells from Eyston Company, Ltd.

1 unchanged sentence

At March 31, 2023, and 2022, the Company had accounts receivable due from Eyston of $ 75,947 and $ 358,958 , respectively.

NOTE I – RETIREMENT PLAN

NOTE H – RETIREMENT PLAN

The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code.

3 unchanged sentences

Employer contributions were $ 45,777 and $ 43,688 for the years ended March 31, 2023, and 2022, respectively.

NOTE J – RELATED PARTY TRANSACTIONS

NOTE I – RELATED PARTY TRANSACTIONS

During the fiscal year ended March 31, 2023, and 2022, inventory purchases and other company expenses of approximately $ 1,748,000 and $ 1,582,000 , respectively, were charged to credit card accounts of Harvey B.

4 unchanged sentences

Grossblatt at any point during the fiscal year ended March 31, 2023, and 2022 may include amounts submitted for personal expense reimbursement and amounts paid by Mr.

Grossblatt for inventory purchases or other company expenses and amounted to approximately $ 211,000 and $ 158,000 , respectively, and the amount outstanding at March 31, 2022 and 2021 is approximately $ 44,000 and $ 51,000 , respectively.

NOTE K – INTANGIBLE ASSETS - NET

Grossblatt for inventory purchases or other company expenses and amounted to approximately $ 217,000 and $ 211,000 , respectively.

The amount outstanding at March 31, 2023 and 2022 is approximately $ 0 and $ 44,000 , respectively.

NOTE J – INTANGIBLE ASSETS - NET

Intangible assets consist of legal expenses of $ 89,434 incurred in obtaining and perfecting patents used by the Company in newly developed detector technology and are capitalized for financial statement purposes.

3 unchanged sentences

Amortization expense for the next five years is expected to be $ 4,472 per fiscal year through 2027.

NOTE L – NOTE PAYABLE – EYSTON COMPANY, LTD.

NOTE K – 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.

1 unchanged sentence

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 % ( 5.5 % effective rate at March 31, 2022) and is payable monthly.

NOTE M – SHAREHOLDERS’ EQUITY

The balance of the note payable at March 31, 2023 is $ 0 .

NOTE L – SHAREHOLDERS’ EQUITY

Under the terms of the Company’s 2011 Non-Qualified Stock Option Plan, 120,000 shares of common stock are reserved for the granting of stock options.

There were no stock options outstanding at March 31, 2023 or 2022.

NOTE N – SUBSEQUENT EVENTS

On May 16, 2022, the Company filed registration statement Form S-4 with the Securities Exchange Commission.

The registration statement indicates that subject to shareholder approval, regulatory approval, and acceptance by the New York Stock Exchange, the Company has agreed to a reverse merger transaction with Infinite Reality, Inc.

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.

To our knowledge, none of the defendants has yet been served.

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, once served, the Company will aggressively defend the suit.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures