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Item 7. Management’s Discussion and Analysis

2025-07-29 compared with 2024-07-12 · 67 added, 38 removed, 94 unchanged (53% of the section changed)

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We do not undertake and specifically disclaim any obligation to update any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

We are in the business of marketing and distributing safety and security products which are primarily manufactured in the Peoples Republic of China (PRC).

During the period covered by this Annual Report, we were in the business of marketing and distributing safety and security products which are primarily manufactured in the Peoples Republic of China (PRC).

Our consolidated financial statements detail our sales and other operational results.

Accordingly, the following discussion and analysis of the fiscal years ended March 31, 2024, and 2023 relate to the operational results of the Company and its consolidated subsidiaries.

Accordingly, the following discussion and analysis of the fiscal years ended March 31, 2025, and 2024 relate to the operational results of the Company and its consolidated subsidiary.

Our overall sales are primarily dependent upon the strength of the U.S.

housing market.

As stated elsewhere in this report, our USI Electric subsidiary markets our products to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies);

conditions that impact new home construction and new home sales directly impacts sales by our USI Electric subsidiary.

As stated elsewhere in this report, our Universal Electric subsidiary markets our products to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies);

conditions that impact new home construction and new home sales directly impacts sales by our Universal Electric subsidiary.

Our operating results for the fiscal years ended March 31, 2025, and 2024 continue to be dependent upon the economic conditions of the U.S.

housing market.

We further believe that the movement of the smoke and carbon monoxide alarm retail markets toward ten-year sealed alarms to comply with new laws passed in several states will benefit future sales of our line of ten-year sealed battery units, GFCI’s, and other electrical devices.

The importation of certain wiring devices, carbon-monoxide alarms, and photo-electric alarms are currently subject to tariffs of 25%.

The importation of certain wiring devices, carbon-monoxide alarms, and photo-electric alarms are currently subject to tariffs of 25%, and subsequent to March 31, 2025 tariffs on these products increased to 55%.

The imposition of and modification of tariffs during the latter half of the current 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.

Subsequent to the May 22, 2025 asset sale to Feit, we intend to continue importing and marketing our product lines other than smoke alarms and carbon monoxide alarms and we are exploring.

Our ability to sell those products at competitive prices depends, among other things, on the tariffs to which imports of those products will be subject.

We also are exploring strategic alternatives available to the Company and other business opportunities to drive long-term value for our shareholders.

As previously announced, on April 15, 2025, the Company entered into a Memorandum of Understanding (MOU) with Ault & Company, Inc., a Delaware corporation (“A&C”), with respect to the investment in the Company of operating capital for a business to be mutually agreed upon by the Company and A&C.

In accordance with provisions of the MOU, the Company added two Board of Director seats and appointed new directors selected by A&C to fill the available seats.

Comparison of Results of Operations for the Years Ended March 31, 2025 and 2024

In fiscal year 2024, our net sales were $19,902,673 compared to sales in the prior year of $22,178,873, a decrease of $2,276,200 (10.3%).

The decrease in sales was primarily due to decreased sales to existing retail customers as a result of delays in obtaining certain electronic components used in manufacturing our products and due to delays in ocean freight shipments.

In fiscal year 2025, our net sales were $23,563,554 compared to sales in the prior year of $19,517,673, an increase of $4,045,881 (20.7%).

The increase in the net income for the fiscal year ended March 31, 2025, is attributed primarily to an increase in sales to retail customers, and to recording an income tax benefit associated with the reversal of a portion of the reserve for deferred tax assets arising from the gain on the sale of assets discussed above.

In addition, as further discussed later, certain revisions increasing the net loss in the prior year have been recorded.

Gross Profit.

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Our gross profit percentage for the fiscal year ended March 31, 2025, was 29.0% compared to 28.7% in fiscal 2024.

The increase in 2024 gross margin is attributed to variations in the mix of products sold as certain products are subject to tariff charges that directly impact gross margin.

Changes in gross margin is generally attributed to variations in the mix of products sold as certain products are subject to tariff charges that directly impact gross margin.

Selling, General and Administrative Expense.

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As a percentage of net sales, these expenses were 25.5% for the fiscal year ended March 31, 2025, and 29.4% for the fiscal year ended March 31, 2024.

These expenses increased as a percentage of net sales as they do not change in direct proportion to a change in sales.

These expenses increased as a dollar amount due primarily to increases in the provision for credit losses, salaries as the prior fiscal year reflected an employee retention credit, and due to increased freight costs, insurance, and professional fees.

These expenses decreased as a percentage of net sales as they do not change in direct proportion to a change in sales.

These expenses increased as a dollar amount due primarily to increased freight costs, insurance, and professional fees.

Engineering and Product Development.

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Engineering and product development expense for the fiscal year ended March 31, 2024, was $427,234.

The increase in overall engineering and product development expense for the 2024 period compared to the 2023 period was due to independent testing of products.

Net Interest Expense and Interest Income.

For the fiscal years ended March 31, 2024, and 2023, the Company incurred net interest expense of $155,731 and $237,686, respectively, related to borrowing costs associated with interest paid on amounts borrowed from our factor.

The decrease in interest expense resulted primarily from decreased borrowing from our factor during the fiscal year ended March 31, 2024.

Engineering and product development expense for the 2025 period was comparable to the 2024 period.

Interest Expense and Interest Income.

For the fiscal years ended March 31, 2025, and 2024, the Company incurred interest expense of $262,365 and $155,731, respectively, related to borrowing costs associated with interest paid on amounts borrowed from our factor.

The increase in interest expense resulted primarily from increased borrowing from our factor during the fiscal year ended March 31, 2025.

For the fiscal year ended March 31, 2024, the Company received interest income of $24,746 related to refunds of customs payments made in the prior fiscal year.

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For the fiscal years ended March 31, 2025, and 2024, our statutory Federal tax rate was 20.0%.

The Company has accumulated net operating losses and other income tax credits for which a full valuation allowance has been established.

The Company has accumulated net operating losses and other income tax credits for which a partial valuation allowance has been established.

Accordingly, income taxes or deferred income tax benefits indicated by the provision for income taxes as shown on the Consolidated Statements of Operations for the fiscal years ended March 31, 2025, and 2024, varies from the expected statutory rate.

Footnote E to the financial statements provides a reconciliation of the amount of tax that would be expected at statutory rates and the amount of tax expense or benefit provided at the effective rate of tax for each fiscal period.

Net (Loss) Income.

We reported a net loss of $395,790 for the fiscal year 2024, compared to net income of $720,411 for fiscal 2023, a decrease of $1,116,201 (154.9%) in net income.

The net loss for the fiscal year ended March 31, 2024, is attributed to decreased sales resulting from manufacturing delays caused by shortages of critical components and to delays experienced in ocean freight shipments, to increases in salaries as the prior fiscal year reflected an employee retention credit, an increase in the provision for credit losses, and due to increased freight costs, insurance, and professional fees.

Footnote F to the financial statements provides a reconciliation of the amount of tax that would be expected at statutory rates and the amount of tax expense or benefit provided at the effective rate of tax for each fiscal period.

We reported net income of $500,684 for the fiscal year 2025, compared to a net loss of $695,790 for fiscal 2024, an increase in net income of $1,196,474 (172.0%).

The increase in the net income for the fiscal year ended March 31, 2025, is attributed to the increase in sales associated with the initial placement sale to a large national retail customer and a deferred tax benefit attributed to the sale of certain assets to Feit as previously discussed.

Financial Condition, Liquidity and Capital Resources

The Company reported a net loss of $395,790, and net income of $720,411 for the years ended March 31, 2024, and 2023, respectively.

As of March 31, 2024, working capital (computed as the excess of current assets over current liabilities) decreased by $391,075 from $5,176,475 on March 31, 2023, to $4,785,400 on March 31, 2024.

Our operating activities provided cash of $604,076 for the year ended March 31, 2024.

Operating activities provided cash principally by decreasing trade accounts receivable and amounts due from factor of $354,794, and by increasing accounts payable and accrued expenses by $1,382,394 and offset by increases in inventories of $688,194, increased prepaid expenses of $61,354, and a net loss of $395,790.

The Company reported net income of $500,684, and a net loss of $695,790 for the years ended March 31, 2025, and 2024, respectively.

As of March 31, 2025, working capital (computed as the excess of current assets over current liabilities) increased by $678,311 from $4,485,400 on March 31, 2024, to $5,163,711 on March 31, 2025.

Our operating activities used cash of $1,048,612 for the year ended March 31, 2025.

Operating activities used cash principally by increasing trade accounts receivable and amounts due from factor of $1,090,710, increased inventory of $227,396, by decreasing accounts payable, accrued expenses, and lease liability by $350,758, and offset by prepaid expenses of $81,442, and net income of $500,684.

In addition, the following non-cash items are reflected in net cash used in operating activities:

depreciation and amortization amounted to $164,126, the change in the allowance for excess and obsolete inventory of $300,000, and was offset by changes in the allowance for credit losses of $65,000, and an income tax benefit of $361,000.

Our operating activities provided cash of $604,076 for the year ended March 31, 2024.

Operating activities provided cash principally from a decrease in inventories of $2,165,429, net income of $720,411, and decreases in accounts receivable and amounts due from factor of $425,165.

Operating activities used cash principally due to repayment of accounts payable and accrued expenses of $1,918,493.

Operating activities provided cash principally by decreasing trade accounts receiveable and amounts due from factor of $186,806, by increasing accounts payable and accrued expenses by $1,472,394, and offset by increases in inventories of $688,194, increased prepaid expenses of $61,354, a decrease in operating lease liability of $151,230, and a net loss of $695,790.

In addition, the following non-cash items are reflected in net cash provided by operating activities:

depreciation and amortization amounted to $163,456 and was offset by changes in the allowance for credit losses of $377,988.

Our investing activities did not provide or use cash during the fiscal years ended March 31, 2025 or 2024.

Financing activities provided cash of $1,331,605 reflecting the increase in net borrowing from the Factor during the fiscal year ended March 31, 2025.

Financing activities used cash of $690,497 reflecting the decrease in net borrowing from the Factor during the fiscal year ended March 31, 2024.

Financing activities used cash of $1,779,176 reflecting the decrease in net borrowing from the Factor of $697,736 and the repayment of the Note Payable to Eyston in the amount of $1,081,440 during the fiscal year ended March 31, 2023.

Overall, our cash increased by $282,993 during the fiscal year ended March 31, 2025, and decreased by $86,421 for the fiscal year ended March 31, 2024.

Our overall sales are primarily dependent upon the strength of the U.S.

housing market.

demand in new home construction and new home sales directly impacts sales by our USI Electric subsidiary.

demand in new home construction and new home sales directly impacts sales by our Universal Electric subsidiary.

Our operating results for the fiscal years ended March 31, 2025, and 2024 continue to be dependent upon the economic conditions of the U.S.

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Management believes that with an improved housing market and sales of our sealed products, the Company will continue to improve profitability.

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

However, as previously discussed, the imposition of and modification of tariffs during the latter half of the current 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.

Our product offerings, including sealed battery alarm and ground fault circuit interrupter products, compete in 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.

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

The unused availability of this facility totaled approximately $610,000 on March 31, 2024.

The unused availability of this facility totaled approximately $348,000 and $610,000 on March 31, 2025 and 2024, respectively.

As previously discussed, following the May 22, 2025 asset sale to Feit, we intend to continue importing and marketing our product lines other than smoke alarms and carbon monoxide alarms.

Virtually all of the products we intend to continue selling are manufactured in the Peoples Republic of China.

Our ability to sell those products at competitive prices depends, among other things, on the tariffs to which imports of those products will be subject, and our need for capital to purchase and import these items will depend on our ability to sell those products.

We are also exploring other business opportunities to drive long-term value for our shareholders and we will not know our capital needs until we have clearly identified one or more opportunities.

Related Party Transactions

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, 2025, and 2024, inventory purchases and other company expenses of approximately $1,097,000 and $1,699,000, respectively, were charged to credit card accounts of Harvey B.

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Our critical accounting policies include:

Assets Held for Sale:

As previously discussed in Part I, Item 1, the asset sale to Feit closed on May 22, 2025.

Under the terms of the Asset Purchase Agreement, the Company sold finished good inventories of $1,655,000, and all of the Company’s fully amortized intangible assets including, but not limited to, all of the Company’s patents, trademarks, copyrights, and the trade name Universal Security Instruments, Inc.

and USI Electric, Inc.

Accordingly, the assets held for sale on March 31, 2025 pursuant to the terms of the Asset Purchase Agreement, are shown separately in the financial statements accompanying this Annual Report and are valued at the lower of the carrying value or fair value less selling cost.

Income Taxes :

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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, the components of the deferred tax asset, and current global economic conditions, 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.

The Company expects to record a gain on the sale of assets, as previously discussed, of between $2,000,000 and $2,750,000, and accordingly, may be able to use existing operating loss carry-forwards to offset the expected gain on the sale with the filing of its tax returns for the fiscal year ending March 31, 2026.

The amount of the operating loss carryforwards to be utilized is anticipated to be approximately $1,765,000 for the fiscal year ended March 31, 2025.

The Company has established a deferred tax asset for this portion of its existing loss carry-forwards.

Further, after a review of projected taxable income, the remaining components of the deferred tax asset, and current global economic conditions, it was determined that it is more likely than not, that the tax benefits associated with the remaining components of deferred tax assets after the sale of a segment of the business, 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.

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.

Accordingly, a valuation allowance was established to fully offset the value of the remaining deferred tax assets.

Our ability to realize the tax benefits associated with the remaining 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.

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

The impact to the Company’s current and deferred income tax position that may be effected by changes to the Internal Revenue Code resulting from passage of the One Big Beautiful Bill Act, subsequent to the Company’s fiscal year ended March 31, 2025, has not been evaluated.

Revenue Recognition:

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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 two customers during the fiscal year ended March 31, 2025 that represented 21.7% and 14.9% of the Company’s net sales.

The Company had three customers during the fiscal year ended March 31, 2024, that represented 13.7%, 13.7%, and 10.6% 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.

The Company had no customers in the fiscal years ended March 31, 2024 and 2023, that represented greater than 10% of the Company’s accounts receivable.

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

The Company had two customers during the fiscal year ended March 31, 2025 that represented 17.3% and 13.8% of the Company’s accounts receivable.

The Company had no customers in the fiscal year ended March 31, 2024, that represented greater than 10% of the Company’s accounts receivable.

During the period covered by this Annual Report, the Company acquired its inventory of smoke alarm and carbon monoxide alarm safety products from Eyston Company, Ltd.

Products manufactured for us by Eyston amounted to approximately 96.3% and 84.3% of our purchases for the fiscal years ended March 31, 2025, and 2024, respectively.

At March 31, 2025, and 2024, the Company had accounts receivable due from Eyston of $114,204 and $133,401, respectively.

At March 31, 2025, and 2024, the Company had trade accounts payable due to Eyston of approximately $1,146,000 and $1,501,000, respectively.

Subsequent to March 31, 2025, and in connection with the previously discussed asset sale to Feit, amounts due from, or due to Eyston were settled in full.

New Accounting Standards

See Note A, Recently issued accounting pronouncements, in the Notes to the Consolidated Financial Statements for a discussion of recently adopted new accounting guidance and new accounting guidance not yet adopted.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Because we are a smaller reporting company, this section is not applicable.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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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 7. Management’s Discussion and Analysis