Annual Report for Fiscal Year Ending March 31, 2026 (Form 10-K)

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Such forward-looking statements include statements regarding, among others, (a) our expectations about possible business combinations, (b) our growth strategies, (c) our future financing plans, and (d) our anticipated needs for working capital. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "approximate," "estimate," "believe," "intend," "plan," "budget," "could," "forecast," "might," "predict," "shall" or "project," or the negative of these words or other variations on these words or comparable terminology. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found in this Annual Report.

Forward-looking statements are based on our current expectations and assumptions regarding our business, potential target businesses, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" in this Annual Report, changes in local, regional, national or global political, economic, business, competitive, market (supply and demand) and regulatory conditions and the following:

We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance. All forward-looking statements speak only as of the date of this Annual Report. We undertake no obligation to update any forward-looking statements or other information contained herein unless required by law.

Information regarding market and industry statistics contained in this Annual Report is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. Except as required by U.S. federal securities laws, we have no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. See the section entitled "Risk Factors" for a more detailed discussion of risks and uncertainties that may have an impact on our future results.

In this Annual Report, the "Company," "we," "us" and "our" refer to Universal Safety Products, Inc., a Maryland corporation, and its subsidiaries.

General

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, 2026, and 2025 relate to the operational results of the Company and its consolidated subsidiaries.

Our overall sales are primarily dependent upon the strength of the U.S. housing market. 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, 2026, and 2025 continue to be dependent upon the economic conditions impacting the U.S. housing market.

The importation of certain wiring devices, carbon-monoxide alarms, and photo-electric alarms are currently subject to tariffs of twenty-five percent (25%). During the period covered by this Annual Report there has been unprecedented activity involving the implementation and imposition of global tariffs, the invalidation of those tariffs by the U.S. Supreme Court, and the subsequent implementation of new tariffs under different statutes. The imposition of and modification of tariffs 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 sale of the smoke alarm and carbon monoxide portion of our business to Feit Electric Company, Inc. ("Feit"), we continue importing and marketing our other product lines. 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. In July 2025, we formed a wholly owned subsidiary called Universal DeFi LLC ("Universal DeFi") as a new venture to diversify the business and explore new paths for revenue and stockholder value. Universal DeFi is pursuing two lines of business. First, Universal DeFi is developing and intends to own and operate a tokenization platform. Second, Universal DeFi has acquired and commenced limited operations running licensed nodes and a validator on the Ault Blockchain, as described elsewhere in this Annual Report. To date, Universal DeFi has not generated any revenue.

Comparison of Results of Operations for the Years Ended March 31, 2026 and 2025

Sales. In fiscal year 2026, our net sales were $4,847,163 compared to sales in the prior year of $23,563,554, a decrease of $18,716,391 (79.4%). The decrease in sales for the fiscal year ended March 31, 2026, is attributed primarily to the sale of the smoke and carbon monoxide alarm portion of our business as previously discussed.

Gross Profit. Gross profit percentage is calculated as net sales less cost of goods sold expressed as a percentage of net sales. Our gross profit percentage for the fiscal year ended March 31, 2026, was 16.6% compared to 29.0% in fiscal 2025. Changes in gross margin are 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. Selling, general and administrative expenses decreased to $5,233,428 in fiscal 2026 from $6,004,507 in fiscal 2025. As a percentage of net sales, these expenses were 108.0% for the fiscal year ended March 31, 2026, and 25.5% for the fiscal year ended March 31, 2025. These expenses increased as a percentage of net sales as they do not change in direct proportion to a change in sales. In addition, for the fiscal year ended March 31, 2026, these expenses included stock based compensation expense associated with the issuance of incentive stock options, insurance, and professional fees associated with the consideration of other business opportunities as previously discussed.

Engineering and Product Development. Engineering and product development expense for the fiscal year ended March 31, 2026, was $223,794. Engineering and product development expense for the fiscal year ended March 31, 2025, was $424,849. Engineering and product development expense decreased as a significant portion related to the business unit we sold in the first fiscal quarter of the 2026 fiscal year end.

Interest Expense and Interest Income. For the fiscal years ended March 31, 2026 and 2025, we incurred interest expense of $345,918 and $262,365, respectively. Interest is related to borrowing costs associated with convertible debt and interest paid on amounts borrowed from our factor. We earned $134,320 on cash deposits for the fiscal year ended March 31, 2026. The increase in interest expense resulted primarily from increased borrowing associated with the issuance of convertible debentures during the fiscal year ended March 31, 2026.

Income Taxes. For the fiscal years ended March 31, 2026 and 2025, our statutory Federal tax rate was 20.0%. We had 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, 2026 and 2025, varies from the expected statutory rate. 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.

Net Income. We reported a net loss of $2,485,763 for the fiscal year 2026, compared to net income of $500,684 for fiscal 2025, a decrease in net income of $2,986,447 (596.5%). The decrease in the net income for the fiscal year ended March 31, 2026 is attributed to the decrease in sales associated with the sale of the smoke and carbon monoxide alarm portion of our business as previously discussed, and non-cash items including stock based compensation of $896,700, and an increase in the allowance for credit losses of $297,000, and partially offset by a gain on the sale of assets of $2,820,668.

Financial Condition, Liquidity, Capital Resources and Going Concern

We reported a net loss of $2,485,763 and net income of $500,684 for the years ended March 31, 2026 and 2025, respectively. As of March 31, 2026, working capital (computed as the excess of current assets over current liabilities) decreased by $1,927,705, from $5,163,711 on March 31, 2025 to $3,236,006 on March 31, 2026.

Our operating activities provided cash of $536,185 for the year ended March 31, 2026. Operating activities provided cash principally by decreasing trade accounts receivable and amounts due from factor of $3,641,110, by decreasing inventories and assets held for sale by 2,543,262, and offset by decreasing accounts payable and accrued expenses by $2,179,879, increases to prepaid expenses of $197,300, and a net loss of $2,485,763. In addition, the following non-cash items are reflected in net cash provided by operating activities: stock based compensation of $896,700, a reversal of a provision for income tax benefits of $361,000, the change in the fair value of the derivative component of convertible debt of $75,000, the amortization of original issue discount on convertible debt of $309,053, a change in the allowance for credit losses of $297,000, an increase to the reserve for excess and obsolete inventory of $110,000, and a decrease in the operating lease liability of $13,330.

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 investing activities provided cash of $4,502,605 resulting from proceeds from the sale of assets for the fiscal year ended March 31, 2026, and did not use or provide cash for the fiscal year ended March 31, 2025.

Financing activities during the fiscal year ended March 31, 2026 used cash of $1,913,245 resulting from the payment of dividends on common stock of $2,312,787, and the repayment of net borrowings from the factor of $2,100,458, and offset by the issuance of convertible debt of $2,500,000. Financing activities during the fiscal year ended March 31, 2025 provided cash of $1,331,605 reflecting the increase in net borrowing from the factor.

We prepared the financial statements included within this Annual Report on Form 10-K assuming we will continue operations, even though we reported a net loss of $2,485,763 for the fiscal year ended March 31, 2026, and had an accumulated deficit of $12,543,809, that creates substantial doubt about our ability to continue as a going concern. Sales were lower during the March 31, 2026 fiscal year since we sold our smoke and carbon monoxide alarm segment during the first fiscal quarter. Sales were further negatively impacted by the increased import tariffs on all our products. Our plans are to continue operations in the wiring device and bath fan segments of our business, and to develop an additional line of business, as more fully described herein, financed through the issuance of convertible debentures, of which $10,000,000 has been contracted subject to the lenders discretion. However, these plans are not certain to succeed and the financial statements do not include adjustments that would be necessary if we cannot continue.

Related Party Transactions

During the fiscal year ended March 31, 2026 and 2025, inventory purchases and other company expenses of approximately $162,000 and $1,097,000, respectively, were charged to credit card accounts of Harvey B. Grossblatt, our Chief Executive Officer and certain of his immediate family members. We subsequently reimbursed these charges in full. Mr. 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, 2026 and 2025 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 $23,000 and $285,000, respectively, and there were no amounts outstanding at March 31, 2026 or 2025.

Critical Accounting Policies

Management's discussion and analysis of our consolidated financial statements and results of operations is based upon our consolidated financial statements included as part of this document. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to credit losses, inventories, income taxes, and contingencies and litigation. We base these estimates on historical experiences and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect management's more significant judgments and estimates used in the preparation of its consolidated financial statements. For a detailed discussion on the application of these and other accounting policies, see Note A to the consolidated financial statements included in this Annual Report. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates. These judgments are based on our historical experience, terms of existing contracts, current economic trends in the industry, information provided by our customers, and information available from outside sources, as appropriate. 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, we sold finished good inventories of $1,655,000, and all of our fully amortized intangible assets including, but not limited to, all of our 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: We recognize a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the consolidated financial statements. These temporary differences may result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are reviewed periodically for recoverability and a valuation allowance is provided whenever it is more likely than not that a deferred tax asset will not be realized.

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 our prior history of losses from operations and the uncertainty as to whether we 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 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.

We follow ASC 740-10 which provides guidance for tax positions related to the recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our consolidated financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position. Interest and penalties, if any, related to income tax matters are recorded as income tax expenses.

Fair Value Measurements: We account for fair value of financial instruments in accordance with ASC 820, Fair Value Measurement, which defines fair value and establishes a framework to measure fair value and the related disclosures about fair value measurements. The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. The Financial Accounting Standards Board, or FASB, establishes a fair value hierarchy used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories: Level 1: Inputs based upon quoted market prices for identical assets or liabilities in active markets at the measurement date; Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and Level 3: Inputs that are management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments' valuation. In addition, we will measure fair value in an inactive or dislocated market based on facts and circumstances and significant management judgment. We will use inputs based on management estimates or assumptions or adjust observable inputs to determine fair value when markets are not active and relevant observable inputs are not available.

ASC 825, Financial Instruments, requires disclosures about the fair value of financial instruments. The carrying amount of cash, accounts receivable and amounts due from factor, accounts payable, and accrued expenses, as presented in the balance sheet, approximates fair value due to the short-term nature of these instruments.

Use of Estimates: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (US-GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe our estimates as to the collectability of trade accounts receivable and the amount of finished goods inventory that we consider to be excess or obsolete are critical estimates. On an ongoing basis, we evaluate these estimates, including those related to credit losses, inventories, income taxes, and contingencies and litigation. We base these estimates on historical experiences and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from those estimates.

Stock Based Compensation: We account for share-based payments using the fair value method. We recognize all share-based payments to employees and non-employee directors in our financial statements based on their effective date fair values, calculated using the Black-Scholes option pricing model. The expected term of stock options granted is estimated to be five years from the effective date of the grant based on the simplified safe harbor calculation provided under ASC 718-10-55-20 and 21. The expected volatility of the option is determined based on the Company's stock price over a five-year look-back period. The risk-free interest rate is determined using the yield available for zero-coupon U.S. government issues with a remaining term equal to the expected term of the options.

Revenue Recognition: Our primary source of revenue is the sale of safety and security products based upon purchase orders or contracts with customers. Revenue is recognized at a point in time once we have determined that the customer has obtained control over the product. Control is typically deemed to have been transferred to the customer when the product is shipped or delivered to the customer. Customers may not return, exchange, or refuse acceptance of goods without our approval. Generally, we do 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 cost of completing the sale and are recorded in selling, general and administrative expense.

The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for products sold. Revenue is recorded at the transaction price net of estimates of variable consideration. We use the expected value method based on historical data in considering the impact of estimates of variable consideration, which may include trade discounts, allowances, product returns (including rights of return) or warranty replacements. Estimates of variable consideration are included in revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

We have established a provision to cover anticipated credit losses based upon historical experience.

Inventories: Inventories are valued at the lower-of-cost or net realizable value. Cost is determined on the first in, first out method. We evaluate inventories on a quarterly basis and write down inventory that is deemed obsolete or unmarketable in an amount equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions.

Off-Balance Sheet Arrangements. We have not created, and are not party to, any special-purpose or off balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into our financial statements and do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources.

Concentrations

We are primarily a distributor of safety products for use in home and business. We had three customers during the fiscal year ended March 31, 2026 that represented 13.0%, 12.5%, and 10.8% of our net sales, and two customers during the fiscal year ended March 31, 2025 that represented 21.7% and 14.9% of our net sales, respectively. We had three customers during the fiscal year ended March 31, 2026 that represented 20.0%, 19.0%, and 10.0% of our accounts receivable, and two customers during the fiscal year ended March 31, 2025 that represented 17.3% and 13.8% of our accounts receivable, respectively. Products manufactured for us by Eyston amounted to approximately 82.6% and 96.3% of our purchases for the fiscal years ended March 31, 2026 and 2025, respectively. At March 31, 2026 and 2025, we had accounts receivable due from Eyston of $0 and $114,204, and trade accounts payable due to Eyston of approximately $0 and $1,146,000, respectively.

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.