UNIVERSAL SAFETY PRODUCTS, INC. Debt Disclosure

NOTE B – CONVERTIBLE DEBENTURES

On August 13, 2025, the Company entered into a Securities Purchase Agreement with SJC Lending, LLC (SJC), in which the Company agreed to sell SJC convertible promissory notes in three separate closings of 8% convertible notes in various principal amounts up to $2,750,000 in the aggregate. The closing on the initial tranche, which occurred on August 13, 2025, consisted of the issuance of a convertible note to SJC in the principal amount of $1,100,000, for a purchase price of $1,000,000. An additional convertible note to SJC representing the planned second and third tranches was closed on September 25, 2025, in the principal amount of $1,650,000, for a purchase price of $1,500,000. The Company paid $20,000 out of the proceeds of the notes for legal fees and expenses related to the Agreement. The notes mature in one year on August 13, 2026, and September 25, 2026, respectively, if not previously converted, and are convertible into shares of common stock at a discounted price amounting to 80% of the lowest volume weighted average price occurring in the ten-business day period prior to the conversion date. SJC may convert any or all of the unpaid principal amount prior to the maturity date, however $500,000 of the unpaid principal must be converted to common stock on the date of maturity. The notes bear interest from the date of issuance at 8% of the face amount of the notes and amounted to $105,763 for the fiscal year ended March 31, 2026. Of the original issue discount of $250,000, interest expense of $168,630 has been recorded for the fiscal year ended March 31, 2026. In addition, further amortization of the original issue discount amounting to $44,013 was recorded as interest expense during the fiscal year ended March 31, 2026, for the portion of the convertible debt that remained outstanding. At March 31, 2026, unamortized original issue discount of $37,357 was presented as a reduction of the remaining convertible debentures.

During the fiscal year ended March 31, 2026, convertible debt and accrued interest thereon in the amount of $1,974,145 was converted to 530,000 shares of common stock.

Our outstanding convertible notes are indexed to our stock. Accordingly, the convertible notes are accounted for using the amortized cost method with bifurcation of the derivative component being recognized in our condensed consolidated balance sheets as derivative instruments under the provisions of ASC 815-40-15, “Derivatives and Hedging Contracts in Entity’s Own Equity – Scope and Scope Exceptions”.

The notes payable are recorded including the fair value of the derivative component on the date of issuance with changes in fair value of the derivative portion being recognized as a gain or loss for each reporting period thereafter, and the remainder of the convertible notes being accounted for using the amortized cost method with bifurcation of the derivative component, as discussed above. The derivative portion of the notes were recorded at fair value on the date of issuance, using the Binomial valuation model, and accordingly, an original derivative liability of $309,000 and $458,000 was recorded on August 13, 2025, and September 25, 2025, respectively. The fair value of this liability is determined each reporting period and gains and losses are recognized in the statement of operations under “Other Income (Expense)”. The fair value of the derivative liability of the notes payable is $309,000 at March 31, 2026. Other expense of $75,000, has been recorded during the fiscal year ended March 31, 2026 reflecting an increase in the fair value of the derivative component of the liability, after redemptions, for the period from the original issuance of the notes payable to March 31, 2026.

Fair Value of Financial Instruments

The accounting standards regarding the fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash and other current assets and liabilities to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization. The Company has also adopted ASC 820-10, “Fair Value Measurements” which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

The carrying amounts of our financial instruments, including cash, cash investments, accounts payable, and accrued expenses approximate fair value because of their generally short maturities. The Company’s financial instruments are measured at amortized cost when the fair value option is not elected.

We measured the fair value of the derivative portion of the convertible notes by using the Binomial Valuation model. As of March 31, 2026, the assumptions used to measure fair value of the liability embedded in our outstanding notes included an exercise price of $3.92 per share, a common share market price of $5.16, a discount rate of 3.68%, and a volatility of 105%, for the remaining portion of the note issued in September 2025.

The following table sets forth, by level within the fair value hierarchy, our financial instrument liabilities as of March 31, 2026.

​

The following table sets forth a summary of changes in the fair value of our Level 3 financial instrument liability for the fiscal year ended March 31, 2026.

​

​