A publicly traded Owings Mills company that creates smoke and carbon monoxide detectors plans to to merge with a metaverse company.
The reverse merger with Universal Security Instruments (NYSE American: UUU) is a way for Connecticut metaverse company Infinite Reality to go public without going through an initial public offering. Infinite Reality sought the merger because the new status as a public company would give them access to a broader range of capital investment. For USI, the merger comes amid recent financial struggles and as the 53-year-old company expects continued supply chain challenges in the foreseeable future, according to documents filed with the U.S. Securities and Exchange Commission.
Merger talks began in January 2021, when an Infinite Reality executive reached out to USI, asking if the Owings Mills company would be interested in a reverse merger. After months of negotiations, in Feb. 2022 the two companies signed a merger agreement. The merger, which is expected to close this quarter, is subject to approval by shareholders as well as federal regulators and the stock exchange.
The merger values USI at a minimum of $12 million. Infinite Reality security holders will own 97.6% of post-closing outstanding shares of USI, with the remaining 2.4% going to USI security holders.
In an SEC document about the merger, USI cited projected global supply chain challenges and current financial results as a reason for the merger. The company also cited the limited upside value available to USI stockholders if USI continues as an independent, stand-alone business. USI believed the need to acquire more capital and the competition in the smoke alarm space, along with supply chain issues, meant that merging with Infinite Reality was the best solution.
The entire leadership of the combined company will be made up of Infinite Realty executives. Infinite Reality CEO John Acunto, who would become the CEO of the combined company if the merger is approved, said the operations of USI would be unchanged by the merger and none of the 13 employees would be laid off. In a release announcing the merger, the companies said USI was "evaluating strategic alternatives to maximize the value" of its safety and security device operating business.
Financial difficulties have plagued USI recently. In 2020, the New York Stock Exchange said that as a result of a failure to maintain shareholders value the company could be removed from the exchange, though USI was able to return to compliance later that year. The company had a net loss of $2,058,902 in 2017, which increased to a loss of $5,813,891 in 2020. In 2021, the company began to turn around, recording a net income of $268,343, owing to an increase in sales and a forgiveness of debt from the Paycheck Protection program loan, as part of the CARES act.
USI did not respond to requests for comment from the Baltimore Business Journal.
Infinite Reality recorded $102,485 in revenue last year, with a net loss of over $25 million. Documents filed by the company announcing the merger said Infinite Reality is expected to incur significant and increasing losses in the future. Infinite Reality currently has 107 employees.
The company provides tools for companies and individuals to create their own metaverse platforms to sell goods. A recent study by Citi said the metaverse economy could be worth up to $13 trillion by 2030. Some Baltimore companies have already begun exploring the potential of the metaverse, such as Mindgrub Technologies, which moved its headquarters to the metaverse.
"We are focused on building metaverses that ultimately the customer owns," Acunto said. "We are providing them the software capabilities and the ability for them to connect to our social features that we have through our social media app."
Infinite Reality has raised over $50 million in financing from convertible debt since its founding in 2019 as tsu Inc. and has made several notable acquisitions. In April, the company agreed to acquire esports and entertainment conglomerate ReKt Global in a $470 million all-stock transaction.
Infinite Reality is made up of three main divisions Display Social, Thunder Social and Infinite Reality. The company previously worked with Burning Man to create a virtual version of the popular festival that drew over 65,000 unique visitors in 2020. Infinite Reality hopes that a metaverse shopping experience will help retailers sell more products. During a conference call, Acunto said that 72% of online shopping carts in current online shopping websites, such as Amazon, are abandoned.
Acunto believes the personal interactions the metaverse can foster means more sales than a conventional online retailer. In a metaverse store, customers will be able to talk directly to a company representative, much like a real life store.
"Consumers have very simple questions, and are often sent to read and find those answers and that leads to the abandoned cart," Acunto said.
A previous version of this article stated that Citi said the metaverse economy could be be worth $13 billion by 2030. The correct number is 13 trillion.
