UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended September 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 0-7885
UNIVERSAL SECURITY INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0898545
State of Incorporation I.R.S. Employer Identification Number
10324 S. Dolfield Road, Owings Mills, MD 21117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 410-363-3000
Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Section 13 and 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to the filing requirements for at least
the past 90 days.
YES X NO _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Date Class Shares Outstanding
November 10, 1995 Common Stock, $.01 par value 3,245,587
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
INDEX
Part I - FINANCIAL INFORMATION
Item l. Financial Statements
Consolidated balance sheets at September 30, 1995 and
March 31, 1995
Consolidated statements of operations for the six months
ended September 30, 1995 and 1994 and three months ended
September 30, 1995 and 1994
Consolidated statements of cash flows for the six months
ended September 30, 1995 and 1994
Notes to consolidated financial statements
Item 2. Management's discussion and analysis of
results of operations and financial condition
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports <PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<TABLE>
Sept 30, 1995 March 31, 1995 <S>
<C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 132,111 $ 173,809
Time deposits 8,467 8,322
Accounts receivable:
Trade (less allowance for doubtful
accounts of $30,360 at
September 30, 1995 and $50,000 at
March 31, 1995) 2,491,885 3,129,869
Officers and employees 32,319 33,192
2,524,204 3,163,061
Inventories:
Finished goods 3,573,459 4,252,825
Raw materials-foreign locations 164,335 163,756
3,737,794 4,416,581
Prepaid expenses 604,055 427,716
TOTAL CURRENT ASSETS 7,006,631 8,189,489
INVESTMENT IN JOINT VENTURE 3,595,634 3,366,951
PROPERTY, PLANT AND EQUIPMENT 2,043,680 2,074,073
OTHER ASSETS 113,064 102,333
$12,759,009 $13,732,846
/TABLE
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
Sept 30, 1995 March 31, 1995 <S>
<C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 2,777,754 $ 3,869,711
Current maturity of long-term debt 12,517 106,666
Accounts payable 584,941 560,064
Accounts payable - joint venture 641,837 750,000
Accrued liabilities:
Payroll, commissions and
payroll taxes 112,140 128,600
Other 28,750 46,043
140,890 174,643
TOTAL CURRENT LIABILITIES 4,157,939 5,461,084
LONG-TERM DEBT, less current portion 1,284,519 497,222
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per
share; authorized 20,000,000
shares; issued 3,245,587 shares
at September 30, 1995 and
3,245,382 shares at March 31, 1995 32,456 32,454
Additional paid-in capital 10,429,587 10,429,398
Retained earnings (deficit) (3,145,492) (2,687,312)
7,316,551 7,774,540
$12,759,009 $13,732,846
See notes to consolidated financial statements
/TABLE
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
For the Six Months Ended
Sept 30, 1995 Sept 30, 1994 <S>
<C> <C>
Net sales $9,957,529 $13,328,937
Cost of goods sold 8,547,608 11,386,578
1,409,921 1,942,359
Research and development expense 108,062 249,949
Selling, general and
administrative expense 1,730,768 2,035,806
Operating (loss) (428,909) (343,396)
Other income (expense):
Interest income 2,893 2,308
Interest expense (258,397) (257,791)
Other (2,450) 4,064
(257,954) (251,419)
(LOSS) EARNINGS BEFORE EQUITY
IN EARNINGS OF JOINT VENTURE (686,863) (594,815)
Equity in earnings of joint venture 228,683 648,482
NET (LOSS) INCOME $ (458,180) $ 53,667
Per common share amounts:
Primary $ (.14) $ .02
Fully diluted (.14) .02
Weighted average number of common
shares outstanding
Primary 3,245,528 3,254,807
Fully diluted 3,245,528 3,305,949
See notes to consolidated financial statements
/TABLE
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
For the Three Months Ended
Sept 30, 1995 Sept 30, 1994 <S>
<C> <C>
Net sales $ 4,920,168 $ 7,501,316
Cost of goods sold 4,139,429 6,380,189
780,739 1,121,127
Research and development expense 50,746 130,348
Selling, general and
administrative expense 830,721 1,025,052
Operating (loss) (100,728) (34,273)
Other income (expense):
Interest income 1,257 957
Interest expense (130,698) (132,129)
Other (945) 5,359
(130,386) (125,813)
(LOSS) EARNINGS BEFORE EQUITY IN
EARNINGS OF JOINT VENTURE (231,114) (160,086)
Equity in earnings of joint venture 94,780 183,200
NET (LOSS) INCOME $ (136,334) $ 23,114
Per common share amounts:
Primary $ (.04) $ .01
Fully diluted (.04) .01
Weighted average number of common
shares outstanding
Primary 3,245,586 3,286,376
Fully diluted 3,245,586 3,306,038
See notes to consolidated financial statements
/TABLE
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
For the Six Months Ended
Sept 30, 1995 Sept 30, 1994 <S>
<C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (458,180) $ 53,667
Adjustments to reconcile
net (loss) income to net cash
used in operating activities:
Depreciation and amortization 89,276 100,197
Provision for losses on
accounts receivable 8,770
Undistributed earnings of
joint venture (228,683) (648,482)
(Gain) on sale of property,
plant and equipment (7,200)
Changes in operating assets
and liabilities:
(Decrease) increase in
accounts receivable 638,857 (501,896)
(Decrease) increase in
inventories and prepaid
expenses 502,448 (420,381)
(Decrease) increase in accounts
payable and accrued expenses (117,039) 50,738
(Increase) in other assets (10,731) (5,179)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 415,948 (1,369,766)
INVESTING ACTIVITIES
Purchases of property, plant and
equipment (58,883) (80,149)
(Increase) in commercial paper
and time deposits (145) (132)
Proceeds from sale of property, plant
and equipment 7,200
NET CASH (USED IN) INVESTING
ACTIVITIES (59,028) (73,081)
FINANCING ACTIVITIES
Net issuance of short-term debt (1,091,957) 1,515,610
Proceeds from issuance of
long-term debt 1,300,000 110,000
Principal payments on
long-term debt (606,852) (50,277)
Proceeds from issuance of common
stock under stock option plan and
employee stock purchase plan 191 417
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (398,618) 1,575,750
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (41,698) 132,903
Cash and cash equivalents at beginning
of period 173,809 275,138
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 132,111 $ 408,041
Supplemental information:
Interest paid $ 258,397 $ 152,642
Income taxes paid - -
See notes to consolidated financial statements
/TABLE
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Statement of Management - The financial information included
herein is unaudited and does not include all disclosures normally
included in financial statements presented in accordance with
generally accepted accounting principles. The interim financial
information should be read in connection with the financial
statements and related notes in the Company's annual report on
Form 10-K for the year ended March 31, 1995. The results for the
interim period are not necessarily indicative of the results
expected for the year. The accompanying interim information
reflects all adjustments (consisting of normal recurring
accruals) which are, in the opinion of management, necessary
to a fair statement of the results for the interim periods.
Per Share Data - Primary and fully diluted net income per share
is computed by dividing the net income by the weighted average
number of common and common equivalent shares outstanding.
Common equivalent shares include the dilutive effect of
outstanding stock options calculated under the treasury stock
method.
Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when
purchased to be cash equivalents.
Long-Term Debt - During the six months ended September 30, 1995,
the Company refinanced the mortgage on its headquarters building.
The terms of the new financing are a $1,300,000 loan repayable in
60 equal monthly installments of principle and interest, based on
a 25 year amortization schedule, with an interest rate of 10%.
The full outstanding balance is due at the end of the 60 month
period.
Joint Venture - The Company maintains a 50% interest in a joint
venture with a Hong Kong corporation (Hong Kong joint venture)
which has manufacturing facilities in the People's Republic of
China, for the manufacturing of consumer electronic products.
Additionally, the Hong Kong joint venture has a 30% interest in a
separate joint venture with a People's Republic of China company
to design and develop a portable cellular phone for manufacture
and sale in China. Included in the results of the Hong Kong
joint venture for the six months ended September 30, 1994 is
$500,000 of profit related to a $3.5 million contract for the
design and development of the cellular telephone. The contract is
being accounted for under the percentage of completion method.
The following represents summarized income statement information
of the Hong Kong joint venture for the six month periods ended
September 30, 1995 and 1994:
1995 1994
Sales $6,058,059 $7,916,008
Gross profit 1,101,241 2,118,755
Net income 457,366 1,296,964
Commitments - The Company has employment agreements with two of its officers,
both expiring on March 31, 1998. The fixed aggregate annual remuneration
under these agreements is $500,000 per year. In addition, the agreements
provide incentive compensation to these officers based on the
Company's achievement of certain levels of earnings. Outstanding
letter of credit commitments approximated $336,000 at September
30, 1995.<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six Months Ended September 30, 1995 Compared to
Six Months Ended September 30, 1994
Sales - Net sales for the six months ended September 30, 1995
were $9,957,529 compared to $13,328,937 for the comparable six
months in the prior fiscal year, a decrease of $3,371,408. Net
sales of security products increased by $314,136, as compared to
the six months ended September 30, 1994. Net sales of video and
telecommunications products decreased by $1,543,752 and
$2,141,792, respectively, from the comparable period of the
previous year. The decrease in video and telecommunications
sales was due to a decreased demand for certain of the Company's
video and telecommunications products by its private label
customers.
Net Income - The Company reported a net loss of $458,180 for the
six months ended September 30, 1995 compared to net income of
$53,667 for the corresponding six months of the prior fiscal
year. The decrease in net income was due primarily to a decrease
in the Company's equity in its joint venture's earnings and the
decrease in sales, partially offset by a reduction in operating
expenses.
Expenses - Research, selling, general and administrative expenses
decreased by approximately $447,000 from the comparable six
months in the prior year. As a percentage of sales, research,
selling, general and administrative expenses were 18% for the six
months ended September 30, 1995 and 17% for the same period in
the prior fiscal year.
Interest Expense and Income - The Company's interest expense, net
of interest income, was $255,504 for the six months ended
September 30, 1995 to $255,483 for the comparable period in 1994.
Three Months Ended September 30, 1995 Compared to
Three Months Ended September 30, 1994
Sales - Net sales for the three months ended September 30, 1995
were $4,920,168 compared to $7,501,316 for the comparable three
months in the prior fiscal year, a decrease of $2,581,148. Net
sales of security, telecommunications and video products
decreased by $189,341, $1,485,520 and $906,287, respectively, as
compared to the quarter ended September 30, 1994. The decrease
in telecommunications and video sales was due to a decreased
demand for certain of the Company's telecommunications and video
products by its private label customers.
Net Income - The Company reported a net loss of $136,334 for the
quarter ended September 30, 1995 compared to net income of
$23,114 for the corresponding quarter of the prior fiscal year.
The decrease in net income was primarily due to a decrease in the
Company's equity in its joint venture's earnings and the decrease
in sales, partially offset by a reduction in operating expenses.<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Expenses - Research, selling, general and administrative expenses
decreased by approximately $274,000 from the comparable three
months in the prior year. As a percentage of sales, research,
selling, general and administrative expenses were 18% for the
three months ended September 30, 1995 and 15% for the same period
in the last fiscal year.
Interest Expense and Income - The Company's interest expense, net
of interest income, was $129,441 for the quarter ended September
30, 1995 and $131,772 for the comparable period in 1994.
Financial Condition and Liquidity - Cash needs of the Company are
currently met by funds generated from operations and its line of
credit with a financial institution, which supplies both
short-term borrowings and letters of credit to finance foreign
inventory purchases. The Company's maximum line of credit is
currently the lower of $7,500,000 or specified percentages of the
Company's accounts receivable and inventory. Approximately
$3,114,000 has been utilized in letter of credit commitments and
short-term borrowings as of September 30, 1995. As of September
30, 1995, the amount available for borrowings under the line was
approximately $150,000, based on the specified percentages.
The outstanding principal balance of the revolving credit line is
payable upon demand. The interest rate on the revolving credit
line is equal to 1% in excess of the prime rate of interest
charged by the Company's lender. The loan is secured by the
Company's accounts receivable and inventory. During the six
months ended September 30, 1995, working capital increased by
$120,287.
Operating activities provided cash of $415,948 for the six months
ended September 30, 1995. This was primarily due to a decrease
in accounts receivable of $638,857 and a decrease in inventories
of $678,787, partially offset by the net loss of $458,180. For
the same period last year, operating activities used cash of
$1,369,766, primarily due to an increase in accounts receivable
of $501,896 and an increase in undistributed earnings of the
joint venture of $648,482.
Investing activities used cash of $59,028 in the current quarter
and $73,081 in the same quarter last year, consisting primarily
of purchases of equipment.
Financing activities used cash of $398,618, primarily due to the
net repayment of short-term debt of $1,091,957 and the retirement
of long-term debt of $603,888, partially offset by the issuance
of long-term debt of $1,300,000. For the same period last year,
financing activities provided cash of $1,575,750, primarily due
to the net issuance of short-term debt.
During the six months ended September 30, 1995, the Company
refinanced the mortgage on its headquarters building. The terms
of the new financing are a $1,300,000 loan repayable in 60 equal
monthly installments of principal and interest based on a 25 year
amortization schedule, with an interest rate of 10%. The full
outstanding balance is due at the end of the 60 month period.
The refinancing resulted in an increase in cash available to the
Company of approximately $700,000.<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company believes that its line of credit and its working
capital provide it with sufficient resources to meet its
requirements for liquidity and working capital in the ordinary
course of its business over the next twelve months.
Hong Kong Joint Venture - Net sales of the joint venture for the
six months and three months ended September 30, 1995 were
$6,058,059 and $2,840,067, respectively, compared to $7,916,008
and $3,185,492, respectively, for the comparable six months and
three months in the prior fiscal year. The decrease in sales was
primarily due to decreased sales of telecommunications and video
products to the Company.
Net income for the six months and three months ended September
30, 1995 was $457,366 and $189,561, respectively, compared to
$1,296,964 and $366,400 respectively, in the comparable six
months and three months last year. Included in the results for
the six months ended June 30, 1994 is $500,000 of profit related
to a $3.5 million contract for the design and development of the
cellular telephone under a separate joint venture arrangement.
Exclusive of this item, the decrease in net income was primarily
due to the decrease in sales.
Selling, general and administrative expenses were $824,082 (14%
of sales) and $439,413 (15% of sales), respectively, for the six
months and three months ended June 30, 1995 and were $929,644
(12% of sales) and $449,783 (14% of sales) for the comparable
periods last year.
Cash needs of the Hong Kong joint venture are currently met by
funds generated from operations. During the six months ended
September 30, 1995, working capital decreased by $221,731 from
$2,656,378 on March 31, 1995 to $2,434,647 on September 30, 1995.<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
On November 2, 1995, the Company was served with a
Complaint filed by Black & Decker (U.S.), Inc. and
related entities against the Company and others in
the United States District Court for the Eastern
District of Virginia. The Complaint alleges patent
and copyright infringement by the Company in
connection with one of its products. The Complaint
seeks triple damages for the infringement,
costs and attorneys' fees and various injunctive
relief prohibiting further infringement.
The Company intends to defend against the suit and
has referred the case to its patent counsel.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits included herein:
11.1 Statement of computation of per share
earnings.
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNIVERSAL SECURITY INSTRUMENTS, INC.
Dated: November 13, 1995 Harvey Grossblatt
HARVEY GROSSBLATT
Executive Vice President
Dated: November 13, 1995 Ira Bormel
IRA BORMEL
Principal Financial Officer
EXHIBIT 11.1
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
For the Six Months Ended
Sept 30, 1995 Sept 30, 1994 <S>
Amount Per Share Amount Per Share
<C> <C> <C> <C>
PRIMARY:
Average shares
outstanding 3,245,528 3,239,987
Dilutive stock
options-based on
the treasury stock
method using the
average market
price 14,820
Adjusted shares
outstanding 3,245,528 3,254,807
Net (loss) income $(458,180) $(.14) $ 53,667 $.02
</TABLE>
<TABLE>
For the Three Months Ended
Sept 30, 1995 Sept 30, 1994 <S>
Amount Per Share Amount Per Share
<C> <C> <C> <C>
PRIMARY:
Average shares
outstanding 3,245,586 3,240,076
Dilutive stock
options-based on
the treasury stock
method using the
average market
price 46,300
Adjusted shares
outstanding 3,245,586 3,286,376
Net (loss) income $(136,334) $(.04) $23,114 $.01
/TABLE
<PAGE>
EXHIBIT 11.1
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
For the Six Months Ended
Sept 30, 1995 Sept 30, 1994 <S>
Amount Per Share Amount Per Share
<C> <C> <C> <C>
FULLY DILUTED:
Average shares
outstanding 3,245,528 3,239,987
Dilutive stock
options-based on
the treasury stock
method using the
quarter-end market
price if higher than
the average market
price 65,962
Adjusted shares
outstanding 3,245,528 3,305,949
Net (loss) income $(458,186) $(.14) $53,667 $.02
</TABLE>
<TABLE>
For the Three Months Ended
Sept 30, 1995 Sept 30, 1994 <S>
Amount Per Share Amount Per Share
<C> <C> <C> <C>
FULLY DILUTED:
Average shares
outstanding 3,245,586 3,240,076
Dilutive stock
options-based on
the treasury stock
method using the
quarter-end market
price if higher than
the average market
price 65,962
Adjusted shares
outstanding 3,245,586 3,306,038
Net (loss) income $(136,334) $(.04) $23,114 $.01
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1995 MAR-31-1995
<PERIOD-END> SEP-30-1995 SEP-30-1995
<CASH> 132,111 132,111
<SECURITIES> 8,467 8,467
<RECEIVABLES> 2,574,564 2,574,564
<ALLOWANCES> 30,360 30,360
<INVENTORY> 3,737,794 3,737,794
<CURRENT-ASSETS> 7,006,631 7,006,631
<PP&E> 2,780,652 2,780,652
<DEPRECIATION> 736,972 736,972
<TOTAL-ASSETS> 12,759,009 12,759,009
<CURRENT-LIABILITIES> 4,157,939 4,157,939
<BONDS> 0 0
<COMMON> 32,456 32,456
0 0
0 0
<OTHER-SE> 7,284,095 7,284,095
<TOTAL-LIABILITY-AND-EQUITY> 12,759,009 12,759,009
<SALES> 4,920,168 9,957,529
<TOTAL-REVENUES> 4,920,168 9,957,529
<CGS> 4,139,429 8,547,608
<TOTAL-COSTS> 4,139,429 8,547,608
<OTHER-EXPENSES> 881,467 1,838,830
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 130,698 258,397
<INCOME-PRETAX> (136,334) (458,180)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (136,334) (458,180)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (136,334) (458,180)
<EPS-PRIMARY> (.04) (.14)
<EPS-DILUTED> (.04) (.14)
</TABLE>
