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, 1996
( ) 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, 1996 and
March 31, 1996
Consolidated statements of operations for the six months
ended September 30, 1996 and 1995 and three months ended
September 30, 1996 and 1995
Consolidated statements of cash flows for the six months
ended September 30, 1996 and 1995
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 5. Other Information
Item 6. Exhibits and Reports
- 2 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<TABLE>
Sept 30, 1996 March 31, 1996
<S> <C> <C>
CURRENT ASSETS
Cash $ 129,434 $ 97,793
Time deposits 8,748
Accounts receivable:
Trade (less allowance for doubtful
accounts of $50,000 at
September 30, 1996 and $25,771
at March 31, 1996) 3,234,667 2,033,092
Officers and employees 7,000 40,678
3,241,667 2,073,770
Inventories:
Finished goods 3,631,388 4,099,907
Raw materials-foreign locations 256,913 152,503
3,888,301 4,252,210
Prepaid expenses 486,595 484,669
TOTAL CURRENT ASSETS 7,745,997 6,917,190
INVESTMENT IN JOINT VENTURE 2,719,569 3,660,350
PROPERTY, PLANT AND EQUIPMENT 1,805,886 1,985,790
OTHER ASSETS 116,239 113,061
$12,387,691 $12,676,391
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
Sept 30, 1996 March 31, 1996
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 2,938,393 $ 2,993,685
Current maturity of long-term debt 88,488 13,488
Accounts payable joint venture 1,831,690 858,557
Accounts payable foreign 750,000
Accrued liabilities:
Payroll, commissions and
payroll taxes 116,549 71,372
Other 36,193 35,980
152,742 107,352
TOTAL CURRENT LIABILITIES 5,011,313 4,723,082
LONG-TERM DEBT, less current portion 1,376,942 1,277,394
SHAREHOLDERS' EQUITY
Common stock, $.01 par value
per share; authorized 20,000,000
shares; issued 3,245,587 shares at
September 30, 1996 and March 31, 1996 32,456 32,456
Additional paid-in capital 10,429,588 10,429,558
Retained earnings (deficit) (4,462,608) (3,786,129)
5,999,436 6,675,915
$12,387,691 $12,676,391
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
For the Six Months Ended
Sept 30, 1996 Sept 30, 1995
<S> <C> <C>
Net sales $9,584,018 $ 9,957,529
Cost of goods sold 8,010,923 8,547,608
1,573,095 1,409,921
Research and development expense 117,831 108,062
Selling, general and
administrative expense 1,836,223 1,730,768
Operating loss (380,959) (428,909)
Other income (expense):
Interest income 1,557 2,893
Interest expense (239,987) (258,397)
Other (138,381) (2,450)
(376,811) (257,954)
LOSS BEFORE EQUITY
IN EARNINGS OF JOINT VENTURE (757,770) (686,863)
Equity in earnings of joint venture 81,291 228,683
NET LOSS $ (676,479) $ (458,180)
Per common share amounts:
Primary $ (.21) $ (.14)
Fully diluted (.21) (.14)
Weighted average number of common
shares outstanding
Primary 3,245,587 3,245,528
Fully diluted 3,245,587 3,245,528
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
For the Three Months Ended
Sept 30, 1996 Sept 30, 1995
<S> <C> <C>
Net sales $ 5,237,105 $ 4,920,168
Cost of goods sold 4,510,611 4,139,429
726,494 780,739
Research and development expense 69,376 50,746
Selling, general and
administrative expense 733,402 830,721
Operating loss ( 76,284) (100,728)
Other income (expense):
Interest income (108) 1,257
Interest expense (126,647) (130,698)
Other 311,287 (945)
184,532 (130,386)
EARNINGS (LOSS) BEFORE EQUITY IN
EARNINGS OF JOINT VENTURE 108,248 (231,114)
Equity in earnings of joint venture 62,877 94,780
NET INCOME (LOSS) $ 171,125 $ (136,334)
Per common share amounts:
Primary $ .05 $ (.04)
Fully diluted .05 (.04)
Weighted average number of common
shares outstanding
Primary 3,245,587 3,245,586
Fully diluted 3,245,587 3,245,586
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
For the Six Months Ended
Sept 30, 1996 Sept 30, 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (676,479) $ (458,180)
Adjustments to reconcile net loss income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 83,311 89,276
Provision for losses on accounts receivable 24,229
Undistributed earnings of joint venture 940,781 (228,683)
(Gain) on sale of property, plant
and equipment (311,287)
Legal settlement 300,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,192,126) 638,857
Decrease in inventories and prepaid expenses 361,983 502,448
Increase (decrease) in accounts payable and
accrued expenses 268,523 (117,039)
(Increase) in other assets (3,178) (10,732)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (204,243) 415,948
INVESTING ACTIVITIES
(Purchases) of property, plant and equipment (58,883)
Decrease (increase) in commercial paper and
time deposits 8,748 (145)
NET CASH PROVIDED BY(USED IN) INVESTING ACTIVITIES 8,748 (59,028)
FINANCING ACTIVITIES
Net repayment of short-term debt (55,292) (1,091,957)
Payment on legal settlement (100,000)
Proceeds from issuance of long-term debt 1,300,000
Principal payments on long-term debt (25,452) (606,852)
Proceeds on sale of property, plant and equipment 407,880
Proceeds from issuance of common stock
under stock option plan and employee
stock purchase plan 191
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 227,136 (398,618)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 31,641 (41,698)
Cash and cash equivalents at beginning of period 97,793 173,809
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 129,434 $ 132,111
Supplemental information:
Interest paid $ 239,987 $ 258,397
Income taxes paid - -
</TABLE>
See notes to consolidated financial statements
- 7 -
<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, 1996. 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 (loss) per share is
computed by dividing the net income (loss) 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 - In conjunction with the settlement of litigation with
Black & Decker, the Company agreed to pay the sum of $300,000. The
repayment terms are $100,000 paid in July 1996 and $200,000 payable in
32 equal monthly installments without interest starting September 1, 1996.
Sale of Property - On July 26, 1996, the Company sold undeveloped real
estate adjacent to its plant which resulted in a gain of approximately
$311,000.
Litigation - The Company settled a suit filed by Black & Decker against the
Company for patent infringement in connection with the marketing by the
Company of a flexible flashlight under the name PRETZL LITE. Under the
terms of the settlement agreement entered into on July 19, 1996, the
Company agreed to pay Black & Decker $300,000 as follows: $100,000 within
10 days and $200,000 in 32 consecutive monthly payments of $6,250 beginning
September 1, 1996. Under the terms of a Consent Decree entered in the U.S.
District Court for the Eastern District of Virginia, the Company was
enjoined from future sales of the product, except for approximately 31,300
units to specified customers and the Company was ordered to turn over to
Black & Decker for destruction its molds and marketing and packaging
materials for the product. The total expenses related to the settlement
amounted to approximately $450,000 and have been recorded in the three
month period ended June 10, 1996.
- 8 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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. The following
represents summarized income statement information of the Hong Kong
joint venture for the six months ended September 30, 1996 and 1995:
<TABLE>
1996 1995
<S> <C> <C>
Net sales $4,523,655 $6,058,059
Gross profit 675,671 1,101,241
Net income 162,582 457,366
</TABLE>
Commitments - The Company has employment agreements with two of its
officers, both expiring on March 31, 1998. The combined 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. However, in September 1996, one of the officers voluntarily
elected to a non-reimbursable reduction in remuneration of $200,000.
- 9 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six Months Ended September 30, 1996 Compared to
Six Months Ended September 30, 1995
Sales - Net sales for the six months ended September 30, 1996 were
$9,584,018 compared to $9,957,529 for the comparable six months in the
prior fiscal year, a decrease of $373,511. Net sales of security
products increased by $1,544,455, as compared to the six months ended
September 30, 1995. Net sales of video products increased by $248,789.
The increase in both security and video was due to increased demand for
certain security and video products by its private label customers.
Net sales of telecommunications products decreased by $2,166,755 from the
comparable period of the previous year. The decrease in telecommunications
sales was due to a decreased demand for certain of the Company's
telecommunications products by its private label customers.
Net Income - The Company reported a net loss of $675,027 for the six
months ended September 30, 1996 compared to a net loss of $458,180 for
the corresponding six months of the prior fiscal year. The increase in
net loss was due primarily to a decrease in the Company's equity in
its joint venture's earnings, a decrease in sales, an increase in operating
expenses, and Black & Decker's patent infringement suit against the
Company, including fees and expenses in the aggregate approximate amount of
$450,000, partially offset by the gain on the sale of unused, unimproved
real estate.
Expenses - Research, selling, general and administrative expenses
increased by approximately $115,000 from the comparable six months in
the prior year, largely due to legal fees incurred with the defense of
litigation with Black & Decker. As a percentage of sales, research,
selling, general and administrative expenses were 20% for the six months
ended September 30, 1996 and 18% for the same period in the prior fiscal
year.
Interest Expense and Income - The Company's interest expense, net of
interest income, was $238,542 for the six months ended September 30,
1996 to $255,504 for the comparable period in 1995, primarily attributable
to the average reduction of short term debt.
Three Months Ended September 30, 1996 Compared to
Three Months Ended September 30, 1996
Sales - Net sales for the three months ended September 30, 1996 were
$5,237,105 compared to $4,920,168 for the comparable three months in the
prior fiscal year, an increase of $316,937. Net sales of security and
video products increased by $612,306 and $480,385, respectively, offset by
a decrease in telecommunication products of $775,754 as compared to
the quarter ended September 30, 1995. The decrease in telecommunications
sales was due to a decreased demand for certain of the Company's
telecommunications products by its private label customers.
- 10 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net Income - The Company reported net income of $171,125 for the quarter
ended September 30, 1996 compared to a net loss of $136,334 for the
corresponding quarter of the prior fiscal year. The increase in net
income was primarily due to the sale of an unused, unimproved parcel of
real estate which resulted in a gain of approximately $311,000.
Expenses - Research, selling, general and administrative expenses
increased by approximately $79,000 from the comparable three months in
the prior year. As a percentage of sales, research, selling, general
and administrative expenses were 15% for the three months ended
September 30, 1996 and 18% for the same period in the last fiscal year.
Interest Expense and Income - The Company's interest expense, net of
interest income, was $126,539 for the quarter ended September 30, 1996
to $129,441 for the comparable period in 1995.
Financial Condition and Liquidity - Cash needs of the Company are
currently met by funds generated from operations and the Company's 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 bank line of credit is currently the lower of
$7,500,000 or specified percentages of the Company's accounts receivable
and inventory. Approximately $3,868,898 has been utilized in letter of
credit commitments and short-term borrowings as of September 30, 1996. As
of September 30, 1996, 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 collateralized by the Company's accounts
receivable and inventory.
Operating activities used cash of $204,243 for the six months ended
September 30, 1996. This was primarily due to a net loss of $676,479, and
an increase in accounts receivable of $1,192,126, partially offset by a
partnership distribution of approximately $1,000,000, a decrease in
inventory and an increase in accounts payable and accrued expenses. For
the same period last year, operating activities provided cash of $415,945,
primarily due to a decrease in accounts receivable of $638,857 and a
decrease in inventories of $502,448 offset by a net loss of $458,180.
Investing activities provided cash of $8,748 in the current quarter and
used cash of $59,028 in the same quarter last year.
Financing activities provided cash of $227,136 primarily due to the net
decrease of short-term debt of $100,000 and proceeds from the sale of
unused, unimproved real estate. For the same period last year, financing
activities used $398,618 primarily due to the net repayments of short-term
debt.
- 11 -
<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, depending on the ability of the Company
to retain its financing, which may be dependent upon the Company's
results of operations.
Hong Kong Joint Venture - Net sales of the joint venture for the six
months and three months ended September 30, 1996 were $4,523,655 and
$2,664,081, respectively, compared to $6,058,059 and $2,840,067,
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,
1996 was $162,582 and $125,754, respectively, compared to $457,366 and
$189,561 respectively, in the comparable six months and three months
last year. The decrease in net income was primarily due to the
decrease in sales.
Selling, general and administrative expenses were $689,505 (15% of
sales) and $336,685 (13% of sales), respectively, for the six months
and three months ended June 30, 1996 and were $824,082 (14% of sales)
and $430,413 (15% 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,
1996, working capital increased by $829,729 from $712,439 on March
31, 1996 to $1,542,168 on September 30, 1996.
- 12 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
The Company settled a suit filed by Black & Decker against
the Company for patent infringement in connection with the
marketing by the Company of a flexible flashlight under the
name PRETZL LITE. Under the terms of the settlement
agreement entered into on July 19, 1996, the Company agreed
to pay Black & Decker $300,000 as follows: $100,000 within
10 days and $200,000 in 32 consecutive monthly payments of
$6,250 beginning September 1, 1996. Under the terms of a
Consent Decree entered in the U.S. District Court for the
Eastern District of Virginia, the Company was enjoined from
future sales of the product, except for approximately
31,300 units to specified customers and the Company was
ordered to turn over to Black & Decker for destruction its
molds and marketing and packaging materials for the
product. The total expenses related to the settlement
amounted to approximately $450,000 and have been recorded
in the three month period ended June 10, 1996.
Item 5. Other Information
On September 26, 1996, Hubert Mazzacca was elected by the
Board of Directors as Vice President of Telecommunications
and Grant Pierpont was elected as Chief Financial Officer.
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
- 13 -
<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 14, 1996 Harvey Grossblatt
HARVEY GROSSBLATT
President
Dated: November 14, 1996 Grant Pierpont
GRANT PIERPONT
Chief Financial Officer
smb
10-Q.SEPT
- 14 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 129,434 129,434
<SECURITIES> 0 0
<RECEIVABLES> 3,291,667 3,291,667
<ALLOWANCES> 50,000 50,000
<INVENTORY> 3,888,301 3,888,301
<CURRENT-ASSETS> 7,745,997 7,745,997
<PP&E> 2,718,673 2,718,673
<DEPRECIATION> 912,788 912,788
<TOTAL-ASSETS> 12,387,691 12,387,691
<CURRENT-LIABILITIES> 5,011,313 5,011,313
<BONDS> 0 0
0 0
0 0
<COMMON> 32,456 32,456
<OTHER-SE> 5,966,980 5,966,980
<TOTAL-LIABILITY-AND-EQUITY> 12,387,691 12,387,691
<SALES> 5,237,105 9,584,018
<TOTAL-REVENUES> 5,237,105 9,584,018
<CGS> 4,510,611 8,547,608
<TOTAL-COSTS> 4,510,611 8,547,608
<OTHER-EXPENSES> 802,778 1,954,054
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 126,647 239,987
<INCOME-PRETAX> 171,125 (676,479)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 121,175 (676,479)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 171,125 (676,479)
<EPS-PRIMARY> .05 (.21)
<EPS-DILUTED> .05 (.21)
</TABLE>
