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 June 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 (1) 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
August 1, 1996 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 June 30, 1996 and March
31, 1996
Consolidated statements of operations for the three
months ended June 30, 1996 and 1995
Consolidated statements of cash flows for the three
months ended June 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 5. Other Information
Item 6. Exhibits and Reports
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<TABLE>
June 30, 1996 March 31, 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 178,327 $ 97,793
Time deposits 8,820 8,748
Accounts receivable:
Trade (less allowance for doubtful
accounts of $25,771 at June 30, 1996
and $25,771 at March 31, 1996) 1,531,877 2,033,092
Officers and employees 6,631 40,678
1,538,508 2,073,770
Inventories:
Finished goods 4,244,421 4,099,907
Raw materials-foreign locations 306,925 152,303
4,551,346 4,252,210
Prepaid expenses 467,095 484,669
TOTAL CURRENT ASSETS 6,744,096 6,917,190
INVESTMENT IN JOINT VENTURE 2,668,137 3,660,350
PROPERTY, PLANT AND EQUIPMENT 1,944,114 1,985,790
OTHER ASSETS 113,061 113,061
$11,469,408 $12,676,391
</TABLE>
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
June 30, 1996 March 31, 1996
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 2,589,831 $ 2,993,685
Current maturity of long-term debt 188,488 13,488
Accounts payable 1,235,648 858,557
Accounts payable - joint venture 750,000
Accrued liabilities:
Payroll, commissions and payroll taxes 184,873 71,372
Other 43,056 35,980
TOTAL CURRENT LIABILITIES 4,241,896 4,723,082
LONG-TERM DEBT, less current portion 1,399,200 1,277,394
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per share;
authorized 20,000,000 shares; issued
3,245,587 shares at June 30, 1996
and 3,245,587 shares at March 31, 1996 32,456 32,456
Additional paid-in capital 10,429,588 10,429,588
Retained earnings (deficit) (4,633,732) (3,786,129)
5,828,312 6,675,915
$11,469,408 $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 Three Months Ended
June 30, 1996 June 30, 1995
<S> <C> <C>
Net sales $4,346,913 $5,037,361
Cost of goods sold 3,500,311 4,408,179
846,602 629,182
Research and development expense 48,455 57,316
Selling, general and administrative expense 1,102,821 900,047
Operating loss (304,674) (328,181)
Other income (expense):
Interest income 1,665 1,636
Interest expense (113,040) (127,699)
Other (449,968) (1,505)
(561,343) (127,568)
LOSS BEFORE EQUITY
IN EARNINGS OF JOINT VENTURE (866,017) (455,749)
Equity in earnings of joint venture 18,414 133,903
NET LOSS $ (847,603) $ (321,846)
Per common share amounts:
Primary $ (.26) $ (.10)
Fully diluted (.26) (.10)
Weighted average number of common
shares outstanding
Primary 3,245,587 3,245,470
Fully diluted 3,245,587 3,245,470
</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 Three Months Ended
June 30, 1996 June 30, 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (847,603) $ (321,846)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 41,677 43,782
Distributed (undistributed) earnings of
joint venture 992,213 (133,903)
Legal settlement 300,000
Changes in operating assets and liabilities:
Decrease in accounts receivable 535,263 1,527,514
(Increase) decrease in inventories and
prepaid expenses (281,564) 404,256
Decrease in accounts payable
and accrued expenses (252,332) (118,763)
NET CASH PROVIDED BY OPERATING ACTIVITIES 487,654 1,401,040
INVESTING ACTIVITIES
Property, plant and equipment (43,673)
Increase in time deposits (72) (77)
NET CASH USED IN INVESTING ACTIVITIES (72) (43,750)
FINANCING ACTIVITIES
Net repayment of short-term debt (403,854) (1,988,736)
Proceeds from issuance of long-term debt 1,300,000
Principal payments on long-term debt (3,194) (603,888)
Proceeds from issuance of common stock
under stock option plan and employee
stock purchase plan 184
NET CASH USED IN FINANCING ACTIVITIES (407,048) (1,292,440)
INCREASE IN CASH AND CASH EQUIVALENTS 80,534 64,850
Cash and cash equivalents at beginning of period 97,793 173,809
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 178,327 $ 238,659
Supplemental information:
Interest paid $ 111,844 $ 127,699
Income taxes paid - -
</TABLE>
See notes to consolidated financial statements
- 6 -
<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 adjustments),
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 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 payable 10 days from the date of the settlement and
$200,000 payable in 32 equal installments.
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 quarters ended June 30, 1996 and 1995:
<TABLE>
1996 1995
<S> <C> <C>
Net sales $1,859,574 $3,217,892
Gross profit 396,569 581,363
Net income 36,828 267,805
</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.
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<PAGE>
Subsequent Events - Since June 30, 1996, the following events have
occurred: (i) the Company settled the 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 30, 1996; (ii) the Company sold undeveloped real estate adjacent
to its plant which resulted in a gain of approximately $314,000,
which will be recorded in the quarter ending September 30, 1996; and (iii)
commencing in August, the Company began implementation of an additional
phase of its cost reduction program.
- 8 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended June 30, 1996 Compared to
Three Months Ended June 30, 1995
Sales - Net sales for the three months ended June 30, 1996 were
$4,346,913 compared to $5,037,361 for the comparable three months in the
prior fiscal year, a decrease of $690,448. Net sales of security
products increased by $932,148 as compared to the quarter ended June 30,
1995. Net sales of telecommunications and video products decreased by
$1,390,640 and $231,956, respectively, as compared to the quarter ended
June 30, 1995. The increase in security sales was due primarily to a
significant sale of smoke detectors to an existing customer. 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 $847,603 for the quarter
ended June 30, 1996 compared to net loss of $321,846 for the
corresponding quarter of the prior fiscal year. The decrease in net income
was due to a decrease in the Company's equity in the earnings of its
joint venture, and the costs of settlement of Black & Decker's patent
infringement suit against the Company, including fees and expenses,
in the aggregate approximate amount of $450,000.
Expenses - Research, selling, general and administrative expenses
increased by approximately $202,000 from the comparable three months in
the prior year. As a percentage of sales, research, selling, general
and administrative expenses were 25% for the three months ended June 30,
1996 and 19% for the same period in the last fiscal year.
Interest Expense and Income - The Company's interest expense, net of
interest income, decreased from $126,063 for the quarter ended June 30,
1995 to $111,375 for the quarter ended June 30, 1996.
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 $2,589,000 has been utilized in letter of
credit commitments and short-term borrowings as of June 30, 1996. As of
June 30, 1996, the amount available for borrowings under the line was
approximately $100,000 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 provided cash of $487,654 for the quarter ended
June 30, 1996. This was primarily due to a decrease in accounts
receivable of $535,263 and a partnership distribution of approximately
$1,000,000, partially offset by the net loss of $847,603. For the same
period last year, operating activities provided cash of $1,401,040,
primarily due to a decrease in accounts receivable of $1,527,514 and a
decrease in inventories of $49,624 offset by a net loss of $321,846.
- 8 -
<PAGE>
Investing activities used cash of $72 in the current quarter and
$43,750 in the same quarter last year.
Financing activities used cash of $407,048 primarily due to the net
repayment of short-term debt of $403,854. For the same period last
year, financing activities used $1,292,440 primarily due to the net
repayments of short-term debt.
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
three months ended June 30, 1996 were $1,859,574 compared to
$3,217,892 for the comparable 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 was $36,828 for the quarter ended June 30, 1996 compared
to $267,805 in the comparable quarter last year. The decrease in
net income is due to the decrease in sales.
Selling, general and administrative expenses were $430,224 and
$384,669 for the quarter ended June 30, 1996 and 1995,
respectively. As a percentage of sales, expenses were 23% and 12%
for 1996 and 1995, respectively.
Interest income net of interest expense was $13,023 for the quarter
ended June 30, 1996 compared to $38,154 for the same quarter last
year.
Cash needs of the Hong Kong joint venture are currently met by
funds generated from operations. During the quarter ended June 30,
1996, working capital increased by $651,541 from $712,439 on March
31, 1996 to $1,363,980 on June 30, 1996.
Subsequent Events - Since June 30, 1996, the following events have
occurred: (i) the Company settled the 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 30, 1996; (ii) the Company sold undeveloped real estate adjacent
to its plant which resulted in a gain of approximately $314,000,
which will be recorded in the quarter ending September 30, 1996; and (iii)
commencing in August, the Company began implementation of an additional
phase of its cost reduction program.
- 10 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
PART II
Item 5. Other Information
On August 1, 1996, the Board of Directors of the Corporation
(i) adopted amendments to the Company's by-laws creating the office of
Vice Chairman of the Company, (ii) accepted the resignation of Michael
Kovens as President and elected him to the office of Vice Chairman, (iii)
elevated Harvey Grossblatt from Executive Vice President to President,
and (iv) reduced the annual salary of Stephen Knepper, Chairman of the
Board of Directors of the Company, from $250,000 to $50,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits included herein:
Exhibit Number
3(ii) By-Law Amendments
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
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<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: August 14, 1996 Harvey Grossblatt
HARVEY GROSSBLATT
President
Dated: August 14, 1996 Grant Pierpont
GRANT PIERPONT
Principal Financial Officer
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-END> JUN-30-1996
<CASH> 178,327
<SECURITIES> 8,820
<RECEIVABLES> 1,564,279
<ALLOWANCES> 25,771
<INVENTORY> 4,551,346
<CURRENT-ASSETS> 6,744,096
<PP&E> 1,985,821
<DEPRECIATION> 41,677
<TOTAL-ASSETS> 11,469,408
<CURRENT-LIABILITIES> 4,241,896
<BONDS> 0
0
0
<COMMON> 32,456
<OTHER-SE> 5,795,856
<TOTAL-LIABILITY-AND-EQUITY> 11,469,408
<SALES> 4,346,913
<TOTAL-REVENUES> 4,346,913
<CGS> 3,500,311
<TOTAL-COSTS> 3,500,311
<OTHER-EXPENSES> 1,151,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,040
<INCOME-PRETAX> (847,603)
<INCOME-TAX> 0
<INCOME-CONTINUING> (847,603)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (847,603)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
EXHIBIT 3
AMENDMENT TO BY-LAWS
(i) Add "Vice Chairman" as an officer of the Corporation in
the first sentence of Section 1 of Article III.
(ii) Add the following as Section 2A of the By-laws:
"Section 2A Vice Chairman of the Board
The Vice Chairman of the Board shall be a director
of the Corporation. In the event of the absence of the Chairman of
the Board, the Vice Chairman shall perform all of the duties of the
Chairman and when so acting have all of the powers of the Chairman.
He shall have authority to sign and execute in the name of the
Corporation all authorized deeds, contracts and other instruments."
(iii) Insert the words "Vice Chairman of the Board" after the
words "Chairman of the Board" in the second line of Section 3 of
Article III and in the first line of Section 4 of Article III.
