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 December 31, 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
February 9, 1997 Common Stock, $.01 par value 3,245,587
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
INDEX
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets at December 31, 1996 and March 31,
1996
Consolidated statements of operations for the nine months ended
December 31, 1996 and 1995 and three months ended December 31,
1996 and 1995
Consolidated statements of cash flows for the nine months ended
December 31, 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 6. Exhibits and Reports
- 2 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<TABLE>
Dec 31, 1996 March 31, 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 243,389 $ 97,793
Time deposits 8,748
Accounts receivable:
Trade (less allowance for doubtful
accounts of $50,000 at
December 31, 1996 and $25,771 at
March 31, 1996) 2,095,857 2,033,092
Officers and employees 20,862 40,678
2,116,719 2,073,770
Inventories:
Finished goods 2,759,997 4,099,907
Raw materials-foreign locations 361,328 152,303
3,121,325 4,252,210
Prepaid expenses 455,108 484,669
TOTAL CURRENT ASSETS 5,936,541 6,917,190
INVESTMENT IN JOINT VENTURE 2,527,701 3,660,350
PROPERTY, PLANT AND EQUIPMENT 1,765,929 1,985,790
OTHER ASSETS 99,800 113,061
$10,329,971 $12,676,391
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
Dec 31, 1996 March 31, 1996
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 1,527,205 $ 2,993,685
Current maturity of long-term debt 88,488 13,488
Accounts payable 1,516,635 858,557
Accounts payable - joint venture 750,000
Accrued liabilities:
Payroll, commissions and payroll taxes 111,345 71,372
Other 18,982 35,980
TOTAL CURRENT LIABILITIES 3,262,655 4,723,082
LONG-TERM DEBT, less current portion 1,354,835 1,277,394
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per share;
authorized 20,000,000 shares; issued
3,245,587 shares at December 31, 1996
and at March 31, 1996 32,456 32,456
Additional paid-in capital 10,429,588 10,429,588
Retained (deficit) (4,749,563) (3,786,129)
5,712,481 6,675,915
$10,329,971 $ 12,676,391
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
For the Nine Months Ended
Dec 31, 1996 Dec 31, 1995
<S> <C> <C>
Net sales $13,261,441 $15,275,355
Cost of goods sold 10,983,858 12,634,997
2,277,583 2,640,358
Research and development expense 177,008 164,778
Selling, general and administrative expense 2,584,133 2,707,113
Operating loss (483,558) (231,533)
Other income (expense):
Interest income 2,177 3,926
Interest expense (340,781) (399,713)
Other (115,128) (447)
(453,732) (396,234)
LOSS BEFORE EQUITY IN (LOSS)
EARNINGS OF JOINT VENTURE (937,290) (627,767)
Equity in (loss) earnings of joint venture (26,144) 220,180
NET LOSS $ (963,434) $ (407,587)
Per common share amounts:
Primary $ (.30) $ (.13)
Fully diluted (.30) (.13)
Weighted average number of common
shares outstanding
Primary 3,245,587 3,245,568
Fully diluted 3,245,587 3,242,568
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
For the Three Months Ended
Dec 31, 1996 Dec 31, 1995
<S> <C> <C>
Net sales $ 3,677,423 $ 5,317,826
Cost of goods sold 2,972,936 4,087,389
704,487 1,230,437
Research and development expense 59,176 56,716
Selling, general and administrative expense 747,911 976,345
Operating (loss) income (102,600) 197,376
Other income (expense):
Interest income 619 1,033
Interest expense (100,793) (141,316)
Other 23,252 2,003
(76,922) (138,280)
(LOSS) EARNINGS BEFORE EQUITY IN
LOSS OF JOINT VENTURE (179,522) 59,096
Equity in loss of joint venture (107,435) (8,503)
NET (LOSS) INCOME $ (286,957) $ 50,593
Per common share amounts:
Primary $ (.09) $ .02
Fully diluted (.09) .02
Weighted average number of common
shares outstanding
Primary 3,245,587 3,245,587
Fully diluted 3,245,587 3,245,587
</TABLE>
See notes to consolidated financial statements.
- 6 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
For the Nine Months Ended
Dec 31, 1996 Dec 31, 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (963,434) $ (407,587)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 123,268 135,788
Provision for losses on accounts receivable 24,229
Distributed (undistributed) earnings of
joint venture 1,132,649 (220,180)
Gain on sale of property, plant & equipment (311,287)
Legal settlement 300,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (67,178) 731,648
Decrease (increase) in inventories and
prepaid expenses 1,160,447 (429,467)
Decrease in accounts payable and
and accrued expenses (68,947) (41,147)
Decrease (increase) in other assets 13,261 (10,731)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,343,008 (241,676)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (89,520)
Decrease (increase) in commercial
paper and time deposits 8,748 (355)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 8,748 (89,875)
FINANCING ACTIVITIES
Net repayment of short-term debt (1,466,480) (258,654)
Proceeds from sale of property, plant
and equipment (407,880)
Proceeds from issuance of long-term debt 1,300,000
Principal payments on long-term debt (47,560) (609,890)
Payment on legal settlement (100,000)
Proceeds from issuance of common stock
under stock option plan and employee
stock purchase plan 191
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (1,206,160) 431,647
INCREASE IN CASH AND CASH EQUIVALENTS 145,596 100,096
Cash and cash equivalents at beginning of period 97,793 173,809
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 243,389 $ 273,905
Supplemental information:
Interest paid $ 340,780 $ 399,713
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 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 addition to the mortgage on the Company's
headquarters, the Company agreed to pay the sum of $300,000 in
conjunction with the settlement of litigation with Black &
Decker. 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 30, 1996.
- 8 -
Joint Venture - The Company maintains a 50% interest in a joint
venture with a Hong Kong corporation (Hong Kong joint venture)
which has 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 manufacture
and sell a portable cellular telephone primarily in China. 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 nine
months ended December 31, 1996 and 1995:
<TABLE>
1996 1995
<S> <C> <C>
Sales $5,467,731 $8,136,727
Gross Profit 704,519 1,451,206
Net (Loss) Income (52,288) 440,361
</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 agreed to a non-reimbursable
reduction in remuneration of $200,000.
- 9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Nine Months Ended December 31, 1996 Compared to
Nine Months Ended December 31, 1995
Sales - Net sales for the nine months ended December 31, 1996
were $13,261,441 compared to $15,275,355 for the comparable nine
months in the prior fiscal year, a decrease of $2,013,914. Net
sales of security products increased by $74,493, as compared to
the nine months ended December 31, 1995. Net sales of
telecommunications products decreased by $2,779,178 and video
products increased by $690,771, from the comparable period of the
previous year. The decrease in telecommunications sales was due
to a decreased demand by certain of its private label customers.
The increase in security sales was due to the demand for certain
security products. The increase in video sales was due to
increased demand for certain of the Company's video products by
its private label customers.
Net Income - The Company reported a net loss of $963,434 for
the nine months ended December 31, 1996 compared to a net loss of
$407,587 for the corresponding nine months of the prior fiscal
year. The Company's gross margin declined by $362,775, which was
due to the decline in sales described above. Additionally,
expenses declined by $110,750 as described below, more than
offset by a decline in joint venture earnings of $246,324.
Expenses - Research, selling, general and administrative expenses
decreased by $110,750 from the comparable nine months in the
prior year. As a percentage of sales, research, selling, general
and administrative expenses were 21% for the nine months ended
December 31, 1996 and 19% for the same period in the prior fiscal
year. The most significant reason for the decrease in expenses
was the savings resulting from the implementation of the
Company's cost reduction program.
Interest Expense and Income - The Company's interest expense, net
of interest income, decreased to $338,604 for the nine months
ended December 31, 1996 from $395,787 for the comparable period
in 1995. The decrease in interest expense is due largely to a
decrease in short-term debt.
Three Months Ended December 31, 1996 Compared to
Three Months Ended December 31, 1995
Sales - Net sales for the three months ended December 31, 1996
were $3,677,423 compared to $5,317,826 for the comparable three
months in the prior fiscal year, a decrease of $1,640,403. Net
sales of security products decreased by $1,470,013, as compared
to the quarter ended December 31, 1995. Net sales of
telecommunications products decreased by $311,831, while video
products increased by $141,441 from the same quarter last 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. The increase in video sales was
due to the demand for certain of the Company's video products.
The decrease in security products was due to decreased demand for
certain of the Company's security products.
- 10 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net Income - The Company reported a net loss of $286,957 for the
quarter ended December 31, 1996 compared to net income of
$50,593 for the corresponding quarter of the prior fiscal year.
The primary reasons for the reduction of net income were a
reduction in gross sales, combined with an increase in the loss
of the joint venture.
Expenses - Research, selling, general and administrative expenses
decreased by approximately $225,974 from the comparable three
months in the prior year. As a percentage of sales, research,
selling, general and administrative expenses were 22% for the
three months ended December 31, 1996 and 19% for the same period
in the last fiscal year. The decrease in selling, general and
administrative expenses was primarily due to the savings
resulting from the implementation of the Company's cost reduction
program.
Interest Expense and Income - The Company's interest expense, net
of interest income, decreased from $140,283 for the three months
ended December 31, 1995 to $100,174 for the current quarter in
1996.
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
$1,527,000 has been utilized in letter of credit commitments and
short-term borrowings as of December 31, 1996. As of December
31, 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 secured by the
Company's accounts receivable and inventory. During the nine
months ended December 31, 1996, working capital increased by
$479,778.
Operating activities provided cash of $1,434,008 for the nine
months ended December 31, 1996. This was primarily due to the
reduction of inventories of $1,130,885. For the same period last
year, operating activities used cash of $241,676. This was
primarily due to the loss from operations, the undistributed
earnings from the Company's joint venture and the increase in
inventory, partially offset by a decrease in accounts receivable
of $731,648.
- 11 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Investing activities provided cash of $8,748 in the current
period and used cash of $89,875 in the same period last year,
consisting primarily of purchases of equipment and returned
deposits.
Financing activities used cash of $1,206,160, primarily due to
repayment of short-term debt of $1,466,480, partially offset by
proceeds from the sale of property of $407,880. For the same
period last year, financing activities provided cash of $431,647,
primarily due to the net issuance of long-term debt.
The Company believes that its demand line of credit and its
working capital provide it with sufficient resources to meet its
current requirements for liquidity and working capital in the
ordinary course of its business. The Company's ability to retain
its financing may be dependent upon the Company's results of
operations. If the Company's losses continue, it may not be able
to retain its funding sources for as long as the next 12 months.
Hong Kong Joint Venture - Net sales of the joint venture for the
nine months and three months ended December 31, 1996 were
$5,467,731 and $944,076, respectively, compared to $8,136,727
and $2,678,668, respectively, for the comparable nine 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 which was due to the decreased demand for
certain of these products by the Company's private label
customers.
The net loss for the nine months ended December 31, 1996 was
$52,288 and net loss for the three months ended December 31, 1996
was $214,870, compared to net income of $440,361 and net loss of
$17,005, respectively, in the comparable nine months and three
months last year.
Selling, general and administrative expenses were $1,034,726 (19%
of sales) and $115,199 (12% of sales), respectively, for the nine
months and three months ended December 31, 1996 and were
$1,172,463 (14% of sales) and $348,381 (13% 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 nine months ended
December 31, 1996, working capital decreased by $659,600 from
$1,373,039 on December 31, 1996 to $713,439 on March 31, 1996.
- 12 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
PART II
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: February 14, 1997 Harvey Grossblatt
HARVEY GROSSBLATT
President
Dated: February 14, 1997 Grant Pierpont
GRANT PIERPONT
Chief Financial Officer
- 14 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 234,389 234,389
<SECURITIES> 0 0
<RECEIVABLES> 2,166,719 2,166,719
<ALLOWANCES> 50,000 50,000
<INVENTORY> 3,888,301 3,888,301
<CURRENT-ASSETS> 7,745,997 7,745,997
<PP&E> 1,805,886 1,805,886
<DEPRECIATION> 123,268 123,268
<TOTAL-ASSETS> 10,329,971 10,329,971
<CURRENT-LIABILITIES> 3,262,655 3,262,655
<BONDS> 0 0
0 0
0 0
<COMMON> 32,456 32,456
<OTHER-SE> 5,680,025 5,680,025
<TOTAL-LIABILITY-AND-EQUITY> 10,329,971 10,329,971
<SALES> 3,677,423 13,261,441
<TOTAL-REVENUES> 3,677,423 13,261,441
<CGS> 2,972,936 10,983,858
<TOTAL-COSTS> 2,972,936 10,983,858
<OTHER-EXPENSES> 807,087 2,761,141
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 100,793 340,871
<INCOME-PRETAX> (286,957) (963,434)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (286,957) (963,434)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (286,957) (963,434)
<EPS-PRIMARY> (.09) (.30)
<EPS-DILUTED> (.09) (.30)
</TABLE>
