UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended March 31, 1997
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
(Title of Class)
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 (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to the filing requirements for at least the
past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of June 23, 1997:
Common Stock, $.01 Par Value - $1,825,643
The number of shares outstanding of the issuer's classes of common
stock as of June 23, 1997:
Common Stock, $.01 Par Value - 3,245,587 shares
<PAGE>
The Registrant hereby amends the following items, financial statements, exhibits
or other portions of its Annual Report on Form 10-K for the fiscal year ended
March 31, 1997, by deleting those items in their entirety and inserting in
their place the following:
Item 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (as amended on August
19, 1997, to correct a typographical error in Note F - in the original filing,
in the column headed "3/31/97," the "Federal tax benefit at statutory rate on
loss (34%)" should be $(504,269), the "Dividends received from joint venture
for which net deferred taxes were not previously provided" should be $340,000,
the "Effect on net operating loss carryforwards" should be $60,000 and "Other"
should be $52,925).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caued this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized:
UNIVERSAL SECURITY INSTRUMENTS, INC.
Date: August 20, 1997 By: Harvey Grossblatt
Harvey Grossblatt,
President, Secretary, Treasurer, CFO
<PAGE>
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Description Page
Reports of Independent Auditors
Deloitte & Touche LLP 14
Ernst & Young LLP 15
Financial statements
Consolidated balance sheets, March 31, 1997 and 1996 16
Consolidated statements of operations for the years ended
March 31, 1997, 1996 and 1995 18
Consolidated statements of shareholders' equity for the
years ended March 31, 1997, 1996 and 1995 19
Consolidated statements of cash flows for the years ended
March 31, 1997, 1996 and 1995 20
Notes to consolidated financial statements 21
- 13 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Universal Security Instruments, Inc.
We have audited the accompanying consolidated balance sheets of Universal
Security Instruments, Inc. and subsidiaries as of March 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the financial statements of the Hong Kong Joint Venture, the
Corporation's investment which is accounted for by use of the equity method.
The Corporation's equity of $2,508,957 and $3,660,350 in the Hong Kong Joint
Venture's net assets at March 31, 1997 and 1996, and of $(151,011) and
$218,173 in that company's net (loss) income for the years then ended is
included in the accompanying consolidated financial statements. The
financial statements of the Hong Kong Joint Venture were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as
it relates to the amounts included for such company, is based solely on the
report of such other auditors.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports
of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
such consolidated financial statements present fairly, in all material
respects, the financial position of Universal Security Instruments, Inc. at
March 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
1997 and 1996 consolidated financial statements taken as a whole. The 1997
and 1996 supplemental schedules are presented for the purpose of additional
analysis and are not a required part of the basic 1997 and 1996 consolidated
financial statements. The 1997 and 1996 supplemental schedules are the
responsibility of the Company's management. Such 1997 and 1996 supplemental
schedules have been subjected to the auditing procedures applied in our
audits of the basic consolidated financial statements and, in our opinion,
are fairly stated in all material respects when considered in relation to
the basic 1997 and 1996 consolidated financial statements taken as a whole.
Deloitte & Touche LLP
June 30, 1997
Baltimore, Maryland
- 14 -
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Universal Security Instruments, Inc.
We have audited the consolidated balance sheet (not presented
separately herein) of Universal Security Instruments, Inc. and
subsidiaries as of March 31, 1995 and the related consolidated
statements of operations, shareholders' equity, and cash flows for the
year then ended. Our audit also included the financial statement
schedule listed in the index at item 14(a). These financial statements
and this schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements and this schedule based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Universal Security Instruments, Inc. and
subsidiaries at March 31, 1995 and the consolidated results of their
operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.
Ernst & Young LLP
June 21, 1995
Baltimore, Maryland
- 15 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
March 31,
1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash $ 150,452 $ 97,793
Time deposits 8,748
Accounts receivable:
Trade (less allowance for doubtful
accounts of $50,000 in 1997 and
$25,771 in 1996) 1,723,979 2,033,092
Officers and employees 1,545 40,678
1,725,524 2,073,770
Inventories:
Finished goods 2,900,910 4,099,907
Raw materials - foreign locations 127,656 152,303
3,028,566 4,252,210
Prepaid expenses 369,439 484,669
TOTAL CURRENT ASSETS 5,273,981 6,917,190
INVESTMENT IN JOINT VENTURE 2,508,957 3,660,350
PROPERTY, PLANT AND EQUIPMENT 1,757,488 1,985,790
OTHER ASSETS 16,690 113,061
TOTAL ASSETS $9,557,116 $12,676,391
See notes to consolidated financial statements.
</TABLE>
- 16 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
March 31,
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $1,363,641 $ 2,993,685
Current maturity of long-term debt 89,655 13,488
Accounts payable 1,502,193 858,557
Accounts payable - joint venture 750,000
Accrued liabilities:
Payroll, commissions and
payroll taxes 45,991 71,372
Other 18,948 35,980
TOTAL CURRENT LIABILITIES 3,020,428 4,723,082
LONG-TERM DEBT, less current portion 1,344,211 1,277,394
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per
share; authorized 20,000,000
shares; issued and outstanding
3,245,587 shares in 1997 and 1996 32,456 32,456
Additional paid-in capital 10,429,588 10,429,588
Retained earnings (deficit) (5,269,567) (3,786,129)
TOTAL SHAREHOLDERS' EQUITY 5,192,477 6,675,915
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,557,116 $12,676,391
See notes to consolidated financial statements.
</TABLE>
- 17 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Year ended March 31,
1997 1996 1995
<S> <C> <C> <C>
Net sales $15,423,149 $19,507,889 $24,841,794
Cost of goods sold 13,000,896 16,369,364 21,713,689
GROSS PROFIT 2,422,253 3,138,525 3,128,105
Research and development expense 250,751 220,051 446,178
Selling, general and
administrative expense 3,209,962 3,696,740 4,327,921
Operating loss (1,038,460) (778,266) (1,645,994)
Other income (expense):
Interest income 5,984 4,935 4,970
Interest expense (411,541) (543,352) (582,581)
Gain from sale of land 312,625
Legal settlement (247,500)
Other 46,465 (307) 3,145
(293,967) (538,724) (574,466)
LOSS BEFORE EQUITY IN (LOSS)
EARNINGS OF JOINT VENTURE (1,332,427) (1,316,990) (2,220,460)
Equity in (loss) earnings of
joint venture (151,011) 218,173 924,034
NET LOSS $(1,483,438) $(1,098,817) $(1,296,426)
Per common share amounts:
Primary $ (.46) $ (.34) $ (.40)
Fully diluted (.46) (.34) (.40)
Weighted average number of
common shares outstanding:
Primary 3,245,587 3,245,587 3,242,595
Fully diluted 3,245,587 3,245,587 3,242,595
See notes to consolidated financial statements.
</TABLE>
- 18 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
Additional Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance at
March 31,
1994 3,239,835 $32,398 $10,422,398 $(1,390,886) $9,063,910
Net loss
for 1995 (1,296,426) (1,296,426)
Common stock
issued to
employees
through
employee
stock
purchase
plan 547 6 800 806
Common stock
issued to
employees
as compen-
sation 5,000 50 6,200 6,250
Balance at
March 31,
1995 3,245,382 32,454 10,429,398 (2,687,312) 7,774,540
Net loss
for 1996 (1,098,817) (1,098,817)
Common stock
issued to
employees
through
employee
stock
purchase
plan 205 2 190 192
Balance at
March 31,
1996 3,245,587 32,456 10,429,588 (3,786,129) 6,675,915
Net loss
for 1997 (1,483,438) (1,483,438)
Balance at
March 31,
1997 3,245,587 $32,456 $10,429,588 $(5,269,567) $5,192,477
See notes to consolidated financial statements.
</TABLE>
- 19 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year ended March 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,483,438) $(1,098,817) $(1,296,426)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 165,096 181,781 200,166
Provision for losses on
accounts receivable 24,229 27,330
Legal settlement 300,000
Distributions in excess of
(undistributed) earnings of
joint venture 401,393 (218,173) (424,034)
Gain on sale of property, plant
and equipment (312,635) (7,200)
Changes in operating assets and
liabilities:
Decrease in accounts receivable
trade 284,884 1,014,065 921,324
Decrease in inventories and
prepaid expenses 1,338,874 107,418 1,411,789
Increase in accounts payable and
accrued liabilities 601,223 231,202 746,286
Decrease (increase) in
other assets 135,005 (10,728) (3,829)
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,454,631 206,748 1,575,406
INVESTING ACTIVITIES
Purchases of property, plant
and equipment (7,589) (93,498) (110,755)
Decrease (increase) in time deposits 8,748 (426) (265)
Proceeds from sale of property, plant
and equipment 383,429 16,055
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 384,588 (93,924) (94,965)
FINANCING ACTIVITIES
Net repayment of short-term debt (1,630,044) (876,026) (1,195,214)
Proceeds from issuance of
long term-debt 1,300,000 110,000
Principal payments on long-term debt (13,266) (613,006) (503,612)
Payment on legal settlement (143,250)
Proceeds from issuance of
common stock 192 7,056
NET CASH USED IN FINANCING ACTIVITIES (1,786,560) (188,840) (1,581,770)
INCREASE (DECREASE) IN CASH 52,659 (76,016) (101,329)
CASH AT BEGINNING OF YEAR 97,793 173,809 275,138
CASH AT END OF YEAR $ 150,452 $ 97,793 $ 173,809
Supplemental information:
Interest paid $ 411,541 $ 543,352 $ 582,581
Income taxes paid - - -
See notes to consolidated financial statements.
</TABLE>
- 20 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Research and Development: Research and development costs are charged
to operations as incurred.
Accounts Receivable: The Company provides allowances for doubtful
receivables by a charge against income in amounts equal to the
estimated losses that will be incurred in collection of all
receivables. The estimated losses are based on historical collection
experience and a review of the current status of the existing
receivables. Customer accounts are written off against the allowance
for doubtful accounts when an account is determined to be
uncollectible.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property, Plant and Equipment: Property, plant and equipment is
recorded at cost, less accumulated depreciation and amortization.
Depreciation and amortization is provided by the straight-line
method for financial reporting purposes and by accelerated methods for
income tax purposes. The estimated useful lives for financial
reporting purposes are as follows:
Building - 40 years
Machinery and equipment - 5 to 10 years
Furniture and fixtures - 5 to 15 years
Computer equipment - 5 years
Income Taxes: The Company accounts for income taxes using SFAS No.
109, "Accounting for Income Taxes." For further information (see Note
F).
Net Loss per Share: Primary and fully diluted net loss per share are
computed by dividing net 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. Stock options are antidilutive for the
fiscal years 1997, 1996 and 1995.
- 21 -
<PAGE>
New Accounting Pronouncement: The Company is required to adopt SFAS
No. 128, "Earnings per Share" effective April 1, 1998. The standard
specifies the computation, presentation and disclosure requirements
for earnings per share. The Company does not believe this statement
will have a material effect on earnings per share.
NOTE B - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
March 31,
1997 1996
<S> <C> <C>
Land and improvements $ 234,284 $ 305,079
Building and improvements 1,412,271 1,412,271
Machinery and equipment 812,171 810,172
Furniture and fixtures 244,250 241,366
Computer equipment 49,085 46,379
2,752,061 2,815,267
Less accumulated depreciation
and amortization 994,573 829,477
$1,757,488 $1,985,790
</TABLE>
NOTE C - INVESTMENT IN JOINT VENTURE
The Company maintains a Joint Venture with a Hong Kong Corporation,
which has manufacturing facilities in the People's Republic of China,
for the manufacturing of consumer electronic products. As of March 31,
1997, the Company has invested approximately $2,508,957 for their 50%
interest in the Joint Venture. The investment has been accounted for
using the equity method of accounting. Included in the Company's
accounts receivable and accounts payable are $171,123 and $149,018,
due from and due to the Joint Venture, respectively.
During fiscal 1997, the Joint Venture completed the accounting of its
development contract and recorded a write-down of its investment in
its Cellular Joint Venture. The Joint Venture recorded a profit of
$122,328 on the development contract and a write-down of $725,745 on
its Cellular Joint Venture investment.
- 22 -
<PAGE>
The following represents summarized financial information from the
financial statements of the Joint Venture as of March 31, 1997 and
1996 and for the years ended March 31, 1997, 1996 and 1995.
<TABLE>
Year Ended March 31,
1997 1996 1995
<S> <C> <C> <C>
Current assets $2,712,051 $4,807,113
Property and other assets 3,456,418 4,694,364
Total $6,168,469 $9,501,477
Current liabilities $1,063,777 $4,094,674
Non-current liabilities 141,296 141,384
Shareholders' equity $4,963,396 5,265,419
Total $6,168,469 $9,501,477
Net sales $6,644,142 $9,977,272 $15,260,179
Gross profit 1,792,877 1,640,186 3,308,602
Net (loss) income (302,023) 436,345 1,848,069
</TABLE>
As of and for the years ended March 31, 1997, 1996 and 1995, the
period ending exchange rate and the weighted average exchange rates
are approximately 7.75 Hong Kong dollars to each U.S. dollar.
Current liabilities at March 31, 1996 include $2,000,000 in dividends
payable to shareholders which were distributed in April 1996.
During the years ended March 31, 1997, 1996 and 1995, the Company
purchased $5,824,622, $9,206,000 and $13,832,000, respectively, of
finished product from the Joint Venture, which represents 57%, 53% and
81%, respectively, of the Company's total finished product purchases.
NOTE D - DEBT
Debt consisted of the following:
<TABLE>
March 31,
1997 1996
<S> <C> <C>
Short-term borrowings $1,363,641 $2,993,685
Promissory notes - long-term 1,433,866 1,290,882
2,797,507 4,284,567
Less current maturities 1,453,296 3,007,173
$1,344,211 $1,277,394
</TABLE>
- 23 -
<PAGE>
The short-term borrowings relate to the Company's agreement with a
financial institution to provide a maximum line of credit of the lower
of $7,500,000 or specified percentages of the Company's accounts
receivable and inventory consisting of a revolving line of credit and
letter of credit. The outstanding principal balance of the revolving
credit line ($1,363,641 at March 31, 1997) is payable on demand. The
interest rate on the revolving credit line is equal to 1-1/2% in excess
of the prime rate of interest (10% at March 31, 1997). As of March 31,
1997, the amount available for borrowings under the line was
approximately $300,000 based on the specified percentages. The loan is
collateralized by the Company's accounts receivable, inventory and a
1.5 acre parcel of the Company's real estate. The agreement does not
contain any provision for compliance with financial covenants. The
weighted average interest rate on outstanding short-term borrowings
for the years ended March 31, 1997, 1996 and 1995 was 9.4%, 11.0% and
9.0%, respectively.
During the year ended March 31, 1996, the Company refinanced its
mortgage on its corporate headquarters. The terms of the mortgage 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. At March 31, 1997 and 1996, the
outstanding principal balances were $1,277,616 and $1,290,882,
respectively.
Included in debt is a note payable of $156,250, payable to Black &
Decker, as a result of the legal settlement. This note is non-interest
bearing and payable at $6,250 per month for 25 months.
The annual maturities for all debt outstanding at March 31, 1997 are:
1998, $1,453,296; 1999, $91,190; 2000, $1,253,021.
NOTE E - LEASES
There were no operating leases for either of the years ended March 31,
1997 or March 31, 1996.
NOTE F - INCOME TAXES
At March 31, 1997, the Company has net operating loss carryforwards in
the United States of approximately $4,463,000 for income tax purposes
that expire in years 1999 through 2011 and tax credit carryforwards of
approximately $36,000 in the United States. From 1996 to 1997, the
deferred tax asset valuation allowance decreased by $1,025,421, due to
IRS Audit adjustments and establishing a deferred tax liability for
the unremitted earnings of the Joint Venture which was offset somewhat
by losses generated during 1997. From 1995 to 1996, the deferred tax
asset valuation allowance increased by $339,555. This net increase is
mainly due to allowances provided from domestic loss carryforwards
generated during 1995.
- 24 -
<PAGE>
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets are as follows:
<TABLE>
March 31,
1997 1996
<S> <C> <C>
Deferred tax liabilities:
Deferred gain on involuntary conversion $ -0- $ 71,092
Unremitted joint venture earnings not
considered permanently reinvested 777,868 380,000
Gross deferred tax liabilities 777,868 451,092
Deferred tax assets:
Other accruals and reserves 90,782 43,993
Other 35,355 33,419
NOL carryforwards and tax credits 1,732,386 2,479,756
Gross deferred tax assets 1,858,523 2,557,168
Valuation allowance (1,080,655) (2,106,076)
Net deferred tax assets $ -0- $ -0-
</TABLE>
The reconciliation of the income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
<TABLE>
3/31/97 3/31/96 3/31/95
<S> <C> <C> <C>
Federal tax benefit at
statutory rate on loss (34%) $(504,269) $(373,598) $(440,785)
Equity in loss (earnings) from
joint venture 51,344 (80,023) (314,172)
Dividends received from joint venture
for which net deferred taxes were not
previously provided 340,000 170,000
Effect of net operating
loss carryforwards 60,000 394,629 585,960
Other 52,925 58,992 (1,003)
$ -0- $ -0- $ -0-
</TABLE>
Investment and other tax credits are accounted for by the flow-through
method.
- 25 -
<PAGE>
NOTE G - COMMON STOCK
Under terms of the Company's 1978 Non-Qualified Stock Option Plan, as
amended, 975,000 shares of common stock are authorized for the granting of
stock options, of which 46,075 shares have been issued as of March 31,
1997, leaving 928,925 available for issuance upon exercise of options
granted, or available for future grants to employees and directors. Under
provisions of the Plan, a committee of the Board of Directors determines
the option price and the dates exercisable. All options expire five years
from the date of grant.
The following tables summarize the status of options under the
Non-Qualified Stock Option Plan at March 31, 1997 and option transactions
for the two years then ended:
<TABLE>
<S> <C>
Status as of March 31, 1997 Number of Shares
Presently exercisable 516,625
Exercisable in future years 135,875
Total outstanding 652,500
Available for future grants 276,425
Shares of common stock reserved 928,925
Outstanding options:
Number of holders 21
Average price per share $1.61
Expiration dates April 1997 to December 2001
</TABLE>
Transactions for the Two Years Ended March 31, 1997:
<TABLE>
Weighted Average
Number of Per Share Total
Shares Option Price Option Price
<S> <C> <C> <C>
Outstanding at
March 31, 1995 589,500 $1.94 $1,143,225
Granted 12,500 2.28 28,450
Canceled (60,500) 2.09 (168,825)
Outstanding at
March 31, 1996 541,500 1.85 1,002,850
Granted 301,000 1.28 384,250
Canceled (190,000) 1.77 (336,200)
Outstanding at
March 31, 1997 652,500 $1.61 $1,050,900
</TABLE>
- 26 -
<PAGE>
Under the terms of the Company's 1988 Employee Stock Purchase Plan,
eligible employees can purchase shares of the Company's common stock
through payroll deductions at a price equal to 90% of the asked price
of the shares. The Company has reserved 100,000 shares of common
stock for issuance under the Plan. No member of the Board of Directors
who is not an employee of the Company, and no member of the committee
administering the Plan, can participate in the Plan. At March 31,
1997, approximately 65,000 shares remain reserved for issuance under
this Plan.
During the year ended March 31, 1996, 715,000 outstanding warrants
expired.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the 1978 Non-Qualified Stock Plan. Accordingly, no
compensation has been recognized for the 1978 Stock Plan. Had
compensation costs for the 1978 Stock Plan been determined based on
fair value at the grant date forward under that Plan consistent with
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's
net loss would not have been affected on a pro forma basis. No
adjustment to the Company's net loss is required for the year ended
March 31, 1997 and 1996.
NOTE H - BENEFIT PLAN
The Company maintains a 401(k) defined contribution plan for its
employees. For calendar years 1997, 1996 and 1995, the Company has
elected to contribute 2% of each eligible employee's salary to the
Plan. Additionally, the Company has elected to match 20% of employee
contributions, up to a maximum of $200, and to provide an aggregate
contribution of 3% of corporate net income to be allocated among Plan
participants. The Company contributions were terminated as of March
3, 1997. The 401(k) expense for the years ended March 31, 1997, 1996
and 1995 was $23,674, $32,486 and $41,305, respectively.
NOTE I - 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 approximates $300,000 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 which are used solely for
short-term inventory financing totaled $53,770 at March 31, 1997.
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NOTE J - BUSINESS AND SALES INFORMATION
The Company is a manufacturer and wholesaler of a variety of products,
principally of security, video and telecommunications devices and
systems, for use in homes and businesses.
Approximately 15% and 11% of the Company's total sales were to a
single customer in 1997 and 1996, respectively. Approximately 19% of
the Company's total sales were to a different customer in 1995.
NOTE K - LITIGATION
The Company settled its legal proceeding for patent infringement
litigation with Black & Decker (U.S.). The Company recorded a charge
of $450,000 in its June 30, 1996 quarter for settlement of the patent
litigation and related expenses. In conjunction with the settlement
with Black & Decker, the Company agreed to pay the sum of $300,000.
The repayment terms were $100,000 paid in July 1996 and $200,000
payable in 32 equal monthly installments without interest beginning
September 1, 1996. The Company reduced its accrual for legal fees by
$125,000 related to this matter. The Company recovered $77,500 from
its insurance carrier during the fourth quarter in final settlement of
its claim. As a result of the adjustments and recovery, the net charge
for this matter amounted to $247,500.
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