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, 1997
( ) 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 23, 1998 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, 1997 and March 31,
1997
Consolidated statements of operations for the nine months ended
December 31, 1997 and 1996 and three months ended December 31,
1997 and 1996
Consolidated statements of cash flows for the nine months ended
December 31, 1997 and 1996
Notes to consolidated financial statements
Item 2. Management's discussion and analysis of results of
operations and financial condition
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports
- 2 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<TABLE>
<S> <C> <C>
Dec 31, 1997 March 31, 1997
CURRENT ASSETS
Cash $ 98,978 $ 150,452
Accounts receivable:
Trade (less allowance for doubtful
accounts of $50,000 at December 31,
1997 and March 31, 1997) 1,073,992 1,723,979
Officers and employees 1,595 1,545
1,075,587 1,725,524
Inventories:
Finished goods 2,501,863 2,900,910
Raw materials-foreign locations 125,502 127,656
2,627,365 3,028,566
Prepaid expenses 189,339 369,439
TOTAL CURRENT ASSETS 3,991,269 5,273,981
INVESTMENT IN JOINT VENTURE 2,341,841 2,508,957
PROPERTY, PLANT AND EQUIPMENT 1,642,117 1,757,488
OTHER ASSETS 18,690 16,690
$7,993,917 $9,557,116
</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>
<S> <C> <C>
Dec 31, 1997 March 31, 1997
CURRENT LIABILITIES
Short-term borrowings $ 841,672 $ 1,363,641
Current maturity of long-term debt 89,655 89,655
Accounts payable 866,729 1,502,193
Accrued liabilities:
Payroll, commissions and payroll taxes 70,309 45,991
Other 1,513 18,948
TOTAL CURRENT LIABILITIES 1,869,878 3,020,428
LONG-TERM DEBT, less current portion 1,277,167 1,344,211
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per share;
authorized 20,000,000 shares; issued
3,245,587 shares at December 31, 1997
and March 31, 1997 32,456 32,456
Additional paid-in capital 10,429,588 10,429,588
Retained deficit (5,615,172) (5,269,567)
TOTAL SHAREHOLDERS' EQUITY 4,846,872 5,192,477
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,993,917 $ 9,557,116
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<S> <C> <C>
For the Nine Months Ended
Dec 31, 1997 Dec 31, 1996
Net sales $ 8,979,319 $13,261,441
Cost of goods sold 7,440,586 10,983,858
1,538,733 2,277,583
Research and development expense 214,043 177,008
Selling, general and administrative expense 1,541,812 2,584,133
Operating loss (217,122) (483,558)
Other income (expense):
Interest income 2,287 2,177
Interest expense (210,176) (340,781)
Other (3,477) (115,128)
(211,366) (453,732)
LOSS BEFORE EQUITY IN EARNINGS
(LOSS) OF JOINT VENTURE (428,488) (937,290)
Equity in earnings (loss) of joint venture 82,883 (26,144)
NET LOSS $ (345,605) $ (963,434)
Per common share amounts:
Primary $ (.11) $ (.30)
Fully diluted (.11) (.30)
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.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<S> <C> <C>
For the Three Months Ended
Dec 31, 1997 Dec 31, 1996
Net sales $2,326,044 $3,677,423
Cost of goods sold 2,059,124 2,972,936
266,920 704,487
Research and development expense 71,649 59,176
Selling, general and administrative expense 499,156 747,911
Operating loss (303,885) (102,600)
Other income (expense):
Interest income 345 619
Interest expense (63,294) (100,793)
Other (4,901) 23,252
(67,850) (76,922)
LOSS BEFORE EQUITY IN LOSS OF JOINT VENTURE (371,735) (179,522)
Equity in loss of joint venture (13,281) (107,435)
NET LOSS $ (385,016) $ (286,957)
Per common share amounts:
Primary $ (.12) $ (.09)
Fully diluted (.12) (.09)
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.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<S> <C> <C>
For the Nine Months Ended
Dec 31, 1997 Dec 31, 1996
OPERATING ACTIVITIES
Net loss $(345,605) $ (963,434)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 117,165 123,268
Provision for losses on accounts receivable 24,229
Distributed earnings of joint venture 167,117 1,132,649
Gain on sale of property, plant & equipment (311,287)
Legal settlement 300,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 649,937 (67,178)
Decrease in inventories and prepaid expenses 581,301 1,160,447
Decrease in accounts payable and
and accrued expenses (628,581) (68,947)
(Increase) decrease in other assets (2,000) 13,261
NET CASH PROVIDED BY OPERATING ACTIVITIES 539,324 1,343,008
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,785)
Proceeds from sale of property, plant
and equipment 407,880
Decrease in commercial paper and time deposits 8,748
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,785) 416,628
FINANCING ACTIVITIES
Net repayment of short-term debt (521,969) (1,466,480)
Principal payments on long-term debt (10,794) (47,560)
Payment on legal settlement (56,250) (100,000)
NET CASH USED IN FINANCING ACTIVITIES (589,013) (1,614,040)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (51,474) 145,596
Cash and cash equivalents at beginning of period 150,452 97,793
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 98,978 $ 243,389
Supplemental information:
Interest paid $ 243,389 $ 340,780
Income taxes paid - -
</TABLE>
See notes to consolidated financial statements.
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<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, 1997. 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.
The Company will adopt Statement of Financial Accounting Standard
No. 128, "Earnings Per Share" ("SFAS 128") effective April 1,
1998, as required. The standard specifies the computation,
presentation and disclosure requirements for earnings per share.
The pro forma basic loss per common share and the pro forma
diluted earnings per common share, as computed under the
provision of SFAS 128 for the quarter and nine months ended
December 31, 1997, were ($0.12) and ($0.11) respectively. Basic
and diluted pro forma earnings per share, as computed under the
provisions of SFAS 128, as previously reported were ($0.09) and
($0.30) for the quarter and nine months ended December 31, 1996.
Income Taxes - No income tax provision has been provided for the
quarter and nine months ended December 31, 1997 because of the
Company's unrecognized deferred income tax benefits related to
the carryforward of prior years' operating losses.
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.
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<PAGE>
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, 1997 and 1996:
<TABLE>
<S> <C> <C>
1997 1996
Sales $5,420,912 $5,467,731
Gross Profit 1,084,021 704,519
Net Income (Loss) 165,767 (52,288)
</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.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Nine Months Ended December 31, 1997 Compared to
Nine Months Ended December 31, 1996
Sales - Net sales for the nine months ended December 31, 1997
were $8,979,319 compared to $13,261,441 for the comparable nine
months in the prior fiscal year, a decrease of $4,282,122. Net
sales of security products decreased by $2,465,178,
telecommunications products decreased by $291,268 and video
products decreased by $1,525,676, from the comparable period of
the previous year. The decrease in security products sales was
due to lower sales of certain of the Company's security products.
The decrease in telecommunications sales was due to a decreased
demand by certain of its private label customers. The decrease in
video sales was due to decreased demand for certain of the
Company's video products by its private label customers.
Net Income - The Company reported a net loss of $345,605 for
the nine months ended December 31, 1997 compared to a net loss of
$963,434 for the corresponding nine months of the prior fiscal
year. The Company's gross margin declined by $738,850, which was
due to the decline in sales described above. Additionally,
expenses declined by $1,005,286 as described below.
Expenses - Research, selling, general and administrative expenses
decreased by $1,005,286 from the comparable nine months in the
prior year. As a percentage of sales, research, selling, general
and administrative expenses were 20% for the nine months ended
December 31, 1997 and 21% 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 $207,889 for the nine months
ended December 31, 1997 from $338,604 for the comparable period
in 1996. The decrease in interest expense is due largely to a
decrease in short-term debt.
Three Months Ended December 31, 1997 Compared to
Three Months Ended December 31, 1996
Sales - Net sales for the three months ended December 31, 1997
were $2,326,044 compared to $3,677,423 for the comparable three
months in the prior fiscal year, a decrease of $1,351,379. Net
sales of security products decreased by $170,685, as compared
to the quarter ended December 31, 1996. Net sales of
telecommunications products decreased by $633,844 and video
products decreased by $546,850 from the same quarter last year.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 decrease in video sales was
due to lower demand for certain of the Company's video products
to private label customers. The decrease in security products was
due to decreased demand for certain of the Company's security
products.
Net Income - The Company reported a net loss of $385,016 for the
quarter ended December 31, 1997 compared to a net loss of
$286,957 for the corresponding quarter of the prior fiscal year.
The primary reasons for the increase in net loss were a reduction
in gross sales.
Expenses - Research, selling, general and administrative expenses
decreased by $236,282 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
December 31, 1997 and 22% 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 $100,174 for the three months
ended December 31, 1996 to $62,949 for the current quarter in
1997.
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
$959,885 has been utilized in letter of credit commitments and
short-term borrowings as of December 31, 1997. As of December
31, 1997, 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 1.5% 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 and a parcel of
undeveloped real estate. During the nine months ended December
31, 1997, working capital decreased by $132,162.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operating activities provided cash of $539,324 for the nine months
ended December 31, 1997. This was primarily due to the reduction of
inventories and prepaid expenses of $581,301 and accounts
receivable of $649,937, partially offset by a decrease in accounts
payable of $628,581. For the same period last year, operating
activities provided cash of $1,343,008. This was primarily due to
the reduction in inventories of $1,130,885.
Investing activities used cash of $1,785 in the current period and
provided cash of $416,628 in the same period last year. primarily
from the proceeds from the sale property, plant and equipment.
Financing activities used cash of $589,013, primarily due to net
repayment of short-term debt of $521,969. For the same period
last year, financing activities used cash of $1,614,040, primarily
due to the net repayment of short-term debt of $1,466,480.
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, 1997 were
$5,420,912 and $1,247,285, respectively, compared to $5,467,731
and $944,076, respectively, for the comparable nine months and
three months in the prior fiscal year.
The net income for the nine months ended December 31, 1997 was
$165,767 and net loss for the three months ended December 31, 1997
was $26,562, compared to net loss of $52,288 and net loss of
$214,870, respectively, in the comparable nine months and three
months last year.
Selling, general and administrative expenses were $1,066,267 (20%
of sales) and $377,900 (30% of sales), respectively, for the nine
months and three months ended December 31, 1997 and were
$1,034,726 (19% of sales) and $115,199 (12% 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, 1997, working capital decreased by $81,960 from
$1,648,274 on March 31, 1997 to $1,566,314 on December 31, 1997.
- 12 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
PART II
Item 4. Submission of Matters to a Vote of Security Holders
On October 30, 1997, the Company held its Annual Meeting
of Shareholders. The only matter submitted to the
shareholders for a vote was the election of directors.
The nominees submitted for election as directors were
Michael L. Kovens, Steven C. Knepper and Harvey
Grossblatt. At least 2,655,403 shares were voted in favor
of each director, and no more than 9,973 shares were
voted to withhold approval of any director. As a result,
Messrs. Kovens, Knepper and Grossblatt were elected to
serve as directors until the next annual meeting of
shareholders of the Company and until their successors
are duly elected and qualified.
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.
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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: February 23, 1998 Harvey Grossblatt
HARVEY GROSSBLATT
President, Chief Financial Officer
- 14 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1998
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 98,978 98,978
<SECURITIES> 0 0
<RECEIVABLES> 1,075,587 1,075,587
<ALLOWANCES> 50,000 50,000
<INVENTORY> 2,627,365 2,627,365
<CURRENT-ASSETS> 3,991,269 3,991,269
<PP&E> 1,642,117 1,642,117
<DEPRECIATION> 117,165 117,165
<TOTAL-ASSETS> 7,993,917 7,993,917
<CURRENT-LIABILITIES> 1,869,878 1,869,878
<BONDS> 0 0
0 0
0 0
<COMMON> 32,456 32,456
<OTHER-SE> 4,814,416 4,814,416
<TOTAL-LIABILITY-AND-EQUITY> 7,993,917 7,993,917
<SALES> 2,326,044 8,979,319
<TOTAL-REVENUES> 2,326,044 8,979,319
<CGS> 2,059,124 7,440,586
<TOTAL-COSTS> 2,059,124 7,440,586
<OTHER-EXPENSES> 570,805 1,755,855
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 63,294 210,176
<INCOME-PRETAX> (385,016) (345,605)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (385,016) (345,605)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (385,016) (345,605)
<EPS-PRIMARY> (.12) (.11)
<EPS-DILUTED> (.12) (.11)
</TABLE>
