UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended September 30, 1998
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________________ to _________________
Commission file number 0-7885
UNIVERSAL SECURITY INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0898545
State of Incorporation I.R.S. Employer Identification Number
10324 S. Dolfield Road, Owings Mills, MD 21117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 410-363-3000
Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Section 13 and 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to the filing requirements for at least the past 90 days.
YES X NO _______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Date Class Shares Outstanding
November 10, 1998 Common Stock, $.01 par value 925,033
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
INDEX
Part I - FINANCIAL INFORMATION
Item l. Financial Statements
Consolidated balance sheets at September 30, 1998 and
March 31, 1998
Consolidated statements of operations for the six months
ended September 30, 1998 and 1997 and three months ended
September 30, 1998 and 1997
Consolidated statements of cash flows for the six months
ended September 30, 1998 and 1997
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
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<TABLE>
September 30, 1998 March 31, 1998
<S> <C> <C>
CURRENT ASSETS
Cash $ 139,758 $ 133,377
Accounts receivable:
Trade (less allowance for
doubtful accounts of $100,000
at September 30, 1998 and
March 31, 1998) 1,369,082 1,248,023
Officers and employees 5,661 5,515
1,374,743 1,253,538
Inventories:
Finished goods 1,914,383 2,228,070
Raw materials-foreign locations 19,911 83,728
1,934,294 2,311,798
Prepaid expenses 165,170 142,793
TOTAL CURRENT ASSETS 3,613,965 3,841,506
INVESTMENT IN JOINT VENTURE 2,446,744 2,228,182
PROPERTY AND EQUIPMENT 1,554,279 1,613,222
OTHER ASSETS 6,351 22,400
TOTAL ASSETS $7,621,339 $7,705,310
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
September 30, 1998 March 31, 1998
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 1,121,673 $ 969,326
Current maturity of long-term debt 53,690 91,190
Accounts payable 501,741 583,910
Accrued liabilities 60,448 66,672
TOTAL CURRENT LIABILITIES 1,737,552 1,711,098
LONG-TERM DEBT, less current portion 1,239,023 1,246,861
SHAREHOLDERS' EQUITY
Common stock, $.01 par value
per share; authorized 20,000,000
shares; issued 925,033 shares at
September 30, 1998 and 811,397
shares at March 31, 1998 9,250 8,114
Additional paid-in capital 10,552,794 10,453,930
Retained earnings (deficit) (5,917,280) (5,714,693)
TOTAL SHAREHOLDERS' EQUITY 4,644,764 4,747,351
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 7,621,339 $ 7,705,310
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
[/TABLE]
For the Six Months Ended
Sept 30, 1998 Sept 30, 1997
[S] [C] [C]
Net sales $5,637,430 $6,653,275
Cost of goods sold 4,889,610 5,381,462
747,820 1,271,813
Research and development expense 66,363 142,394
Selling, general and
administrative expense 988,899 1,042,656
Operating (loss) income (307,442) 86,763
Other income (expense):
Interest income 2,529 1,942
Interest expense (115,986) (146,882)
Other (250) 1,424
(113,707) (143,516)
LOSS BEFORE EQUITY IN
EARNINGS OF JOINT VENTURE (421,149) (56,753)
Equity in earnings of joint venture 218,562 96,164
NET (LOSS) INCOME $ (202,587) $ 39,411
Per common share amounts:
Basic and diluted (.24) .05
Weighted average number of common
shares outstanding
Basic and diluted 830,336 811,397
See notes to consolidated financial statements.
[/TABLE]
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
For the Three Months Ended
Sept 30, 1998 Sept 30, 1997
<S> <C> <C>
Net sales $3,004,021 $3,295,498
Cost of goods sold 2,742,903 2,671,666
261,118 623,832
Research and development expense 27,304 79,563
Selling, general and
administrative expense 491,676 531,023
Operating (loss) income (257,862) 13,246
Other income (expense):
Interest income 864 722
Interest expense (58,398) (75,194)
Other (911) 1,424
(58,445) (73,048)
LOSS BEFORE EQUITY IN EARNINGS
OF JOINT VENTURE (316,307) (59,802)
Equity in earnings of joint venture 209,156 82,242
NET (LOSS) INCOME $ (107,151) $ 22,440
Per common share amounts:
Basic and diluted (.13) .03
Weighted average number of common
shares outstanding
Basic and diluted 849,275 811,397
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
For the Six Months Ended
Sept 30, 1998 Sept 30, 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) earnings $ (202,587) $ 39,411
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 70,175 78,454
Undistributed earnings of joint venture (218,562) (96,164)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (121,205) 176,409
Decrease in inventories and prepaid expenses 355,127 640,986
Decrease in accounts payable and
accrued expenses (88,393) (735,964)
Decrease in other assets 16,049
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (189,396) 03,132
INVESTING ACTIVITIES
Purchases of property and equipment (11,232) (1,785)
NET CASH USED IN INVESTING ACTIVITIES (11,232) (1,785)
FINANCING ACTIVITIES
Net increase (decrease) of short-term debt 152,347 (135,227)
Sale of common stock 100,000
Payment on legal settlement (37,500) (37,500)
Principal payments on long-term debt (7,838) (7,106)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 207,009 (179,833)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,381 (78,486)
Cash and cash equivalents at beginning of period 133,377 150,452
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 139,758 $ 71,966
Supplemental information:
Interest paid $ 115,986 $ 146,882
Income taxes paid - -
See notes to consolidated financial statements
</TABLE>
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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, 1998. 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 - The Company implemented Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share" for all periods
presented which requires presentation of basic and diluted earnings per
share amounts and a reconciliation for all periods presented of the respective
calculations. Basic and diluted net income per share are computed by dividing
net income (loss) by the weighted average number of common and potential
dilutive common (if any) shares outstanding during the period. The weighted
average number of common shares outstanding for the 1997 periods have been
restated to reflect the one-for-four reverse stock split effective March 9,
1998.
New Accounting Pronouncements - The Company implemented SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About Segments
of An Enterprise and Related Information" effective April 1, 1998. These
standards specify the presentation and disclosure requirements for
comprehensive income and segment information.
Common Stock - On September 2, 1998, the Company sold 113,636 shares of common
stock to the Chairman of the Board of the Company at a price of $.88 cents per
share (the mean between the closing bid and asked prices on NASDAQ) or an
aggregate of $100,000.
Income Taxes - No income tax provision has been provided for the quarter and
six months ended September 30, 1998 because of the Company's unrecognized
deferred income tax benefits related to the carryforward of prior years'
operating losses.
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. The following represents summarized income statement
information of the Hong Kong joint venture for the six months ended September
30, 1998 and 1997:
1998 1997
Net sales $3,977,966 $4,173,627
Gross profit 957,335 781,359
Net income 437,124 192,328
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six Months Ended September 30, 1998 Compared to
Six Months Ended September 30, 1997
Sales - Net sales for the six months ended September 30, 1998 were $5,637,430
compared to $6,653,275 for the comparable six months in the prior fiscal year,
a decrease of $1,015,845. Net sales of security and telecommunications products
decreased by $403,863 and $1,107,630, respectively. Security sales decreased as
a result of lower demand for certain security products of the Company. The
decrease in telecommunications sales resulted primarily from decreased demand
for certain telecommunications products. The sales decrease was partially
offset by an increase of $495,648 in video sales resulting from increased
demand for video tape.
Net Income - The Company reported a net loss of $202,587 for the six months
ended September 30, 1998 compared to net income of $39,411 for the
corresponding six months of the prior fiscal year. The decrease in net income
resulted from lower gross margins and were partially offset by higher Joint
Venture earnings.
Expenses - Research, selling, general and administrative expenses decreased by
$129,788 from the comparable six months in the prior year. The decrease in
selling, general and administrative expenses resulted from the Company's cost
containment program. As a percentage of sales, research, selling, general and
administrative expenses were 19% for the six months ended September 30, 1998
and 18% for the same period in the prior fiscal year.
Interest Expense and Income - The Company's interest expense, net of interest
income, was $113,457 for the six months ended September 30, 1998 compared to
$144,940 for the same period in 1997. The decrease in interest expense resulted
from lower levels of borrowings.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended September 30, 1998 Compared to
Three Months Ended September 30, 1997
Sales - Net sales for the three months ended September 30, 1998 were $3,004,021
compared to $3,295,498 for the comparable three months in the prior fiscal
year, a decrease of $291,477. Net sales of security and telecommunications
products decreased by $706,615 and $348,600, respectively. The decrease in
security sales resulted primarily from decreased demand for certain of the
Company's security products. The decrease in telecommunications sales resulted
from lower demand for certain of the Company's products. The sales decrease was
partially offset by an increase of $763,738 in sales resulting from increased
demand for video tape.
Net Income - The Company reported a net loss of $107,151 for the quarter ended
September 30, 1998 compared to net income of $22,440 for the corresponding
quarter of the prior fiscal year. The decrease resulted from lower gross
margins and were partially offset by higher joint venture earnings.
Expenses - Research, selling, general and administrative expenses decreased by
$91,606 from the comparable three months in the prior year. The decrease in
selling, general and administrative expenses resulted from the Company's cost
containment program. As a percentage of sales, research, selling, general and
administrative expenses were 17% for the three months ended September 30, 1998
and 19% for the same period in the last fiscal year.
Interest Expense and Income - The Company's interest expense, net of interest
income, was $57,534 for the quarter ended September 30, 1998 compared to
$74,472 for the comparable period in 1997. The decrease in interest expense
resulted from lower levels of short-term debt.
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 $1,240,498 has been
utilized in letter of credit commitments and short-term borrowings as of
September 30, 1998. As of September 30, 1998, the amount available for
borrowings under the line was approximately $75,000 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 1.5
acre parcel of the Company's real estate.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operating activities used cash of $189,396 for the six months ended
September 30, 1998. This was primarily due to a decrease in inventories and
prepaid expenses of $355,127, partially offset by a decrease in accounts
payable and accrued expenses of $88,393 and an increase in accounts
receivable of $121,205. For the same period last year, operating activities
provided cash of $103,132. This was primarily due to decreases in accounts
receivable and inventories and prepaid expenses by $176,409 and $640,986,
respectively, partially offset by a decrease in accounts payable and accrued
expenses of $735,964.
Investing activities used cash of $11,232 in the current six months and used
cash of $1,785 in the same six months last year.
Financing activities provided cash of $207,009 primarily due to an increase in
short-term debt of $152,347 and the proceeds from the sale of common stock.
For the same period last year, financing activities used cash of $179,833,
primarily due to payment 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, depending on the ability of the Company to retain its financing, which
may be dependent upon the Company's results of operations.
Hong Kong Joint Venture - Net sales of the joint venture for the six months
and three months ended September 30, 1998 were $3,977,966 and $2,437,524,
respectively, compared to $4,173,627 and $2,098,476, respectively, for the
comparable six months and three months in the prior fiscal year. The decrease
in sales was primarily due to decreased sales of telecommunications products of
the Company.
Net income for the six months and three months ended September 30, 1998 was
$437,124 and $418,312, respectively, compared to $192,328 and $164,484
respectively, in the comparable six months and three months last year.
Selling, general and administrative expenses were $631,833 (16% of sales) and
$309,012 (13% of sales), respectively, for the six months and three months
ended September 30, 1998 and were $688,367 (15% of sales) and $322,821 (15% of
sales) for the comparable periods last year.
Cash needs of the Hong Kong joint venture are currently met by funds generated
from operations. During the six months ended September 30, 1998, working
capital increased by $1,055,012 from $1,760,188 on March 31, 1998 to $2,815,200
on September 30, 1998.
Year 2000 Compliance - The Company believes that the impact of the year 2000
issue will not have a material effect on results of operations. However, the
Company is in the process of hiring a consultant to review its computer
operations and anticipates completing any required changes during calendar year
1999. The Company relies on a third-party vendor for its EDI operations and has
been informed that their system is Year 2000 Compliant. The Company has been
advised by its major supplier that its manufacturing facilities are Year 2000
Compliant. The majority of the Company's customers are publicly-traded
retailers.
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<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.
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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: November 13, 1998 Harvey Grossblatt
HARVEY GROSSBLATT
President, Chief Financial Officer
smb
10-Q.SEPT
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 139,758 139,758
<SECURITIES> 0 0
<RECEIVABLES> 1,474,743 1,474,743
<ALLOWANCES> 100,000 100,000
<INVENTORY> 1,934,294 1,934,294
<CURRENT-ASSETS> 3,613,965 3,613,965
<PP&E> 2,777,079 2,777,079
<DEPRECIATION> 1,222,800 1,222,800
<TOTAL-ASSETS> 7,621,339 7,621,339
<CURRENT-LIABILITIES> 1,737,552 1,737,552
<BONDS> 0 0
0 0
0 0
<COMMON> 9,250 9,250
<OTHER-SE> 4,635,514 4,635,514
<TOTAL-LIABILITY-AND-EQUITY> 7,621,339 7,621,339
<SALES> 3,004,021 5,637,430
<TOTAL-REVENUES> 3,004,021 5,637,430
<CGS> 2,742,903 4,889,610
<TOTAL-COSTS> 2,742,903 4,889,610
<OTHER-EXPENSES> 518,980 1,055,262
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 58,398 115,986
<INCOME-PRETAX> (107,151) (202,587)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (107,151) (202,587)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (107,151) (202,587)
<EPS-PRIMARY> (.13) (.24)
<EPS-DILUTED> (.13) (.24)
</TABLE>
