UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended June 30, 1999
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 0-7885
UNIVERSAL SECURITY INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0898545
State of Incorporation I.R.S. Employer Identification Number
10324 S. Dolfield Road, Owings Mills, MD 21117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 410-363-3000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 and 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to the filing requirements for at least the
past 90 days.
YES X NO _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Date Class Shares Outstanding
August 12, 1999 Common Stock, $.01 par value 897,598
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
INDEX
Part I - FINANCIAL INFORMATION
Item l. Financial Statements
Consolidated balance sheets at June 30, 1999 and March
31, 1999
Consolidated statements of operations for the three
months ended June 30, 1999 and 1998
Consolidated statements of cash flows for the three
months ended June 30, 1999 and 1998
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)
<TABLE>
ASSETS
<S> <C> <C>
June 30, 1999 March 31, 1999
CURRENT ASSETS
Cash $ 226,069 $ 193,107
Accounts receivable:
Trade (less allowance for
doubtful accounts of $100,000
at June 30, 1999 and
March 31, 1999) 1,225,214 549,149
Officers and employees 323 321
1,225,537 549,470
Inventories:
Finished goods 2,144,927 1,749,684
Raw materials-foreign locations 49,869 49,869
2,194,796 1,799,553
Prepaid expenses 78,670 112,419
Assets held for sale - net of
depreciation 1,274,924
TOTAL CURRENT ASSETS 3,725,072 3,929,473
INVESTMENT IN JOINT VENTURE 2,349,997 2,240,785
PROPERTY, PLANT AND EQUIPMENT 218,096 225,862
OTHER ASSETS 6,000 6,000
TOTAL ASSETS $6,299,165 $6,402,120
</TABLE>
See notes to consolidated financial statements.
- 3 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
June 30, 1999 March 31, 1999
CURRENT LIABILITIES
Short-term borrowings $ 845,636 $ 786,484
Accounts payable 711,484 294,618
Accrued liabilities 93,688 86,973
Debt related to assets held
for sale 1,246,973
TOTAL CURRENT LIABILITIES 1,650,808 2,415,048
SHAREHOLDERS' EQUITY
Common stock, $.01 par value
per share; authorized
20,000,000 shares; issued
897,598 and 887,143
shares at June 30,
1999 and March 31, 1999 8,975 8,871
Additional paid-in capital 10,509,757 10,499,446
Retained earnings (deficit) (5,870,375) (6,521,245)
TOTAL SHAREHOLDERS' EQUITY 4,648,357 3,987,072
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 6,299,165 $ 6,402,120
</TABLE>
See notes to consolidated financial statements.
- 4 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<S> <C> <C>
For the Three Months Ended
June 30, 1999 June 30, 1998
Net sales $2,058,352 $2,633,409
Cost of goods sold 1,587,036 2,146,707
471,316 486,702
Research and development expense 64,090 39,059
Selling, general and administrative
expense 608,557 497,223
Operating (loss) (201,331) (49,580)
Other income (expense):
Interest income 987 1,665
Interest expense (48,914) (57,588)
Gain on sale of building 804,861
Other (13,946) 661
742,988 (55,262)
EARNINGS (LOSS) BEFORE EQUITY
IN EARNINGS OF JOINT VENTURE 541,657 (104,842)
Equity in earnings of joint venture 109,212 9,406
NET EARNINGS (LOSS) $ 650,869 $ (95,436)
Per common share amounts:
Basic $ .73 $ (.12)
Diluted $ .67 $ (.12)
Weighted average number of common
shares outstanding
Basic 892,350 811,397
Diluted 965,027 811,397
</TABLE>
See notes to consolidated financial statements.
- 5 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<S> <C> <C>
For the Three Months Ended
June 30, 1999 June 30, 1998
OPERATING ACTIVITIES
Net earnings (loss) $ 650,869 $ (95,436)
Adjustments to reconcile net
earnings (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 8,807 34,515
Undistributed earnings of
joint venture (109,212) (9,406)
Gain on sale of building (804,861)
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable (676,067) 320,374
(Increase) in inventories and
prepaid expenses (361,494) (12,901)
Increase (decrease) in accounts payable
and accrued expenses 423,581 (142,477)
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (868,377) 94,669
INVESTING ACTIVITIES
Proceeds from sale of building 2,079,785
Property, plant and equipment (1,040) (1,502)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 2,078,745 (1,502)
FINANCING ACTIVITIES
Net borrowings (repayment) of short-term debt 59,152 (128,725)
Principal payments on long-term debt (3,864)
Payment on legal settlement (18,750)
Debt related to assets held for sale (1,246,973)
Issuance of common stock 10,415
NET CASH USED IN FINANCING ACTIVITIES (1,177,406) (151,339)
INCREASE (DECREASE) IN CASH 32,962 (58,172)
Cash at beginning of period 193,107 133,377
CASH AT END OF PERIOD $ 226,069 $ 75,205
Supplemental information:
Interest paid $ 48,914 $ 57,588
Income taxes paid - -
</TABLE>
See notes to consolidated financial statements.
- 6 -
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, 1999. 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 for 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 years
presented which requires presentation of basic and diluted earnings per
share amounts and a reconciliation for all years presented of the
respective calculations. The Company incurred a net loss for the years
ended March 31, 1999, 1998 and 1997; therefore, all potential dilutive
common shares are antidilutive and not included in the calculation of
diluted earnings per share. Basic and diluted net income per share are
computed by dividing net income (loss) by the weighted average number
of common and potentially dilutive common (if any) shares outstanding
during the period.
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. SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"
standardizes the accounting for all derivative instruments. The company
does not hold or issue derivative financial instruments.
Income Taxes - No income tax expense has been provided for the quarter
ended June 30, 1999 because of the Company's deferred tax assets 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 quarters ended June 30, 1999 and 1998:
<TABLE>
<S> <C> <C>
1999 1998
Net sales $1,774,875 $1,540,442
Gross profit 521,145 265,460
Net income 218,425 18,812
</TABLE>
- 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended June 30, 1999 Compared to
Three Months Ended June 30, 1998
Sales - Net sales for the three months ended June 30, 1999 were
$2,058,352 compared to $2,633,409 for the comparable three months
in the prior fiscal year, a decrease of $575,057. Net sales of
security products increased by $9,156 as compared to the quarter
ended June 30, 1998. Net sales of other products decreased by
$584,213, as compared to the quarter ended June 30, 1998. The
increase in security sales was due primarily to higher sales of
smoke alarms. The decrease in other sales was due to a decreased
demand for certain of the Company's private label video and
telecommunications products.
Net Income - The Company reported a net profit of $650,869 for
the quarter ended June 30, 1999 compared to net loss of $95,436
for the corresponding quarter of the prior fiscal year. The
increase in net income was due to the sale of the Company's
headquarters facility, which resulted in a net gain of $804,861.
Expenses - Research, selling, general and administrative expenses
increased by $136,365 from the comparable three months in the
prior year. As a percentage of sales, research, selling, general
and administrative expenses were 33% for the three months ended
June 30, 1999 and 20% for the same period in the last fiscal
year. The increase in expenses was mainly due to the costs
associated with establishing USI ELECTRIC's customer base and
related sales organizations.
Interest Expense and Income - The Company's interest expense, net
of interest income, decreased from $55,923 for the quarter ended
June 30, 1998 to $47,927 for the quarter ended June 30, 1999. The
lower interest expenses resulted from lower levels of borrowing.
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 $904,460 has been utilized in letter of credit
commitments and short-term borrowings as of June 30, 1999. As of
June 30, 1999, the amount available for additional borrowings
under the line was approximately $290,000 based on the specified
percentages.
- 8 -
The outstanding principal balance of the revolving credit line is
payable upon demand. The interest rate on the revolving credit
line is equal to 1-1/2% in excess of the prime rate of interest
charged by the Company's lender. The loan is collateralized by
the Company's accounts receivable, inventory and a 1.5 acre
parcel of the Company's real estate.
Operating activities used cash of $868,377 for the quarter ended
June 30, 1999. This was primarily due to an increase in accounts
receivable of $676,067, increase in inventories and prepaid
expenses of $361,494, partially offset by the gain on the sale of
the building of $804,861. For the same period last year,
operating activities provided cash of $94,669.
Investing activities provided cash of $2,078,745 in the current
quarter. This resulted from the proceeds of the sale of the
building. For the same period last year, investing activities
used cash of $1,502.
Financing activities used cash of $1,177,406, primarily due to
the repayments of long term debt of $1,246,973. For the same
period last year, financing activities used cash of $151,339.
The Company believes that its line of credit and its working
capital provide it with sufficient resources to meet its
requirements for liquidity and working capital in the ordinary
course of its business over the next twelve months.
Hong Kong Joint Venture - Net sales of the joint venture for the
three months ended June 30, 1999 were $1,774,875 compared to
$1,540,442 for the comparable three months in the prior fiscal
year. The increase in sales was primarily due to increased sales
of smoke alarms.
Net income was $218,425 for the quarter ended June 30, 1999
compared to $18,812 in the comparable quarter last year. The
increase in net income resulted from higher sales to non-related
customers.
Selling, general and administrative expenses were $333,748 and
$310,069 for the quarter ended June 30, 1999 and 1998,
respectively. As a percentage of sales, expenses were 19% and
20% for 1999 and 1998, respectively.
Interest income net of interest expense was $30,717 for the
quarter ended June 30, 1999 compared to $23,526 for the same
quarter last year.
Cash needs of the Hong Kong joint venture are currently met by
funds generated from operations. During the quarter ended June
30, 1999, working capital increased by $726,005 from $2,069,790
on March 31, 1999 to $2,795,795 on June 30, 1999.
- 9 -
Year 2000 Compliance - The Company has undertaken a project that
addresses the Year 2000 (Y2K) issue of computer systems and other
equipment with embedded chips or processors not being able to
properly recognize and process date-sensitivity information after
December 31, 1999. The Company's Y2K project is designed to
ensure the compliance of all of the Company's applications,
operating system and hardware platforms, and to address the
compliance of key business partners. Key business partners are
those customers and vendors that have a material impact on the
Company's operations. The Company is in the process of hiring a
consultant to review its computer operations and anticipates that
all phases of the project should be completed during 1999. The
Company estimates that the total cost of the required
modifications to its systems to become Y2K compliant will not
exceed $50,000 and will not be material to the Company's
financial position.
Failure to make all internal business systems Y2K compliant could
result in an interruption in, or a failure of, some of the
Company's business activities or operations. Y2K disruptions in
the operations of key vendors could impact the Company's ability
to obtain products and service its customers. The Company is
unable to determine the readiness of its key business partners at
this time and is therefore, unable to determine whether the
consequences of Y2K failures will have a material impact on the
Company's results of operations, liquidity or financial
condition. The Company's Y2K project is expected to
significantly reduce the Company's level of uncertainty about the
Y2K problem and reduce the possibility of significant
interruptions of normal business operations.
- 10 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
PART II
Item 6. Exhibits and Reports on Form 8-K
(b) On July 1, 1999, the Registrant filed a current
Report on 8-K dated July 1, 1999, reporting the
Sale of its headquarters facility.
- 11 -
UNIVERSAL SECURITY INSTRUMENTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNIVERSAL SECURITY INSTRUMENTS, INC.
Dated: August 13, 1999 Harvey Grossblatt
HARVEY GROSSBLATT
President, Chief Accounting Officer
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 226,069
<SECURITIES> 0
<RECEIVABLES> 1,225,537
<ALLOWANCES> 100,000
<INVENTORY> 2,194,796
<CURRENT-ASSETS> 3,725,072
<PP&E> 218,096
<DEPRECIATION> 8,807
<TOTAL-ASSETS> 6,299,165
<CURRENT-LIABILITIES> 1,650,808
<BONDS> 0
0
0
<COMMON> 8,975
<OTHER-SE> 4,639,882
<TOTAL-LIABILITY-AND-EQUITY> 6,299,165
<SALES> 2,058,352
<TOTAL-REVENUES> 2,058,352
<CGS> 1,587,036
<TOTAL-COSTS> 1,587,036
<OTHER-EXPENSES> 672,647
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,914
<INCOME-PRETAX> 650,869
<INCOME-TAX> 0
<INCOME-CONTINUING> 650,869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 650,869
<EPS-BASIC> .73
<EPS-DILUTED> .67
</TABLE>
