UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(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, 1999
( ) 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 11, 1999:
Common Stock, $.01 Par Value - $998,036
The number of shares outstanding of the issuer's classes of common
stock as of June 11, 1999:
Common Stock, $.01 Par Value - 887,143 shares
<PAGE>
ITEM 1.
BUSINESS
GENERAL
Universal Security Instruments, Inc. (the "Company") was incorporated in the
State of Maryland in 1969. Its principal offices are located at 10324 South
Dolfield Road, Owings Mills, MD 21117 and its telephone number is 410-363-3000.
The Company designs and markets a variety of popularly-priced security,
telecommunications and video products and miscellaneous private label products.
Most of the Company's products either require minimal installation, or are
designed for easy installation by the consumer without professional assistance
and requiring little or no technical knowledge.
Due to the low margins realizes on its telecommunications and video products,
the Company has focused its business primarily on security products. As a
result, the Company (i) changed its marketing of telecommunications and video
products to concentrate virtually exclusively on made-to-order private label
sales, and (ii) entered into the electrical distribution market with an enhanced
and newly packaged line of smoke alarms as well as its other security products.
The Company imports virtually all of its products from various suppliers
overseas. Approximately 81% of the Company's purchases are bought from a Hong
Kong Joint Venture with a Hong Kong Corporation (Hong Kong Joint Venture), in
which the Company owns a 50% interest, that has manufacturing facilities in the
People's Republic of China.
The Company's sales for the year ended March 31, 1999 were $9,071,628 compared
to $11,566,317 for the year ended March 31, 1998, a decrease of approximately
22%. The primary reason for this decrease in sales was due to decreased demand
for some of the Company's private label products.
The Company reported a loss in fiscal 1999 of $806,552 compared to a loss of
$445,126 for its prior fiscal year. The main reasons for the increase in losses
were lower sales and gross profit margins.
SECURITY PRODUCTS
The Company markets a complete line of smoke alarms under the trade names "USI
ELECTRIC," "UNIVERSAL" and "Smoke Signaltm" manufactured by the Hong Kong joint
venture. The Company also markets a line of electronically advanced outdoor
floodlights under the name "Lite Aidetm," whose features include special sensors
that activate automatic lighting mechanisms and a quartz halogen system,
offering the consumer a variety of dependable outdoor security lighting systems.
Sales of the Company's security products aggregated $5,139,919 or approximately
57% of total sales in the fiscal year ended March 31, 1999 and $6,094,152 or
approximately 53% of total sales in the fiscal year ended March 31, 1998. This
decrease in sales volume was due primarily to lower export sales of smoke
alarms.
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The Company is focusing its sales and marketing efforts to maximize security
product sales, especially smoke alarm products by its Hong Kong Joint Venture.
OTHER PRODUCTS
The Company markets a variety of private label products on a made-to-order
basis, such as telephones and video tape. The majority of these products are
produced by the Hong Kong Joint Venture.
For the fiscal year ended March 31, 1999, sales of the Company's private label
products aggregated $3,931,709 or 43% of total sales. For the fiscal year ended
March 31, 1998, sales of these products were $5,472,165 or 47% of total sales.
The primary reason for the decrease in sales was a reduction in high volume, low
margin, private label products.
SUBSEQUENT EVENT
The Company sold its headquarters facility on June 16, 1999. See Item
2. Properties.
FCC REGULATION
The Federal Communications Commission (FCC) establishes technical standards for
telecommunications equipment and products transmitting signals over the airways.
These regulations have had no material effect upon the Company's business or its
products to date, and all products subject to such regulation comply with the
FCC requirements.
IMPORT MATTERS
The Company imports virtually all of its security, telecommunications and video
products. The Company, as an importer, is subject to numerous tariffs which vary
depending on types of products and country of origin, changes in economic and
political conditions in the country of manufacture, potential trade
restrictions, including loss of Most Favored Nation status, and currency
fluctuations. The Company has attempted to protect itself from fluctuations in
currency exchange rates to the extent possible by negotiating most commitments
in U.S. dollars. The Company's purchases are subject to delays in delivery due
to problems with shipping and docking facilities, as well as other problems
associated with purchasing products abroad. The Company imports a majority of
its products from the People's Republic of China. The loss of China's Most
Favored Nation status with the United States would most likely have a material
adverse impact on the Company's business until competitive alternative sources
of supply were obtained.
SALES AND MARKETING
The Company's products are generally marketed to retailers, wholesale
distributors, service companies, catalog and mail order companies and to other
distributors. Sales are made both by the Company and by approximately 33
independent sales organizations which are compensated by commissions. The
Company has agreements with the sales organizations which are cancelable by
either party upon 30 days notice. The Company does not believe that the loss of
any one of these organizations would have a material adverse effect upon its
business.
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The Company formed a new subsidiary, USI ELECTRIC, for the purpose of selling
security products to the electrical distribution trade. The subsidiary has hired
a sales manager from the electrical distribution trade and has engaged 19
independent sales organizations.
The Company also promotes its products through its own sales catalogs and
brochures, which are mailed directly to trade customers. The Company's
customers, in turn, advertise the Company's products in their own catalogs and
brochures and in their ads in newspapers and other media. The Company also
exhibits and sells its products at various trade shows, including the annual
National Hardware Show in Chicago, Illinois. The Company's domestic marketing
strategy is designed to attract retailing customers outside the consumer
electronics industry, such as supermarkets, drug stores, variety stores and home
centers.
Sales by the Company are also made by officers and full-time employees of the
Company, four of whom are also engaged in sales management and training. Sales
outside the United States, which are made by officers of the Company and through
exporters, were less than 25% of total sales in fiscal 1999. The Company's
foreign marketing strategy is to increase sales of products from the Hong Kong
Joint Venture to overseas markets.
The Company's products are retailed to "do-it-yourself" consumers by chain and
independent department, discount, drug, electrical, electronic, building supply,
electrical distributors and hardware stores; as well as through catalog and
mail-order houses. The Company also distributes its products through special
markets such as premium/incentive, direct mail, catalog and showroom sales. The
Company does not currently market any significant portion of its products
directly to end users.
The Company's backlog of orders believed to be firm as of March 31, 1999 was
approximately $1,310,000. The Company's backlog as of March 31, 1998, was
approximately $2,510,000. The decrease in backlog is a function of the timing of
orders received from its customers and the general decline in sales volume.
SUPPLIERS - HONG KONG JOINT VENTURE
The Company has a 50% interest in a Hong Kong 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 certain consumer electronic
products sold by the Company.
The Company believes that this Hong Kong Joint Venture arrangement will ensure a
continuing source of supply for each product at competitive prices. At the
present time, the Company buys approximately 81% of its total purchases from the
Hong Kong Joint Venture. The products produced by the Hong Kong Joint Venture
include video tape, smoke alarms and certain models of telecommunications
products and Caller ID products. The Company is currently pursuing the
development of additional products to be produced by the Hong Kong Joint
Venture. A loss of China's Most Favored Nation status with the United States or
changes in economic and political conditions in China could adversely affect the
value of the Company's investment in the Hong Kong Joint Venture. Refer to Note
C of the Financial Statements in Item 8 for a comparison of annual sales and
earnings of the Hong Kong Joint Venture.
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SUPPLIERS - OTHERS
Private label products not manufactured for the Company by the Hong Kong Joint
Venture are manufactured by other foreign suppliers for the Company. The Company
believes that its relationships with its suppliers are good. The Company
believes that the loss of any of its suppliers could have a short-term adverse
effect on its operations, but that replacement sources could be developed.
CHINA CELLULAR TELEPHONE PROJECT
In the year ended March 31, 1993, the Hong Kong Joint Venture entered into a
Cellular Joint Venture with a People's Republic of China Company to design and
develop a portable cellular telephone for manufacture and sale in China. The
Hong Kong Joint Venture has a 30% interest in the Cellular Joint Venture. The
Cellular Joint Venture engaged the Hong Kong Joint Venture to design and develop
two versions of a portable cellular telephone for a fee of $3.5 million. Through
March, 1996, the Hong Kong Joint Venture had received $3,150,000 of the $3.5
million fee. For the year ended March 31, 1996, the Hong Kong Joint Venture
recorded no profit from the development contract. During fiscal 1997, the Hong
Kong Joint Venture completed the accounting of its cellular development contract
and, additionally, wrote down its investment in its Cellular Joint Venture. The
Hong Kong Joint Venture recorded a profit of $122,328 on the development
contract and a write- down of $725,745 on its Cellular Joint Venture. Due to the
uncertainty of the commercial acceptance of the cellular telephone designed by
the Cellular Joint Venture, the Hong Kong Joint Venture wrote-off the balance of
its Cellular Joint Venture investment in the amount of $337,464 in fiscal 1998.
COMPETITION
In the smoke alarm area, the Company competes with First Alert, Firex,
Fyrenetics and Walter Kidde. In the security lighting area, the Company competes
with All-Trade, Regent and Heath-Zenith. Many of these companies have greater
financial resources and financial strength than the Company. The Company
believes that its security products compete favorably with other such products
in the market primarily on the basis of styling and pricing. The security
industry in general, however, involves rapidly changing technology, and the
success of the Company's products may depend on the Company's ability to improve
and update the technology of its products in a timely manner and to adapt to new
technological advances.
EMPLOYEES
The Company has 14 employees, 6 of whom are engaged in administration and sales,
and the balance of whom are engaged in product development and servicing.
The Company's employees are not unionized. The Company believes that its
relations with its employees are satisfactory.
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<PAGE>
ITEM 2.
PROPERTIES
On June 16, 1999, the Company sold its headquarters facility, located in
Baltimore County, Maryland which became expendable when the Company reduced the
number of its employees. Under the contract of sale, the Company must vacate the
property by November 15, 1999. The Company believes that it will have no
difficulty leasing alternative space for its administrative and executive
offices, warehousing and research and development activities.
The property was sold for a price of $2.2 million to KA Real Estate Associates,
LLC. After deducting the mortgage and settlement charges, the Company will have
excess cash of approximately $840,000. The Company will report, in its quarter
ending June 30, 1999 a gain on the sale of this property of approximately
$800,000.
The Company retained ownership of approximately 1-1/2 acres of undeveloped land
adjacent to its headquarters property which the Company has put up for sale.
The Hong Kong Joint Venture's manufacturing facility consists of six buildings
totaling 100,000 square feet. Three of the buildings (totaling 31,000 square
feet) are leased pursuant to a long-term lease which expires in 2010. The other
three buildings (69,000 square feet) are owned by the Hong Kong Joint Venture
and were built on property leased for a 48 year term.
ITEM 3.
LEGAL PROCEEDINGS
None.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE>
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company was informed on January 21, 1999 that the Company's common stock has
been delisted from the NASDAQ Small Cap Market for failure to meet the market
value of public float requirement for continued listing. The Company meets all
other continued listing requirements. The Company announced that its common
stock will be traded on the Over-The-Counter (OTC) market through which
real-time quote, price and volume information is electronically available for
the Company's securities.
The following table shows the fiscal 1999 and 1998 quarterly high and low bid
prices for the Company's Common Stock as reported by NASDAQ. The bid quotations
represent prices between dealers and do not reflect the retailer markups,
markdowns or commissions and may not represent actual transactions.
Fiscal year ended March 31, 1999
Bid Prices*
High Low
First Quarter 1-3/4 1-1/8
Second Quarter 1-3/8 11/16
Third Quarter 2 5/8
Fourth Quarter 2-1/16 1-1/16
Fiscal year ended March 31, 1998
Bid Prices*
High Low
First Quarter 2-7/8 2-1/8
Second Quarter 4 2-1/4
Third Quarter 3-1/4 2-1/16
Fourth Quarter 3-1/8 1-1/8
As of June 11, 1999, there were approximately 609 holders of record of the
Company's Common Stock.
The Company has not paid any cash dividends on its Common Stock in the last
three years. It is the Company's present intention to retain all earnings for
use in its operations.
*Prices adjusted to reflect one-for-four reverse stock split as of February 27,
1998.
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ITEM 6.
SELECTED FINANCIAL DATA
<TABLE>
Year Ended March 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Operations
Net sales $ 9,071,628 $11,566,317 $15,423,149 $19,507,889 $24,841,794
Loss before
equity in
earnings (loss)
of Hong Kong Joint
Venture and
income taxes (1,119,154) (414,351) (1,332,427) (1,316,990) (2,220,460)
Net loss (806,552) (445,126) (1,483,438) (1,098,817) (1,296,426)
Per common share:
Loss before
equity in earnings
(loss) of Hong
Kong Joint Venture,
income taxes(1) (1.30) (.51) (1.64) (1.62) (2.74)
Net loss(1) (.93) (.55) (1.83) (1.35) (1.60)
Weighted average number
of common shares
outstanding -
basic(1) 863,706 811,397 811,397 811,397 810,649
Financial Condition
Total assets 6,402,120 7,705,310 9,557,116 12,676,391 13,732,846
Long-term debt and
obligations (non-
current) 0 1,246,861 1,344,211 1,277,394 497,222
Working capital 1,514,425 2,130,408 2,253,553 2,194,108 2,728,405
Current ratio 1.63 to 1 2.25 to 1 1.75 to 1 1.46 to 1 1.50 to 1
Shareholders' equity 3,987,072 4,747,351 5,192,477 6,675,915 7,774,540
Shareholders' equity
per share - basic(1) 4.49 5.85 6.40 8.23 9.59
</TABLE>
(1) All per share amounts and number of outstanding shares have been restated to
reflect the one-for-four reverse stock split as of February 27, 1998.
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<PAGE>
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
SALES
In fiscal year 1999, sales decreased by $2,494,689 (22%) from the prior year.
This decrease was primarily due to decreased demand for certain of the Company's
private label products, which amounted to $1,540,456 and a decrease in security
products of $954,233.
In fiscal year 1998, sales decreased by $3,856,832 (25%) from the prior year.
This decrease was primarily due to a decreased demand for certain of the
Company's security products, which amounted to $1,913,596 and a decrease in
video products of $1,551,986, resulting from lower private label sales. Sales of
security products for the fiscal year totaled $6,094,152 (53%) while sales of
telecommunications and video products were $3,216,281 (28%) and video products
were $2,255,884 (19%), respectively.
NET PROFIT AND LOSS
The Company incurred a net loss of $806,552 for fiscal year 1999 as compared to
a net loss of $445,126 for fiscal year 1998. The most significant reasons for
the increase in losses were lower gross margins and sales, partially offset by
higher earnings of the Hong Kong Joint Venture.
The Company incurred a net loss of $445,126 for fiscal year 1998, as compared to
a net loss of $1,483,438 for fiscal year 1997. The most significant reasons for
the decrease in loss were reductions in selling, general and administrative
expenses, increased gross margins and decreased equity in losses of the Hong
Kong Joint Venture.
EXPENSES
In fiscal year 1999, research, selling, general and administrative expenses
decreased by approximately $127,202 (5%) from the prior year. This savings
resulted from the Company's cost reduction program. As a percentage of sales,
research, selling, general and administrative expenses were 24% for the fiscal
year ended March 31, 1999 and 20% for the prior year.
In fiscal year 1998, research, selling, general and administrative expenses
decreased by approximately $1,141,614 (33%) from the prior year. This savings
resulted from the Company's cost reduction program. As a percentage of sales,
research, selling, general and administrative expenses were 20% for the fiscal
year ended March 31, 1998 and 22% for the prior year.
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INTEREST EXPENSE AND INCOME
Interest expense for fiscal 1999 decreased to $230,625 from $270,817 in fiscal
1998 due to a decrease in the average outstanding debt during the period
resulting from decreased inventory levels in the current fiscal year. Interest
income decreased to $2,719 in fiscal 1999 from $2,916 in fiscal 1998.
Interest expense for fiscal 1998 decreased to $270,817 from $411,541 in fiscal
1997 due to a decrease in the average outstanding debt during the period
resulting from decreased inventory levels from the prior fiscal year. Interest
income decreased to $2,916 in fiscal 1998 from $5,984 in fiscal 1997.
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 line of credit is currently the lower of
$7,500,000 or specified percentages of the Company's accounts receivable and
inventory. Approximately $804,664 had been utilized in short-term borrowings and
letter of credit commitments as of March 31, 1999. The amount available under
the line of credit as of March 31, 1999 was approximately $116,000 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 1-1/2% 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. During the year
ended March 31, 1999, working capital decreased by $615,983, from $2,130,408 on
March 31, 1998 to $1,514,425 on March 31, 1999.
Operating activities provided cash of $316,102 for the year ended March 31,
1999. A decrease of $170,738 from 1998 was primarily due to decreases in
inventory and accounts receivable of $542,619 and $704,068, a decrease in
accounts payable of $268,991, partially offset by a net loss of $806,552. For
the prior fiscal year, operating activities provided cash of $486,840 for the
year ended March 31, 1998. This was primarily due to a decrease in inventory of
$943,414 and a distribution in excess of Joint Venture earnings of $280,775.
Investing activities used cash of $28,725 in 1999, due to the purchase of
equipment. For the same period last year, investing activities use cash of
$13,786, due to the purchase of equipment.
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<PAGE>
Financing activities used cash in 1999 of $227,647 mainly due to the repayment
of $182,842 in short-term debt and $75,000 in payments on a legal settlement and
partially offset by the sale of 113,636 shares of common stock for $100,000, and
for the same period last year, financing activities used cash of $490,129
primarily due to the repayment of $394,315 in short-term debt and $81,250 in
payments on the legal settlement.
During the fiscal year ended March 31, 1999, the Company received a distribution
of $300,000 from the Hong Kong Joint Venture.
The Company believes that its line of credit and its working capital,
together with the excess cash generated from the sale of its headquarters
facility, 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
In fiscal year 1999, sales of the Hong Kong Joint Venture were $6,440,817
compared to $6,984,960 and $6,644,142 in fiscal years 1998 and 1997,
respectively.
Net income was $625,205 for the year ended March 31, 1999 compared to net losses
of $61,550 and $302,023 in fiscal years 1998 and 1997, respectively. The
decrease in income for the years ended March 31, 1998 and 1997 was due primarily
to a write-down of its investment in its China Cellular Joint Venture of
$337,464 in 1998 and $725,745 in 1997, respectively.
Selling, general and administrative expenses were $1,188,859, $1,288,622 and
$1,337,015 for the fiscal years ended March 31, 1999, 1998 and 1997,
respectively. As a percentage of sales, expenses were 18%, 18% and 20% for
fiscal 1999, 1998 and 1997, respectively. The decrease in expenses as a
percentage of sales in fiscal 1999 was primarily due to lower expenses.
Interest income net of interest expense was $132,591 for the year ended March
31, 1999, compared to $96,469 and $85,414 in fiscal years 1998 and 1997,
respectively. The decrease in net interest income in fiscal year 1997 was
primarily due to a distribution of $2,000,000 paid to its shareholders in April
1996.
Cash needs of the Hong Kong Joint Venture are currently met by funds generated
from operations. During the year ended March 31, 1999, working capital increased
by $309,602 from $1,760,188 on March 31, 1998 to $2,069,790 on March 31, 1999.
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-sensitive 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.
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<PAGE>
INFLATION
The Company believes that inflation has not had a material effect upon its
results of operations, and liquidity and capital resources for any of the
periods presented.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Description Page
Report of Independent Certified Public Accountants -
Grant Thornton LLP 13
Report of Independent Auditor - Deloitte & Touche LLP 14
Financial statements
Consolidated balance sheets, March 31, 1999 and 1998 15
Consolidated statements of operations for the years ended
March 31, 1999, 1998 and 1997 17
Consolidated statements of shareholders' equity for the
years ended March 31, 1999, 1998 and 1997 18
Consolidated statements of cash flows for the years ended
March 31, 1999, 1998 and 1997 19
Notes to consolidated financial statements 20
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INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT'S REPORT
Shareholders and Board of Directors
Universal Security Instruments, Inc.
We have audited the accompanying consolidated balance sheet of Universal
Security Instruments, Inc. and subsidiaries (the Corporation) as of March 31,
1999 and the related consolidated statements of operations, shareholders'
equity, and cash flows for the year 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 audit. We did not
audit the financial statements of the Hong Kong Joint Venture, the Corporation's
investment which is accounted for using the equity method. The Corporation's
investment of $2,240,785 in the Hong Kong Joint Venture's net assets at March
31, 1999 and equity in earnings of $312,602 for the year 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 the Hong Kong Joint Venture, is based solely on the report of the
other auditors. The consolidated financial statements of Universal Security
Instruments, Inc. and Subsidiaries as of and for the two years ended March 31,
1998 were audited by other auditors whose report dated June 17, 1998 expressed
an unqualified opinion on those statements.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Universal Security
Instruments, Inc. and subsidiaries as of March 31, 1999, and the results of
their consolidated operations and their consolidated cash flows for the year
then ended in conformity with generally accepted accounting principles.
We have also audited the financial statement Schedule II for the year ended
March 31, 1999. In our opinion, this Schedule presents fairly in all material
respects the information required to be set forth therein.
Grant Thornton LLP
June 16, 1999
Baltimore, Maryland
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INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Universal Security Instruments, Inc.
We have audited the consolidated balance sheet of Universal Security
Instruments, Inc. and subsidiaries (the Corporation) as of March 31, 1998, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the two years in the period ended March 31, 1998. Our
audits also included the financial statement schedule listed in the Index at
Item 14 for each of the two years in the period ended March 31, 1999. These
financial statements and financial statement schedule are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule 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 $2,228,182 in the Hong Kong Joint Venture's net assets
at March 31, 1998, and of $(30,775) and $(151,011) in that company's net loss
for each of the two years is included in the consolidated financial statements.
The financial statements of the Hong Kong Joint Venture were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for such company, is based solely on the reports
of such other auditors.
We 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. and subsidiaries at
March 31, 1998, and the results of their operations and their cash flows for
each of the two years in the period ended March 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
June 17, 1998
Baltimore, Maryland
- 14 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
March 31,
1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash $ 193,107 $ 133,377
Accounts receivable:
Trade (less allowance for doubtful
accounts of $100,000 in 1999 and
1998) 549,149 1,248,023
Officers and employees 321 5,515
549,470 1,253,538
Inventories:
Finished goods 1,749,684 2,228,070
Raw materials - foreign locations 49,869 83,728
1,799,553 2,311,798
Prepaid expenses 112,419 142,793
Assets held for sale - net
of depreciation 1,274,924
TOTAL CURRENT ASSETS 3,929,473 3,841,506
INVESTMENT IN HONG KONG JOINT VENTURE 2,240,785 2,228,182
PROPERTY AND EQUIPMENT 225,862 1,613,222
OTHER ASSETS 6,000 22,400
TOTAL ASSETS $6,402,120 $7,705,310
</TABLE>
See notes to consolidated financial statements.
- 15 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
March 31,
1999 1998
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 786,484 $ 969,326
Current maturity of long-term debt 91,190
Accounts payable 294,618 583,910
Accrued liabilities 86,973 66,672
Debt related to assets held for sale 1,246,973
TOTAL CURRENT LIABILITIES 2,415,048 1,711,098
LONG-TERM DEBT, less current portion 1,246,861
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per
share; authorized 20,000,000
shares; issued and outstanding
887,143 and 811,397 shares in
1999 and 1998 8,871 8,114
Additional paid-in capital 10,499,446 10,453,930
Retained deficit (6,521,245) (5,714,693)
TOTAL SHAREHOLDERS' EQUITY 3,987,072 4,747,351
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,402,120 $ 7,705,310
</TABLE>
See notes to consolidated financial statements.
- 16 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Year ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Net sales $ 9,071,628 $11,566,317 $15,423,149
Cost of goods sold 7,770,737 9,393,376 13,000,896
GROSS PROFIT 1,300,891 2,172,941 2,422,253
Research and development expense 129,877 226,529 250,751
Selling, general and
administrative expense 2,062,020 2,092,570 3,209,962
Operating loss (891,006) (146,158) (1,038,460)
Other income (expense):
Interest income 2,719 2,916 5,984
Interest expense (230,625) (270,817) (411,541)
Gain from sale of land 312,625
Legal settlement (247,500)
Other (242) (292) 46,465
(228,148) (268,193) (293,967)
LOSS BEFORE EQUITY IN EARNINGS
(LOSS) OF HONG KONG
JOINT VENTURE (1,119,154) (414,351) (1,332,427)
Equity in earnings (loss) of
Hong Kong Joint Venture 312,602 (30,775) (151,011)
NET LOSS $ (806,552) $ (445,126) $(1,483,438)
Per common share amounts:
Basic and Diluted $ (.93) $ (.55) $ (1.83)
Weighted average number of
common shares outstanding:
Basic and Diluted 863,706 811,397 811,397
</TABLE>
See notes to consolidated financial statements.
- 17 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance at
March 31, 1996 811,397 $8,114 $10,453,930 $(3,786,129) $ 6,675,915
Net loss for 1997 (1,483,438) (1,483,438)
Balance at
March 31, 1997 811,397 8,114 10,453,930 (5,269,567) 5,192,477
Net loss for 1998 (445,126) (445,126)
Balance at
March 31, 1998 811,397 8,114 10,453,930 (5,714,693) 4,747,351
Common stock sold
to employee 113,636 1,136 98,864 100,000
Common stock
repurchased (37,950) (380) (53,347) (53,727)
Shares issued in
reverse stock split 60 1 (1)
Net loss for 1999 (806,552) (806,552)
Balance at
March 31, 1999 887,143 $ 8,871 $10,499,446 $(6,521,245) $ 3,987,072
</TABLE>
See notes to consolidated financial statements.
- 18 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year ended March 31,
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (806,552) $ (445,126) $(1,483,438)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 141,161 158,051 165,096
Provision for losses on accounts
receivable 50,000 24,229
Legal settlement 300,000
(Undistributed) distributions
in excess of earnings of Hong
Kong Joint Venture (12,603) 280,775 401,393
Gain on sale of property and
equipment (312,635)
Changes in operating assets
and liabilities:
Decrease in accounts receivable
trade 704,068 421,986 284,884
Decrease in inventories and
prepaid expenses 542,619 943,414 1,338,874
(Decrease) increase in
accounts payable and
accrued liabilities (268,991) (916,550) 601,223
Decrease (increase) in other
assets 16,400 (5,710) 135,005
NET CASH PROVIDED BY OPERATING ACTIVITIES 316,102 486,840 1,454,631
INVESTING ACTIVITIES
Purchases of property and equipment (28,725) (13,786) (7,589)
Decrease in time deposits 8,748
Proceeds from sale of property and
equipment 383,429
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (28,725) (13,786) 384,588
FINANCING ACTIVITIES
Net repayment of short-term debt (182,842) (394,315) (1,630,044)
Principal payments on long-term debt (16,078) (14,564) (13,266)
Payments on legal settlement (75,000) (81,250) (143,250)
Proceeds from issuance of common stock 100,000
Purchase of common stock (53,727)
NET CASH USED IN FINANCING ACTIVITIES (227,647) (490,129) (1,786,560)
INCREASE (DECREASE) IN CASH 59,730 (17,075) 52,659
CASH AT BEGINNING OF YEAR 133,377 150,452 97,793
CASH AT END OF YEAR $ 193,107 $ 133,377 $ 150,452
Supplemental information:
Interest paid $ 230,625 $ 270,817 $ 411,541
Income taxes paid - - -
</TABLE>
See notes to consolidated financial statements.
- 19 -
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
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.
Included as a component of finished goods inventory are additional non-material
costs. These costs include freight, import duty, inspection fees, etc.
<TABLE>
Year Ended March 31,
1999 1998
<S> <C> <C>
Materials $1,500,587 $1,894,816
Non-Materials 249,097 333,254
$1,749,684 $2,228,070
</TABLE>
Property and Equipment: Property 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
- 20 -
<PAGE>
Income Taxes: The Company accounts for income taxes using SFAS No. 109,
"Accounting for Income Taxes:" Income taxes are provided based on the liability
method for financial reporting purposes. Deferred and prepaid taxes are provided
for on temporary differences in the basis of assets and liabilities which are
recognized in different periods for financial and tax reporting purposes.
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 potential 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.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
March 31,
1999 1998
<S> <C> <C>
Land and improvements $ 174,034 $ 234,284
Building and improvements 1,412,271
Machinery and equipment 835,966 824,171
Furniture and fixtures 260,616 246,036
Computer equipment 50,586 49,085
1,321,202 2,765,847
Less accumulated depreciation
and amortization 1,095,340 1,152,625
$ 225,862 $1,613,222
</TABLE>
Assets net of depreciation from land, building and improvements
totaling $1,274,924 were transferred to assets held for sale. See Note
L.
- 21 -
<PAGE>
NOTE C - INVESTMENT IN HONG KONG 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, 1999, the Company
has invested $2,240,785 for their 50% interest in the Hong Kong Joint Venture.
The investment has been accounted for using the equity method of accounting.
During fiscal 1997, the Hong Kong Joint Venture completed the accounting for its
development contract and recorded a profit of $122,328 on the development
contract and a write-down of $725,745 on its Cellular Joint Venture investment.
During fiscal 1998, the Hong Kong Joint Venture wrote off the balance of its
Cellular Joint Venture investment in the amount of $337,464.
The following represents summarized financial information from the financial
statements of the Hong Kong Joint Venture as of March 31, 1999 and 1998 and for
the years ended March 31, 1999, 1998 and 1997.
<TABLE>
Year Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Current assets $3,053,302 $3,041,311
Property and other assets 2,422,311 2,742,444
Total $5,475,613 $5,783,755
Current liabilities $ 983,512 $1,281,123
Non-current liabilities 63,382 100,017
Shareholders' equity $4,428,719 $4,402,615
Total $5,475,613 $5,783,755
Net sales $6,440,817 $6,984,960 $6,644,142
Gross profit 1,537,855 1,327,380 1,792,877
Net income (loss) 625,205 (61,550) (302,023)
</TABLE>
As of and for the years ended March 31, 1999, 1998 and 1997, the period ending
exchange rate and the weighted average exchange rates were approximately 7.75
Hong Kong dollars to each U.S. dollar.
During the years ended March 31, 1999, 1998 and 1997, the Company purchased
$4,365,481, $6,078,933 and $5,824,622, respectively, of finished product from
the Hong Kong Joint Venture, which represents 81%, 73% and 57%, respectively, of
the Company's total finished product purchases.
- 22 -
<PAGE>
NOTE D - DEBT
Debt consisted of the following:
<TABLE>
Year Ended March 31,
1999 1998
<S> <C> <C>
Short-term borrowings $ 786,484 $ 969,326
Promissory notes - long-term 1,338,051
Debt related to assets held for sale 1,246,973
1,246,973 1,338,051
Less current maturities 1,246,973 91,190
$ -0- $1,246,861
</TABLE>
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 letters of credit. The outstanding
principal balance of the revolving credit line ($786,484 at March 31, 1999) 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 (9-1/4% at March 31, 1999). As of
March 31, 1999, the amount available for borrowings under the line was
approximately $116,000 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, 1999,
1998 and 1997 was 9.62%, 10.00% and 9.40%, 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 earlier of end of 60 month period or when
property is sold. At March 31, 1999 and 1998, the outstanding principal balances
were $1,246,973 and $1,263,051, respectively.
Included in debt at March 31, 1998 is a note payable of $75,000, payable to
Black & Decker, as a result of a legal settlement (see Note K). This note is
non-interest bearing and payable at $6,250 per month.
NOTE E - LEASES
There were no operating leases for either of the years ended March 31, 1999 or
March 31, 1998.
- 23 -
<PAGE>
NOTE F - INCOME TAXES
At March 31, 1999, the Company has net operating loss (NOL) carryforwards in the
United States of approximately $5,150,000 for income tax purposes that expire in
years 2009 through 2019. From 1998 to 1999, the deferred tax asset valuation
allowance decreased by $15,577 due to adjustments of prior year's NOL's. From
1997 to 1998, the deferred tax asset valuation allowance increased by $344,248
primarily due to operating losses generated in fiscal 1998 and the adjustment of
prior year NOL's.
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,
1999 1998
<S> <C> <C>
Deferred tax liabilities:
Unremitted Hong Kong Joint Venture earnings
not considered permanently reinvested $ 771,396 $ 766,174
Gross deferred tax liabilities 771,396 766,174
Deferred tax assets:
Financial statement accruals and allowances 83,728 106,032
Inventory uniform capitalization 72,200 72,200
Other 67,553 34,615
NOL carryforwards and tax credits 1,957,241 1,978,230
Gross deferred tax assets 2,180,722 2,191,077
Valuation allowance (1,409,326) (1,424,903)
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>
3/31/99 3/31/98 3/31/97
<S> <C> <C> <C>
Federal tax benefit at
statutory rate on loss (34%) $(276,229) $(151,343) $(504,269)
Equity in (earnings) loss from
Hong Kong Joint Venture (106,285) 10,464 51,344
Dividends received from Hong Kong Joint
Venture for which net deferred taxes
taxes were not previously provided 102,000 85,000 340,000
Effect of net operating loss carryforwards 279,616 81,144 60,000
Other 898 (25,265) 52,925
$ -0- $ -0- $ -0-
</TABLE>
Investment and other tax credits are accounted for by the flow-through method.
- 24 -
<PAGE>
NOTE G - COMMON STOCK
On February 27, 1998, the Shareholders approved a one-for-four reverse stock
split of the Company's issued and outstanding common stock. The effective date
of the reverse stock split was March 9, 1998, which reduced the number of
outstanding shares from 3,245,587 shares to 811,397 shares. Additional paid-in
capital was increased and common stock was decreased by $24,342 as a result of
the reverse stock split. All share and per share amounts in this report have
been restated to reflect the reverse stock split.
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. On November 12, 1998, the Board of Directors authorized
the Company to purchase up to 100,000 shares of the Company's common stock.
During the year ended March 31, 1999, pursuant to the stock purchase program,
the Company repurchased 37,950 shares at a cost of $53,727.
Under terms of the Company's 1978 Non-Qualified Stock Option Plan, as amended,
243,750 shares of common stock are authorized for the granting of stock options,
of which 11,519 shares have been issued as of March 31, 1999, leaving 232,231
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, 1999 and option transactions for the two years
then ended:
Status as of March 31, 1999 Number of Shares
Presently exercisable 172,561
Exercisable in future years 51,939
Total outstanding 224,500
Available for future grants 7,731
Shares of common stock reserved 232,231
Outstanding options:
Number of holders 13
Average price per share $0.98
Expiration dates September 1999 to November 2003
- 25 -
<PAGE>
Transactions for the Two Years Ended March 31, 1999:
<TABLE>
Weighted Average
Number of Per Share Total
Shares Option Price Option Price
<S> <C> <C> <C>
Outstanding at
March 31, 1997 163,125 .76 $124,010
Granted 42,500 .25 10,656
Canceled (17,500) .51 (8,925)
Outstanding at
March 31, 1998 188,125 125,741
Granted 82,250 2.11 173,625
Canceled (45,875) 1.72 (78,969)
Outstanding at
March 31, 1999 224,500 $220,397
</TABLE>
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 25,000 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, 1999, approximately 16,250 shares remain reserved for issuance under
this Plan.
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 materially affected on a pro forma
basis.
NOTE H - COMMITMENTS
The Company entered into a three year employment agreement with its Vice
President of Sales with fixed annual remuneration of $175,000 in year one and
$200,000 in years two and three. In addition, the agreement provides incentive
compensation based on the Company achieving certain levels of sales. The
agreement expires in December, 2001. The Company had employment agreements with
two of its officers, which expired on March 31, 1998. The fixed aggregate annual
remuneration under these agreements approximated $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 letters of credit commitments which are used solely for short-term
inventory financing totaled $18,180 at March 31, 1999.
- 26 -
<PAGE>
NOTE I - 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-sensitive 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.
NOTE J - BUSINESS AND SALES INFORMATION
The Company is primarily a manufacturer and wholesaler of a variety of security
products for use in homes and businesses and manufactures private label products
to order. Approximately 24%, 15% and 15% of the Company's total sales were to a
the same customer in 1999, 1998 and 1997, respectively. An additional 17% and
12% of the Company's total sales were to a different customer in 1999 and 1998.
NOTE K - LITIGATION
In fiscal 1997, the Company settled its legal proceeding for patent infringement
litigation with Black & Decker (U.S.). 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. As a result of the
other related expenses and insurance carrier recovery, the net charge for this
matter amounted to $247,500.
NOTE L - SUBSEQUENT EVENT AND LIQUIDITY
Universal Security Instruments, Inc. sold its headquarters facility in Owings
Mills, MD, on June 16, 1999 for a price of $2.2 million to KA Real Estate
Associates, LLC. After deducting the mortgage and settlement charges, the
Company will have excess cash of approximately $840,000. The Company will
report, in its quarter ending June 30, 1999, a gain on the sale of this property
of approximately $800,000. Management believes that the excess cash generated
from the sale, together with its line of credit and working capital, will be
sufficient to meet the Company's liquidity needs for the fiscal year ending
March 31, 2000.
- 27 -
<PAGE>
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors consists of five directors. The following is a
list of individuals currently serving as directors of the Company until the
Company's next annual stockholders meeting and individuals currently serving as
executive officers of the Company:
Principal Occupation Director
for past five years since
Stephen Knepper.....55 Director; Vice Chairman of the 1970
Board of the Company since
September 1996; Chairman of the
Board of the Company from 1970
to September 1996.
Michael Kovens......56 Director; Chairman of the Board 1970
of the Company since September
1996; President of the Company
from 1970 to September 1996.
Harvey Grossblatt...52 Director since September 1996; 1996
President since June 1996;
Chief Financial Officer since
April 1997; Vice President
of the Company from December
1986 to June 1996; Secretary and
Treasurer of the Company since
September, 1988; Vice President
and Chief Financial Officer of
the Company from October 1983
through May 1995.
Ronald Frank(1).....33 Vice President of Lexington 1998
National Insurance Company
since 1993.
Gary Goldberg.......50 1993 to 1996 President of Ultravision 1998
LLC; 1996 to 1997, Independent
Consultant; 1997 to present,
Procurement Agent for Sierra
Military Health Services, Inc.
(1) Mr. Frank is the son-in-law of Mr. Michael Kovens, Director and Chairman of
the Board of the Company.
- 28 -
<PAGE>
ITEM 11.
EXECUTIVE COMPENSATION
Table I. Summary Compensation Table
The following table reflects the aggregate amount paid or accrued by the Company
in its three most recent fiscal years, for each executive officer whose
compensation exceeded $100,000 in that year.
<TABLE>
Long-Term Compensation
Name and Awards Payouts
Principal Annual Compensation Stock LTIP All Other
Position Year Salary Bonus Other Awards Options Payouts Compensation(1)
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Michael
Kovens 1999 $175,000 - - - 12,500 - $ -0-
Chairman
of the
Board 1998 175,000 - - - 15,000 - -0-
1997 300,000 - - - 17,500 - 3,200
Stephen C.
Knepper 1999 $ 50,000 - - - 12,500 - $ -0-
Vice
Chairman
of the 1998 50,000 - - - 15,000 - -0-
Board 1997 183,328 - - - 17,500 - 3,200
Harvey
Gross-
blatt 1999 $122,500 - - - 6,250 - $ -0-
President,
Secre-
tary 1998 122,500 - - - - - -0-
and
Treasurer 1997 142,923 - - - 17,500 - 2,857
</TABLE>
(1) Consists of Company contributions under its 401(k) plan.
Table II. Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values
<TABLE>
Value
Number of Unexercised
of Unexercised In-The-Money
Shares Options at FY-End Options at FY-End
Acquired Value Exerci-/Unexerci- Exerci-/Unexerci-
Name In Exercise Realized sable / sable sable / sable
<S> <C> <C> <C> <C> <C> <C>
Michael Kovens - - 68,750/ -0- -0- / -0-
Stephen C. Knepper - - 68,750/ -0- -0- / -0-
Harvey Grossblatt - - 24,000/ -0- -0- / -0-
</TABLE>
- 29 -
<PAGE>
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 11, 1999, the following persons were "beneficial owners" (as that
term is defined under Rule 13d-3 promulgated by the Securities and Exchange
Commission) of more than five percent of the Company's Common Stock.
Name and address of Shares Percent
beneficial owner Beneficially Owned(1) of class
Michael Kovens 328,295(2) 34.3%
10324 South Dolfield Rd.
Owings Mills, MD 21117
Stephen Knepper 105,360(3) 11.0%
10324 South Dolfield Rd.
Owings Mills, MD 21117
Bruce Paul 129,400 14.0%
One Hampton Road
Purchase, NY 10577
(1) For the purpose of determining the percentages of stock
beneficially owned, shares of stock subject to options
exercisable within 60 days of June 11, 1999 are deemed to be
outstanding.
(2) Includes 68,750 shares which Mr. Kovens presently has the right
to acquire through the exercise of stock options.
(3) Includes 68,750 shares which Mr. Knepper presently has the
right to acquire through the exercise of stock options and
4,487 shares held by Mr. Knepper's adult children.
- 30 -
<PAGE>
As of June 11, 1999, the shares of the Company's Common Stock owned beneficially
by each director, by each executive officer and by all directors and officers as
a group were as follows:
Shares Percent
Name of beneficial owner Beneficially Owned(1) of class
Michael Kovens 328,295(2) 34.3%
Stephen Knepper 105,360(3) 11.0%
Harvey Grossblatt 31,273(4) 3.4%
All directors and officers as 474,976 45.1%
a group (5 persons included)
(1) See footnote 1 under previous table.
(2) See footnote 2 under previous table.
(3) See footnote 3 under previous table.
(4) Includes 24,000 shares which Mr. Grossblatt presently has the
right to acquire through the exercise of stock options.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
- 31 -
<PAGE>
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements are included in
Part II, Item 8.
Consolidated balance sheets, March 31, 1999 and 1998
Consolidated statements of operations for the years ended
March 31, 1999, 1998 and 1997.
Consolidated statements of shareholders' equity for the
years ended March 31, 1999, 1998 and 1997.
Consolidated statements of cash flows for the years
ended March 31, 1999, 1998 and 1997.
Notes to consolidated financial statements.
(a) 2. Financial Statement Schedules
Schedule II - Schedule of Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, are not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K
Exhibit No.
10.1 Non-Qualified Stock Option Plan, as amended
10.2 Hong Kong Joint Venture Agreement (confidential treatment of
Name requested and filed separately with the Commission)
(Incorporated by reference to Exhibit 10.15 to the
Registrant's Annual Report on Form 10-K for the Fiscal Year
Ended March 31, 1994, File No. 0-7885)
23.1 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
- 32 -
<PAGE>
(b) Reports on Form 8-K
On March 30, 1999, the Registrant filed a Current Report on 8-K, dated
March 29, 1999, reporting the change in the Registrant's certifying accountant
from Deloitte & Touche LLP to Grant Thornton LLP
(d) Financial Statements Required by Regulation S-X
Separate financial statements of the Hong Kong Joint Venture
(confidential treatment of name requested and filed separately with the
Commission.
Page
Report of the auditors JV-1
Consolidated profit and loss account, JV-2
March 31, 1999 and 1998
Consolidated balance sheets, March 31, 1999 and 1998 JV-3
Consolidated cash flow statements, March 31, 1999 JV-5
and 1998
Notes to consolidated financial statements JV-7
- 33 -
<PAGE>
SCHEDULE II
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
VALUATION ACCOUNT
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<TABLE>
Charged
Balance at to cost Charged Balance
beginning and to other at end
of year expenses accounts Deductions(1) of year
<S> <C> <C> <C> <C> <C>
Year ended
March 31, 1999
Allowance for
doubtful accounts $100,000 $ -0- $-0- $ -0- $100,000
Year ended
March 31, 1998
Allowance for
doubtful accounts $ 50,000 $50,000 $-0- $ -0- $100,000
Year ended
March 31, 1997
Allowance for
doubtful accounts $ 25,771 $24,229 $-0- $ -0- $ 50,000
</TABLE>
(1)Write-off of uncollectible accounts, net of recoveries.
- 34 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: Harvey Grossblatt
Harvey Grossblatt, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
Date: July 13, 1999 By: Michael Kovens
Michael Kovens
Chairman of the Board, Director
Date: July 13, 1999 By: Stephen Knepper
Stephen Knepper
Vice Chairman of the Board, Director
Date: July 13, 1999 By: Harvey Grossblatt
Harvey Grossblatt, President,
Director, Secretary, Treasurer,
Chief Accounting Officer
- 35 -
EXHIBIT 10.1
UNIVERSAL SECURITY INSTRUMENTS, INC.
NON-QUALIFIED STOCK OPTION PLAN
1. Purpose - The purpose of this Plan is to further the interests of
UNIVERSAL SECURITY INSTRUMENTS, INC. (hereinafter called the "Company") by
providing incentives for employees, officers and directors of the Company and
its subsidiaries, who may be designated for participation therein and to provide
additional means of attracting and retaining competent personnel.
2. Administration - The Plan shall be administered by a Committee
consisting of the Board of Directors of the Company or such lesser number of
such Board (but not less than three persons) as is designated by the Board. Such
Committee shall hereinafter be referred to as the "Non-Qualified Stock Option
Committee" or the "Committee." Subject to the provisions of the Plan and
applicable law, the Committee is authorized to interpret the Plan and to
prescribe, amend and rescind rules and regulations relating to the Plan and to
any options granted thereunder, and administration of the Plan.
3. Participants and Allotments - The Committee shall determine and
designate from time to time those employees and directors of the Company to whom
options are to be granted and who thereby become participants in the Plan. The
Committee shall allot to such participants options to purchase shares in such
amounts as the Committee shall from time to time determine. Employees, officers
and directors of the Company or its subsidiaries shall be eligible to
participate in the Plan. No member of the Committee shall have any right to vote
or decide upon any matter relating solely to himself or a member of his
immediate family or solely to any of his rights or benefits (or rights or
benefits of a member of his immediate family) under the Plan. Participation of a
member shall not confer any right of continuation of service as an employee,
officer or a director of the Company or its subsidiaries.
4. Shares Subject to the Plan - Under this Plan, the Committee may from
time to time grant options to employees, officers and directors of the Company
and its subsidiaries, entitling the holders thereof to purchase shares of the
Company's authorized and unissued common stock, par value $.01 per share (the
"Common Stock"), or shares of the Company's treasury Common Stock, or a
combination of both, up to an aggregate of 975,000 shares of Common Stock.
Notwithstanding anything herein to the contrary, no member of the Committee
shall be eligible to vote on the granting of any option under the Plan if the
option is to be granted to such member of the Committee or to a member of his
immediate family. If any option granted under the Plan shall terminate or expire
unexercised, in whole or in part, the shares so released from option may be made
the subject of additional options granted under the Plan. The Company shall
reserve and keep available such number of shares of stock as will satisfy the
requirements of all outstanding options granted under the Plan. In the event
there is any change in the Company's shares of Common Stock, as by stock splits,
reverse stock splits, stock dividends or recapitalization, the number of shares
available for option and the shares subject to option shall be appropriately
adjusted by the Committee.
5. Option Price - The option price or prices shall be as established by the
Committee when such option is granted on the date or dates the options are
granted. In the event there is any change in the Company's shares as by stock
splits, reverse stock splits, stock dividends or recapitalization, the purchase
price of shares subject to option shall be appropriately adjusted by the
Committee.
6. Other Provisions - Each option shall be subject to all provisions of
this Plan and to the following terms and conditions:
(a) Options will be granted will be granted under the Plan which will be
exercisable for a period of five years from the date of grant. The Committee
may, in its discretion, impose additional restrictions as to the time of
exercise and/or number of shares that may be purchased upon any exercise of
options.
(b) No option shall be transferable by the optionee otherwise than by
will or the laws of descent and distribution and shall be exercisable during his
lifetime only by the optionee.
(c) All unexercised options will terminate, be forfeited and will lapse
immediately if (i) the optionee's employment with the Company or its
subsidiaries is terminated because the Optionee is discharged for dishonesty,
commission of a felony or the intentional committing of an act which has a
material adverse effect or impact upon the Company or its subsidiaries, such as
his disclosing Company confidential information or trade secrets to an
unauthorized person or persons, or (ii) the optionee agrees to accept employment
with a competitor of the Company or its subsidiaries without the consent of the
Company.
(d) If the optionee's employment with the Company or its subsidiaries is
terminated for any reason other than as set forth in subparagraph (c) above, or
if the optionee ceases to be a director of the Company or its subsidiaries, the
Optionee may exercise, subject to the provisions of subparagraph (a) and (c)
above, any option which has accrued hereunder as of the date his employment with
the Company or its subsidiaries terminated or as of the date he ceases to be a
director (as may be the case) for the period of ninety (90) days after the date
of the termination of his employment with, or his termination as a director of,
the Company or its subsidiaries; provided, however, that if the optionee's
employment (or being a director, as may be the case) with the Company or its
subsidiaries is terminated by reason of his death, the optionee's personal
representatives, estate or heirs (as the case may be) may exercise, subject to
the provisions of subparagraph (a) above, any option which has accrued hereunder
as of the date of the optionee's death for a period of one hundred eighty (180)
days after the date of the optionee's death.
(e) Except as otherwise provided in subparagraph (d) above, all
unexercised options will terminate, be forfeited and will lapse upon the
termination of the optionee's employment with the Company or its subsidiaries
(or upon the termination of his being a director of the Comp any or its
subsidiaries, as the case may be).
7. Exercise of Options - To exercise the option, the optionee or his
successor shall give written notice to the Company's Chief Financial Officer at
the Company's principal office in Baltimore, Maryland, accompanied by full
payment for the shares being purchased and a written statement that the shares
are purchased for investment and not with a view to distribution. However, this
statement will not be required in the event the shares subject to the option are
registered with the Securities and Exchange Commission. If the option is
exercised by the successor of the optionee, following his death, proof shall be
submitted, satisfactory to the Committee, of the right of the successor to
exercise the option.
Shares of the stock issues pursuant to this Plan which have not registered
with the Securities and Exchange Commission shall bear the following legend:
"The shares represented by this certificate
have not been registered under the Securities
Act of 1933 and may be offered or sold only if
registered under the provisions of that Act or
if an exemption from registration is available."
The Company shall not be required to transfer or deliver any certificate or
certificates for shares purchased upon any such exercise of said option: (a)
until after compliance with all then applicable requirements of law; and (b)
prior to admission of such shares to listing on any stock exchange on which the
stock may then be listed. In no event shall the Company be required to issue
fractional shares to the employee, officer or director.
8. Registration - If the Company shall be advised by its counsel that
shares of stock deliverable upon any exercise of an option are required to be
registered under the Securities Act of 1933, or that the consent of any other
authority is required for the issuance of same, the Company may effect
registration or obtain consent, and delivery of shares by the Company may be
deferred until registration is effected or consent obtained. However, the
Company reserves the right to revoke the option if it determines that, in the
best interests of the Company, the shares should not be registered or that
consent should not be obtained.
9. Issuance of Stock - No stock will be issued until full payment for such
stock has been made. The Optionee shall have no rights as a shareholder with
respect to optioned shares until the date of the issuance of a stock certificate
to him for such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such certificate
is issued, except as provided in Paragraphs 4 or 5.
10. Amendments and Termination - The Board of Directors may amend, suspend,
discontinue or terminate the Plan, but no such action may, without the consent
of the holder of any option granted hereunder, alter or impair such option,
except as provided in Paragraphs 4 and 5.
11. Option Agreement - The granting of an option shall take place only when
a written option agreement substantially in the form of the Option Agreement
which is attached hereto and marked Exhibit I is executed by or on behalf of the
Company and the employee, officer or director to whom the option is granted and
such executed agreement is delivered to Company.
12. Period of Plan - The Plan, which initially became effective on April 5,
1978, has been extended by the Board of Directors and will continue in effect
until and will expire on March 31, 2003.
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this ___ day of _________, 19__ by and between
UNIVERSAL SECURITY INSTRUMENTS, INC., a Maryland corporation (hereinafter called
the Company), and ___________________ (hereinafter called the Optionee).
WHEREAS, the Board of Directors of the Company considers it desirable and
in the Company's best interest that the Optionee be given an opportunity to
purchase shares of its Common Stock to provide an inducement for the Optionee to
remain an employee of the Company and to promote the success of the Company.
NOW, THEREFORE, in consideration of the premises, it is agreed as follows:
l. Grant of Option. The Company hereby grants to Optionee the right,
privilege and option to purchase from the Company _________ shares of the Common
Stock of the Company at a purchase price of $_____ per share in the manner and
subject to the conditions hereinafter provided.
2. Period of Exercise of Option.
(a) The option will be exercisable for a period of __________ years from
the date of grant, except as provided in subparagraphs (b), (c) and (d) below,
in accordance with the following schedule:
(INSERT EXERCISE SCHEDULE)
(b) All unexercised options will terminate, be forfeited and will lapse
immediately if the Optionee's employment with the Company is terminated because
(i) the Optionee is discharged for dishonesty, commission of a felony or the
intentional committing of an act which has a material adverse effect or impact
upon the Company, such as disclosing Company confidential information or trade
secrets to an unauthorized person or persons, or (ii) the Optionee accepts
employment with a competitor of the Company, without the consent of the Company.
(c) If the Optionee's employment with the Company is terminated for any
reason other than as set forth in subparagraph (b) above, the Optionee may
exercise, subject to the provisions of subparagraph (a) above, any option which
as accrued hereunder as of the date of employment with the Company terminated
for a period of ninety (90) days after the date of the termination of employment
with the Company; provided, however, that if the Optionee's employment with the
Company is terminated by reason of death, the Optionee's personal
representatives, estate or heirs (as the case may be) may exercise, subject to
the provisions of subparagraph (a) above, any option which has accrued hereunder
as of the date of the Optionee's death for a period of one hundred eighty (l80)
days after the date of the Optionee's death.
(d) Except as otherwise provided in subparagraph (c) above, all
unexercised options will terminate, be forfeited and will lapse upon the
termination of the Optionee's employment with the Company.
3. Method of Exercise. In order to exercise the option, the holder thereof
must give written notice to the Secretary of the Company at Baltimore, Maryland,
accompanied by full payment of the shares being purchased and a written
statement that the shares are purchased for investment and not with a view to
distribution. If the option is exercised by the successor of the Optionee
following death, proof shall be submitted to the right of the successor to
exercise the option. Shares of stock issued pursuant to this Plan which have not
been registered with the Securities and Exchange Commission shall bear the
following legend:
"The shares represented by this
Certificate have not been registered
under the Securities Act of l933 and
may be offered or sold only if
registered under the provisions of
that Act or if an exemption from
registration is available."
The Company shall not be required to transfer or deliver any certificate or
certificates for shares purchased upon any such exercise of said option: (a)
until after compliance with all then applicable requirements of law; and (b)
prior to admission of such shares to listing on any stock exchange on which the
stock may then be listed. In no event shall the Company be required to issue
fractional shares to the Optionee.
4. Limitation upon Transfer. Except as otherwise provided in paragraph 2
hereof, the option and all rights granted hereunder shall not be transferred by
the Optionee, other than by will or by laws of descent and distribution, and may
not be assigned, pledged or hypothecated in any way and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer the
options, other than by will or by the laws of descent and distribution, or to
assign, pledge, hypothecate or otherwise dispose of such option or of any rights
granted hereunder, contrary to the provisions hereof, or upon the levy of any
attachment or similar process upon such option or such rights, such option and
such rights shall immediately become null and void.
<PAGE>
5. Stock Adjustment. In the event there is any change in the number of
issued shares of the Company by reason of stock splits, reverse stock splits,
stock dividends, recapitalization or other transactions, the number of shares
remaining subject to the option and the option price per share shall be
proportionately adjusted.
6. Corporate Reorganization. If there shall be any capital reorganization
or consolidation or merger of the Company with another corporation or
corporations, or any sale of all or substantially all of the Company's
properties and assets to any other corporation or corporations, the Company
shall take such action as may be necessary to enable Optionee to receive upon
any subsequent exercise of such option, in whole or in part, in lieu of shares
of Common Stock, securities or other assets as were issuable or payable upon
such reorganization, consolidation, merger or sale in respect of, or in exchange
for such shares of Common Stock.
7. Rights of Stockholder. Neither Optionee, legal representatives, nor any
other person entitled to exercise such option shall have any rights or be a
stockholder in the Company in respect of the shares issuable upon exercise of
the option granted hereunder, unless and until certificates representing such
shares shall have been delivered pursuant to the terms hereof.
8. Stock Reserved. The Company shall, at all times during the term of this
Agreement, reserve and keep available such number of shares of its Common Stock
as will be sufficient to satisfy the terms of this Agreement.
9. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of any successor or successors of Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first above written.
ATTEST: UNIVERSAL SECURITY INSTRUMENTS, INC.
(Company)
___________________________ By: __________________________(SEAL)
President
WITNESS: (Optionee)
___________________________ ______________________________(SEAL)
<PAGE>
EXHIBIT 10.2
REPORT OF THE AUDITORS
To the members
The Joint Venture (name withheld and filed separately with the Securities and
Exchange Commission) (Incorporated in Hong Kong with limited liability)
We have audited the financial statements on pages 2 to 20 which have been
prepared in accordance with accounting principles generally accepted in Hong
Kong.
Respective responsibilities of directors and auditors The Companies Ordinance
requires the directors to prepare financial statements which give a true and
fair view. In preparing financial statements which give a true and fair view it
is fundamental that appropriate accounting policies are selected and applied
consistently. It is our responsibility to form an independent opinion, based on
our audit, on those statements and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with Statements of Auditing Standards
issued by the Hong Kong Society of Accountants. An audit includes an
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's and the Group's circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Opinion
In our opinion the financial statements give a true and fair view, in all
material respects, of the state of affairs of the Company and the Group as at 31
March 1999 and of the profit and cash flows of the Group for the year then ended
and have been properly prepared in accordance with the Companies Ordinance.
Hong Kong
3 June 1999
JV-1
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 31 March 1999
<TABLE>
Notes 1999 1998
HK$ HK$
<S> <C> <C> <C>
TURNOVER 3 49,928,815 54,146,978
PROFIT BEFORE EXCEPTIONAL ITEMS 4 5,035,733 2,196,879
Exceptional items 5 - (2,616,066)
PROFIT/(LOSS) BEFORE TAXATION 5,035,733 (419,187)
Taxation 6 (189,182) (57,945)
NET PROFIT/(LOSS) ATTRIBUTABLE
TO SHAREHOLDERS 7 4,846,551 (477,132)
Retained profits at
beginning of year 31,259,649 31,736,781
RETAINED PROFITS AVAILABLE
FOR DISTRIBUTION 36,106,200 31,259,649
Interim dividend 8 (4,644,200) -
RETAINED PROFITS AT END OF YEAR 31,462,000 31,259,649
</TABLE>
JV-2
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONSOLIDATED BALANCE SHEET
31 March 1999
<TABLE>
Notes 1999 1998
HK$ HK$
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and bank balances 9 18,641,225 14,313,804
Accounts receivable 49,884 26,131
Prepayments, deposits and
other receivables 94,667 251,003
Inventories 10 4,322,225 6,215,626
Due from a shareholder 2 561,008 2,769,494
TOTAL CURRENT ASSETS 23,669,009 3,576,058
LONG TERM INVESTMENT 12 - -
FIXED ASSETS 13 18,777,601 21,259,257
TOTAL ASSETS 42,446,610 44,835,315
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 2,397,819 4,529,687
Other payables and accrued
liabilities 2,234,876 2,256,962
Due to a related company 2 217,943 235,613
Current portion of loan
from a related company 2 164,004 164,004
Taxation 2,609,485 2,744,917
TOTAL CURRENT LIABILITIES 7,624,127 9,931,183
DEFERRED TAXATION 14 300,000 420,000
LOANS FROM SHAREHOLDERS 15 2,868,954 2,868,954
LONG TERM PORTION OF LOAN
FROM A RELATED COMPANY 2 191,329 355,329
TOTAL LIABILITIES - page 6 10,984,410 13,575,466
</TABLE>
JV-3
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONSOLIDATED BALANCE SHEET (continued)
31 March 1999
<TABLE>
Notes 1999 1998
HK$ HK$
<S> <C> <C> <C>
TOTAL LIABILITIES - page 5 10,984,410 13,575,466
SHAREHOLDERS' EQUITY
Share capital 16 200 200
Retained profits 31,462,000 31,259,649
31,462,200 31,259,849
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 42,446,610 44,835,315
</TABLE>
JV-4
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 March 1999
<TABLE>
Notes 1999 1998
HK$ HK$
<S> <C> <C> <C>
NET CASH INFLOW FROM
OPERATING ACTIVITIES 17(a) 9,315,981 9,043,415
RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE
Interest received 1,027,582 779,306
Interest paid (25,595) (31,483)
Dividend paid (4,644,200) -
Net cash inflow/(outflow)
from returns on investments
and servicing of finance (3,642,213) 747,823
TAXATION
Hong Kong profits tax
refunded/(paid) (444,614) 466,995
INVESTING ACTIVITIES
Purchases of fixed assets (737,733) (637,674)
Sales proceeds from disposal
of fixed assets - 46,001
Increase in pledged time deposit (96,286) (93,267)
Net cash outflow from
investing activities (834,019) (684,940)
NET CASH INFLOW BEFORE
FINANCING ACTIVITIES 4,395,135 9,573,293
FINANCING ACTIVITIES 17(b)
Repayment of loan from a
related company (164,000) (164,000)
Repayment of loans
from shareholders - (3,870,000)
Net cash outflow from
financing activities (164,000) (4,034,000)
</TABLE>
JV-5
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
CONSOLIDATED CASH FLOW STATEMENT (continued)
Year ended 31 March 1999
<TABLE>
Notes 1999 1998
HK$ HK$
<S> <C> <C> <C>
INCREASE IN CASH AND
CASH EQUIVALENTS 4,231,135 5,539,293
Cash and cash equivalents
at beginning of year 12,922,451 7,383,158
CASH AND CASH EQUIVALENTS
AT END OF YEAR 17,153,586 12,922,451
ANALYSIS OF THE BALANCES
OF CASH AN CASH EQUIVALENTS
Cash and bank balances 17,153,586 12,922,451
</TABLE>
JV-6
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS
31 March 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the audited financial
statements of the Company and its subsidiaries for the year ended 31 March
1999. The results of subsidiaries acquired or disposed of during the year
are consolidated from or to their effective dates of acquisition or
disposal, respectively. All significant intercompany transactions and
balances within the Group are eliminated on consolidation.
Subsidiaries
A subsidiary is a company in which the Company, directly or indirectly,
controls more than half of its voting power or issued share capital or
controls the composition of its board of directors. Interests in
subsidiaries are stated at cost unless, in the opinion of the directors,
there have been permanent diminutions in value, when they are written down
to values determined by the directors.
Long term investment
Investments held on a long term basis are stated at cost less provisions
for any permanent diminutions in values deemed necessary by the directors,
on an individual basis.
Goodwill
Goodwill arising on consolidation of subsidiaries and on acquisition of
associated companies represents the excess purchase consideration paid for
subsidiaries/associated companies over the fair values ascribed to the net
underlying assets acquired and is written off to the profit and loss
account in the year of acquisition.
Related parties
Parties are considered to be related if one party has the ability, directly
or indirectly, to control the other party, or exercise significant
influence over the other party in making financial and operating decisions.
Parties are also considered to be related if they are subject to common
control or common significant influence.
JV-7
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS (continued)
31 March 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fixed assets and depreciation
Fixed assets are stated at cost less accumulated depreciation. The cost of
an asset comprises its purchase price and any directly attributable costs
of bringing the asset to its working condition and location for its
intended use. Expenditure incurred after the assets have been put into
operation, such as repairs and maintenance, is normally charged to the
profit and loss account in the period in which it is incurred. In
situations where it can be clearly demonstrated that the expenditure has
resulted in an increase in the future economic benefits expected to be
obtained from the use of the asset, the expenditure is capitalized as an
additional cost of the asset.
Depreciation is calculated on the straight-line basis to write off the cost
of each asset over its estimated useful life. The principal annual rates
used for this purpose are as follows:
Land held on medium term leases Over the lease terms
Buildings 5%
Leasehold improvements 20%
Plant and machinery 10%
Furniture and fixtures 20%
Motor vehicles 20%
The gain or loss on disposal or retirement of fixed assets recognized in
the profit and loss account is the difference between the sales proceeds
and the carrying amount of the relevant asset.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost
is determined on the first-in, first-out basis and in the case of work in
progress and finished goods, comprises direct materials, direct labor and
an appropriate proportion of overheads Net realizable value is based on the
estimated selling prices less any estimated costs to be incurred to
completion and disposal.
JV-8
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS (continued)
31 March 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash equivalents
Cash equivalents represent short term highly liquid investments which are
readily convertible into known amounts of cash and which were within three
months of maturity when acquired.
Revenue recognition
Revenue is recognized when it is probable that the economic benefits will
flow to the Group and when the revenue can be measured reliably, on the
following bases:
(a) on the sales of goods, when the significant risks and
rewards of ownership have been transferred to the
buyer;
(b) rental income, on the straight-line basis over the
lease term;
(c) management fee income, when the services are rendered;
and
(d) interest, on a time proportion basis, taking into
account the principal outstanding and the effective
interest rate applicable.
Operating leases
Leases where substantially all the rewards and risks of ownership of
assets remain with the leasing company are accounted for as operating
leases. Rentals applicable to such operating leases are charged to the
profit and loss account on the straight-line basis over the lease
terms.
Deferred taxation
Deferred taxation is provided, using the liability method, on all
significant timing differences to the extent it is probable that the
liability will crystallize in the foreseeable future. A deferred tax
asset is not recognized until its realization is assured beyond
reasonable doubt.
JV-9
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS (continued)
31 March 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currencies
Foreign currency transactions are recorded at the applicable rates of
exchange ruling at the transaction dates. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated
at the applicable rates of exchange ruling at that date. Exchange
differences are dealt with in the profit and loss account.
2. CORPORATE AFFILIATION AND RELATED PARTY TRANSACTIONS
The Company was incorporated under the laws of Hong Kong on 7 July 1989. It
operates under a joint venture agreement entered into on 23 October 1989
between Universal Security Instruments, Inc.("USI"), which is incorporated
in the United States, and The Original Joint Venture Owner (name withheld
and filed separately with the SEC) which is incorporated in Hong Kong. The
Company is economically dependent on Universal Security Instruments, Inc.
with which it transacts most of its business and the financial statements
reflect the effect of these transactions which are conducted on bases
determined between the parties.
During the year, the following significant related party
transactions were recorded:
<TABLE>
Group
1999 1998
Notes HK$ HK$
<S> <C> <C> <C>
Sales made to USI (i) 39,098,998 47,123,514
Rentals paid to:
An Affiliate of The Company (name (ii)
withheld and filed separately
with the SEC) 840,000 840,000
A Manager of The Company (name (ii)
withheld and filed separately
with the SEC) 240,000 240,000
Management fee paid to An Affiliate (iii)
of The Company (name withheld and
filed separately with the SEC) 1,440,000 1,440,000
</TABLE>
Notes:
(i) Sales to USI were made according to the published
prices and conditions offered to other customers of the
Group.
JV-10
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS (continued)
31 March 1999
2. CORPORATE AFFILIATION AND RELATED PARTY TRANSACTIONS (continued)
Notes: (continued)
(ii) Rental expense were charged for the offices owned by
An Affiliate of The Company (name withheld and filed
separately with the SEC) and A Manager (name withheld
and filed separately with the SEC) in Hong Kong and the
People's Republic of China (the "PRC") based on the
prevailing market rate and the area occupied by the
Group.
(iii) Management fee was charged at HK$120,000 per month for
the provision of management services rendered in
planning, execution and operation of electronics
manufacturing plant in the PRC.
An Affiliate of The Company (name withheld and filed
separately with the SEC) is a company of which A
Manager (name withheld and filed separately with the
SEC) is a director. Loan from An Affiliate of The
Company (name withheld and filed separately with the
SEC) is unsecured, bearing interest at 0.49% per annum,
and is repayable by 26 (1998: 38) equal monthly
instalments. The balances with a shareholder,
subsidiaries and related company are
unsecured, interest-free, and have no fixed terms of
repayment.
3. TURNOVER
Turnover represents the invoiced value of goods sold, net of
discounts and returns.
JV-11
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS (continued)
31 March 1999
4. PROFIT BEFORE EXCEPTIONAL ITEMS
Profit before exceptional items is arrived at after charging/(crediting):
<TABLE>
Group
1999 1998
HK$ HK$
<S> <C> <C>
Cost of inventories sold 38,007,456 43,857,207
Depreciation 3,219,389 3,506,804
Less: Amount included in
cost of inventories sold (3,018,501) (3,233,291)
200,888 273,513
Auditors' remuneration 181,000 190,000
Directors' remuneration - -
Interest on other loan wholly
repayable within 5 years 25,595 31,483
Operating lease rentals for
land and buildings 1,098,347 1,107,021
Loss on disposal of fixed assets - 3,486
Exchange gains, net (557,017) (417,924)
Interest income (1,027,582) (779,306)
Gross and net rental income (285,000) (304,800)
</TABLE>
5. EXCEPTIONAL ITEMS
<TABLE>
Group
1999 1998
HK$ HK$
<S> <C> <C>
Provision for permanent
diminution in value of long
term investment - 2,326,397
Provision against amount due
from investee company - 289,669
- 2,616,066
</TABLE>
JV-12
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS
31 March 1999
6. TAXATION
Hong Kong profits tax has been provided at the rate of 16% (1998: 16.5%) on
the estimated assessable profits arising in Hong Kong during the year.
Taxes on profits assessable elsewhere have been calculated at the rates of
taxation prevailing in the countries in which the Group operates.
<TABLE>
Group
1999 1998
HK$ HK$
<S> <C> <C>
Provision for the year 407,000 325,945
Overprovision in prior years (97,818) (112,000)
Deferred tax credit - note 14 (120,000) (156,000)
Taxation charge for the year 189,182 57,945
</TABLE>
7. NET PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS
The net profit attributable to shareholders dealt with in the financial
statements of the Company is HK$4,559,904 (1998: loss of HK$8,486,396).
8. INTERIM DIVIDEND
<TABLE>
Group
1999 1998
HK$ HK$
<S> <C> <S>
Interim - HK$2,322,100 per
ordinary share (1998: Nil) 4,644,200 -
</TABLE>
JV-13
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS
31 March 1999
9. CASH AND BANK BALANCES
These included time deposit amounted to HK$1,487,639 (1998: HK$1,391,353)
which was pledged to a bank for credit facilities of HK$3,329,000 (1998:
HK$3,329,000) granted to the Company. The banking facilities of the Company
are also secured by personal guarantees of A Manager (name withheld and
filed separately with the SEC), a director of the Company, A Manager (name
withheld and filed separately with the SEC) and A Manager (name withheld
and filed separately with the SEC), a director of the Company's subsidiary.
The facilities were not utilized at the balance sheet date.
10. INVENTORIES
<TABLE>
Group and company
1999 1998
HK$ HK$
<S> <C> <C>
Raw materials 2,553,140 3,739,541
Work in progress 558,208 898,987
Finished goods 1,210,877 1,577,098
4,322,225 6,215,626
</TABLE>
11. INVESTMENTS IN SUBSIDIARIES
<TABLE>
Group
1999 1998
HK$ HK$
<S> <C> <C>
Unlisted shares, at cost 210,008 210,008
Less: Provision for
permanent diminution (200,000) (200,000)
10,008 10,008
</TABLE>
JV-14
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS
31 March 1999
11. INVESTMENTS IN SUBSIDIARIES (continued)
Particulars of the wholly owned subsidiaries are as follows:
<TABLE>
Nominal value
Place of of issued
incorporation ordinary Principal
Name and operation share capital activities
<S> <C> <C> <C> <C>
A Subsidiary of The Company Hong Kong HK$200,000 Investment
(name withheld and filed holding
separately with the SEC)
A Subsidiary of The Company British US$1 Dormant
(name withheld and filed Virgin Islands
separately with the SEC)
A Subsidiary of Hong Kong HK$10,000 Trading of
The Company (name withheld consumer
and filed separately with electronic
the SEC) products
</TABLE>
12. LONG TERM INVESTMENT
<TABLE>
Group
1999 1998
HK$ HK$
<S> <C> <C>
Unlisted investment, at cost 9,305,588 9,305,588
Amount due from investee company 1,158,675 1,158,675
10,464,263 10,464,263
Less: Provision for permanent
diminution in value (9,305,588) (9,305,588)
Provision against amount
due from investee company (1,158,675) (1,158,675)
- -
</TABLE>
JV-15
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS
31 March 1999
12. LONG TERM INVESTMENT (continued)
Particulars of investee company are as follows:
<TABLE>
Percentage
Country of Nominal value of equity
registration of registered attributable Principal
Name and operation capital to the Group activity
1999 1998
<S> <C> <C> <C> <C> <C>
An Associate The People's US$4,000,000 30 30 Dormant
of The Republic of
Company (name China
withheld and
filed
separately with
the SEC)
</TABLE>
The Associated Company (name withheld and filed separately with the SEC)
does not have significant influence on the financial and operating policy
decisions of investee company and, accordingly, the investment is
classified as long term investment. The amount due from the investee
company is unsecured, interest-free, and has no fixed terms of repayment.
13. FIXED ASSETS
Group and Company
<TABLE>
<CAPTION>
Leasehold Furniture
land and improve- Plant and and Motor
buildings ments machinery fixtures vehicles Total
HK$ HK$ HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C> <C> <C>
Cost:
At begin-
ning of
year 15,814,592 6,484,419 28,464,599 2,629,349 452,501 53,845,460
Additions 206,980 363,715 167,038 737,733
At 31
March
1999 15,814,592 6,691,399 28,828,314 2,796,387 452,501 54,583,193
Accumulated
deprecia-
tion:
At begin-
ning of
year 3,279,162 5,074,647 21,478,648 2,301,245 452,501 32,586,203
Provided
during
the
year 29,402 741,856 1,547,243 200,888 - 3,219,389
At 31
March
1999 4,008,564 5,816,503 23,025,891 2,502,133 452,501 35,805,592
</TABLE>
JV-16
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS
31 March 1999
12. FIXED ASSETS (continued)
Group and Company
<TABLE>
<CAPTION>
Leasehold Furniture
land and improve- Plant and and Motor
buildings ments machinery fixtures vehicles Total
HK$ HK$ HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C> <C> <C>
Net book
value:
At 31
March
1999 11,806,028 874,896 5,802,423 294,254 - 18,777,601
At 31
March
1998 12,535,430 1,409,772 6,985,951 328,104 - 21,259,257
</TABLE>
The leasehold land and buildings are situated in the People's Republic of
China under medium-term leases.
14. DEFERRED TAXATION
<TABLE>
<CAPTION>
Group and company
1999 1998
HK$ HK$
<S> <C> <C>
Balance at beginning of year 420,000 576,000
Credit for the year - note 6 (120,000) (156,000)
Balance at end of year 300,000 420,000
</TABLE>
The principal components of the Group's deferred tax liability comprise
accelerated depreciation allowances.
15. LOANS FROM SHAREHOLDERS
<TABLE>
<CAPTION>
Group and company
1999 1998
HK$ HK$
<S> <C> <C>
Universal Security
Instruments, Inc. 1,434,477 1,434,477
The Original Joint Venture Owner
(name withheld and filed
separately with the SEC) 1,434,477 1,434,477
2,868,954 2,868,954
</TABLE>
JV-17
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS
31 March 1999
15. LOANS FROM SHAREHOLDERS (continued)
The loans are unsecured, interest-free and repayable on demand by the
respective shareholders with the consent of the other. The directors of the
Company consider that these liabilities are non-current.
16. SHARE CAPITAL
<TABLE>
<CAPTION>
Company
1999 1998
HK$ HK$
<S> <C> <C>
Authorized:
100 ordinary shares of HK$100 each 10,000 10,000
Issued and fully paid:
2 ordinary shares of HK$100 each 200 200
</TABLE>
JV-18
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS
31 March 1999
17. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of profit/(loss) before taxation to net
cash inflow from operating activities:
<TABLE>
<CAPTION>
1999 1998
HK$ HK$
<S> <C> <C>
Profit/(loss) before taxation 5,035,733 (419,187)
Provision for permanent diminution
in value of long term investment - 2,326,397
Provision for amount due from
investee company - 289,669
Interest income (1,027,582) (779,306)
Interest expense 25,595 31,483
Depreciation 3,219,389 3,506,804
Loss on disposal of fixed assets - 3,486
Decrease/(increase) in accounts
receivable (23,753) 109,319
Decrease/(increase) in prepayments,
deposits and other receivables 156,336 (41,972)
Decrease in inventories 1,893,401 681,444
Decrease in amount due from a shareholder 2,208,486 2,331,365
Increase/(decrease) in accounts payable (2,131,868) 959,188
Increase/(decrease) in other
payables and accrued liabilities (22,086) 77,807
Decrease in amount due to a
related company (17,670) (33,082)
Net cash inflow from operating activities 9,315,981 9,043,415
</TABLE>
(b) Analysis of changes in financing during the year
<TABLE>
<CAPTION>
Loan from a Loans from
related company shareholders
HK$ HK$
<S> <C> <C>
Balance 1 April 1997 683,333 6,738,954
Repayment (164,000) (3,870,000)
Balance at 31 March 1998 and
1 April 1998 519,333 2,868,954
Repayment (164,000) -
Balance at 31 March 1999 355,333 2,868,954
</TABLE>
JV-19
<PAGE>
THE JOINT VENTURE (NAME WITHHELD AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION)
NOTES TO FINANCIAL STATEMENTS
31 March 1999
18. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved by the board of
directors on 3 June 1999.
JV-20
<PAGE>
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the following Registration
Statements of our report dated June 17, 1998 with respect to the consolidated
financial statements and financial statement schedule of Universal Security
Instruments, Inc. and Subsidiaries as of March 31, 1998 and for each of the two
years in the period then ended included in this Annual Report Form 10-K.
Registration Statement Number Description
Non-qualified Stock Option Plan:
2-83323 Form S-8
33-6953 Form S-8
33-21226 Form S-8
Incentive Stock Option Plan:
2-99736 Form S-8
Employee Stock Purchase Plan:
33-21225 Form S-8
Deloitte & Touche LLP
July 1, 1999
Baltimore, Maryland
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-END> MAR-31-1999 MAR-31-1999
<CASH> 193,107 193,107
<SECURITIES> 0 0
<RECEIVABLES> 549,470 549,470
<ALLOWANCES> 100,000 100,000
<INVENTORY> 1,799,553 1,799,553
<CURRENT-ASSETS> 3,929,473 3,929,473
<PP&E> 1,321,202 1,321,202
<DEPRECIATION> 1,293,786 1,293,786
<TOTAL-ASSETS> 6,402,120 6,402,120
<CURRENT-LIABILITIES> 2,415,048 2,415,048
<BONDS> 0 0
0 0
0 0
<COMMON> 8,871 8,871
<OTHER-SE> 3,978,201 3,978,201
<TOTAL-LIABILITY-AND-EQUITY> 6,402,120 6,402,120
<SALES> 1,414,590 9,071,628
<TOTAL-REVENUES> 1,414,590 9,071,628
<CGS> 1,173,552 7,770,737
<TOTAL-COSTS> 1,173,552 7,770,737
<OTHER-EXPENSES> 572,117 2,191,897
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 48,936 228,148
<INCOME-PRETAX> (408,257) (806,552)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (408,257) (806,552)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (408,257) (806,550)
<EPS-BASIC> (.46) (.93)
<EPS-DILUTED> (.46) (.93)
</TABLE>
