UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarter ended September 30, 1999
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________________ to _________________
Commission file number 0-7885
UNIVERSAL SECURITY INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0898545
State of Incorporation I.R.S. Employer Identification Number
10324 S. Dolfield Road, Owings Mills, MD 21117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 410-363-3000
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO _______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Date Class Shares Outstanding
November 15, 1999 Common Stock, $.01 par value 903,847
<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
INDEX
Part I - FINANCIAL INFORMATION
Item l. Financial Statements
Consolidated balance sheets at September 30, 1999 and
March 31, 1999
Consolidated statements of operations for the six months ended
September 30, 1999 and 1998 and three months ended September 30, 1999
and 1998
Consolidated statements of cash flows for the six months
ended September 30, 1999 and 1998
Notes to consolidated financial statements
Item 2. Management's discussion and analysis of results
of operations and financial condition
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
Sept 30, 1999 March 31, 1999
CURRENT ASSETS
Cash $ 191,887 $ 193,107
Accounts receivable:
Trade (less allowance for
doubtful accounts of $100,000
at September 30, 1999 and
March 31, 1999) 901,414 549,149
Officers and employees 4,646 321
906,060 549,470
Inventories:
Finished goods - net of reserve 1,731,091 1,749,684
Raw materials-foreign locations 46,559 49,869
1,777,650 1,799,553
Prepaid expenses 57,042 112,419
Assets held for sale - net of
depreciation 1,274,924
TOTAL CURRENT ASSETS 2,932,639 3,929,473
--------- ---------
INVESTMENT IN JOINT VENTURE 2,362,091 2,240,785
PROPERTY, PLANT AND EQUIPMENT 214,292 225,862
OTHER ASSETS 8,000 6,000
TOTAL ASSETS $5,517,022 $6,402,120
========= =========
See notes to consolidated financial statements.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Sept 30, 1999 March 31, 1999
CURRENT LIABILITIES
Short-term borrowings $ 1,056,124 $ 786,484
Accounts payable 334,583 294,618
Accrued liabilities 130,919 86,973
Debt related to assets held
for sale 1,246,973
TOTAL CURRENT LIABILITIES 1,521,626 2,415,048
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value
per share; authorized
20,000,000 shares; issued
903,847 and 887,143
shares at September 30,
1999 and March 31, 1999 9,037 8,871
Additional paid-in capital 10,519,849 10,499,446
Retained earnings (deficit) (6,533,490) (6,521,245)
TOTAL SHAREHOLDERS' EQUITY 3,995,396 3,987,072
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 5,517,022 $ 6,402,120
========== ==========
See notes to consolidated financial statements.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Six Months Ended
Sept 30, 1999 Sept 30, 1998
Net sales $3,879,665 $5,637,430
Cost of goods sold 2,937,273 4,889,610
Reserve for discontinuance of telephone
and video product lines ( 495,000)
447,392 747,820
Research and development expense 114,832 66,363
Selling, general and administrative expense 1,176,347 988,899
Operating loss (843,787) (307,442)
Other income (expense):
Interest income 127 2,529
Interest expense (80,631) (115,986)
Gain on sale of building 804,861
Other (14,122) (250)
710,235 (113,707)
LOSS BEFORE EQUITY IN
EARNINGS OF JOINT VENTURE (133,552) (421,149)
Equity in earnings of joint venture 121,307 218,562
NET LOSS $ (12,245) $ (202,587)
Per common share amounts:
Basic and diluted (.01) (.24)
Weighted average number of common
shares outstanding
Basic and diluted 897,565 830,336
See notes to consolidated financial statements.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended
Sept 30, 1999 Sept 30, 1998
Net sales $1,821,314 $3,004,021
Cost of goods sold 1,350,235 2,742,903
Reserve for discontinuance of telephone
and video product lines (495,000)
(23,921) 261,118
Research and development expense 50,741 27,304
Selling, general and
administrative expense 567,792 491,676
Operating loss (642,454) (257,862)
Other income (expense):
Interest income 22 864
Interest expense (32,600) (58,398)
Other (176) (911)
(32,754) (58,445)
LOSS BEFORE EQUITY IN EARNINGS
OF JOINT VENTURE (675,208) (316,307)
Equity in earnings of joint venture 12,094 209,156
NET LOSS $ (663,114) $ (107,151)
Per common share amounts:
Basic and diluted (.73) (.13)
Weighted average number of common
shares outstanding
Basic and diluted 902,805 849,275
See notes to consolidated financial statements.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended
Sept 30, 1999 Sept 30, 1998
OPERATING ACTIVITIES
Net loss $ (12,245) $(202,587)
Adjustments to reconcile net
earnings (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 14,469 70,175
Undistributed earnings of Joint venture (121,307) (218,562)
Gain on sale of building (804,861)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (356,590) (121,205)
Decrease in inventories and prepaid expenses 77,280 355,127
Increase (decrease) in accounts payable
and accrued expenses 83,911 (88,393)
(Increase) decrease in other assets (2,000) 16,049
NET CASH (USED IN) OPERATING ACTIVITIES (1,121,343) (189,396)
INVESTING ACTIVITIES
Proceeds from sale of building 2,079,785
Property, plant and equipment (2,898) (11,232)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,076,887 (11,232)
FINANCING ACTIVITIES
Net borrowings (repayment) of short-term debt 269,640 152,347
Principal payments on long-term debt (7,838)
Payment on legal settlement (37,500)
Debt related to assets held for sale (1,246,973)
Sale of common stock 100,000
Issuance of common stock 20,569
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (956,764) 207,009
(DECREASE) INCREASE IN CASH (1,220) 6,381
Cash at beginning of period 193,107 133,377
CASH AT END OF PERIOD $ 191,887 $ 139,758
Supplemental information:
Interest paid $ 80,631 $ 115,986
Income taxes paid ------- -------
See notes to consolidated financial statements.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Statement of Management - The financial information included herein is unaudited
and does not include all disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles. The
interim financial information should be read in connection with the financial
statements and related notes in the Company's annual report on Form 10-K for the
year ended March 31, 1999. The results for the interim period are not
necessarily indicative of the results expected for the year. The accompanying
interim information reflects all adjustments (consisting of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods.
Income Taxes - No income tax expense has been provided for the quarter ended
September 30, 1999 because of the Company's deferred tax assets related to the
carryforward of prior years' operating losses.
Joint Venture - The Company maintains a 50% interest in a joint venture with a
Hong Kong corporation (Hong Kong joint venture) which has manufacturing
facilities in the People's Republic of China, for the manufacturing of consumer
electronic products. The following represents summarized income statement
information of the Hong Kong joint venture for the quarters ended September 30,
1999 and 1998:
1999 1998
Net sales $2,962,390 $3,977,966
Gross profit 828,250 957,335
Net income 242,614 437,124
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six Months Ended September 30, 1999 Compared to
Six Months Ended September 30, 1998
Sales - Net sales for the six months ended September 30, 1999 were $3,879,665
compared to $5,637,430 for the comparable six months in the prior fiscal year, a
decrease of $1,757,765. Net sales of security products and other products
decreased by $525,693 and $1,232,072, respectively. Security sales decreased as
a result of lower demand for certain security products of the Company. The
decrease in other products sales resulted primarily from decreased demand for
certain other products.
Net Income - The Company reported a net loss of $12,245 for the six months ended
September 30, 1999 compared to net loss of $202,587 for the corresponding six
months of the prior fiscal year. The decrease in net loss resulted from higher
gross margins and were partially offset by lower Joint Venture earnings.
Additionally, the sale of the Company's headquarters resulted in a gain of
$804,861 partially offset by a reserve of $495,000 for the discontinuance of the
Company's telephone and video product lines.
Expenses - Research, selling, general and administrative expenses increased by
$235,917 from the comparable six months in the prior year. The increase in
research, selling, general and administrative expenses resulted from the
Company's costs associated with establishing the Company's new subsidiary, USI
ELECTRIC, INC. and higher rental and commission expenses approximating $80,000.
As a percentage of sales, research, selling, general and administrative expenses
were 33% for the six months ended September 30, 1999 and 19% for the same period
in the prior fiscal year.
Interest Expense and Income - The Company's interest expense, net of interest
income, was $80,504 for the six months ended September 30, 1999 compared to
$113,457 for the same period in 1998. The decrease in interest expense resulted
from the sale of the Company's headquarters facility. The sale of the Company's
headquarters resulted in a gain of $804,861 partially offset by a charge for the
sale of the Company's telecommunications inventory.
Marketing - The Company decided to exit the telephone and video product lines,
except for private label customers. This move was consistent with the Company's
plan to eliminate underperforming assets and to improve profitability and
shareholder value. The Company left these product lines to concentrate on higher
margin core security product line, including Smoke and Fire Alarms and Carbon
Monoxide Alarms, to the Company's traditional retail accounts and to electrical
distribution trade through its new subsidiary, USI ELECTRIC, INC. These products
are manufactured by the Company's Joint Venture ISO 9002 approved factory.
Included in the three month and six month results is a specific charge of
$495,000 for exiting these product lines.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended September 30, 1999 Compared to
Three Months Ended September 30, 1998
Sales - Net sales for the three months ended September 30, 1999 were $1,822,264
compared to $3,004,021 for the comparable three months in the prior fiscal year,
a decrease of $1,181,757. Net sales of security and other products decreased by
$335,602 and $846,155, respectively. The decrease in security sales resulted
primarily from decreased demand for certain of the Company's security products.
The decrease in other sales resulted from lower demand for certain of the
Company's products.
Net Income - The Company reported a net loss of $662,164 for the quarter ended
September 30, 1999 compared to net loss of $107,151 for the corresponding
quarter of the prior fiscal year. The increase resulted from a $495,000 reserve
for the discontinuance of the Company's telephone and video product lines and
higher selling, general and administrative expenses.
Expenses - Research, selling, general and administrative expenses increased by
$99,553 from the comparable three months in the prior year. The increase in
research, selling, general and administrative expenses resulted from the
Company's costs associated with establishing the Company's new subsidiary, USI
ELECTRIC, INC. As a percentage of sales, research, selling, general and
administrative expenses were 34% for the three months ended September 30, 1999
and 17% for the same period in the last fiscal year.
Interest Expense and Income - The Company's interest expense, net of interest
income, was $32,578 for the quarter ended September 30, 1999 compared to $57,534
for the comparable period in 1998. The decrease in interest expense resulted
from the sale of the Company's headquarters facility.
Financial Condition and Liquidity - Cash needs of the Company are currently met
by funds generated from operations and the Company's line of credit with a
financial institution, which supplies both short-term borrowings and letters of
credit to finance foreign inventory purchases. The Company's maximum bank line
of credit is currently the lower of $7,500,000 or specified percentages of the
Company's accounts receivable and inventory. Approximately $1,199,902 has been
utilized in letter of credit commitments and short-term borrowings as of
September 30, 1999. As of September 30, 1999, the amount available for
borrowings under the line was approximately $125,000 based on the specified
percentages.
The outstanding principal balance of the revolving credit line is payable upon
demand. The interest rate on the revolving credit line is equal to 1.5% in
excess of the prime rate of interest charged by the Company's lender. The loan
is collateralized by the Company's accounts receivable and inventory and a 1.5
acre parcel of the Company's real estate.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operating activities used cash of $1,121,343 for the six months ended September
30, 1999. This was primarily due to an increase in accounts receivable of
$356,590, partially offset by the proceeds on the sale of the building of
$804,861. For the same period last year, operating activities used cash of
$189,396.
Investing activities provided cash of $2,076,887 in the current quarter. This
resulted primarily from the proceeds of the sale of the building. For the same
period last year, investing activities used cash of $11,232.
Financing activities used cash of $956,764, primarily due to the repayments of
long term debt of $1,246,973. For the same period last year, financing
activities provided cash of $207,009.
The Company believes that its line of credit and its working capital provide it
with sufficient resources to meet its requirements for liquidity and working
capital in the ordinary course of its business over the next twelve months.
Hong Kong Joint Venture - Net sales of the joint venture for the six months and
three months ended September 30, 1999 were $2,962,390 and $1,187,525,
respectively, compared to $3,977,966 and $2,437,524, respectively, for the
comparable six months and three months in the prior fiscal year. The decrease in
sales was primarily due to decreased sales of the Company's video products.
Net income for the six months and three months ended September 30, 1999 was
$242,614 and $24,188, respectively, compared to $437,124 and $418,312
respectively, in the comparable six months and three months last year.
Selling, general and administrative expenses were $669,338 (23% of sales) and
$310,069 (19% of sales), respectively, for the six months and three months ended
September 30, 1999 and were $631,833 (16% of sales) and $309,012 (13% of sales)
for the comparable periods last year.
Interest income net of interest expense was $72,136 and $30,717 for the six
months and three months ended September 30, 1999 compared to $61,072 and $37,546
for the comparable period of last year.
Cash needs of the Hong Kong joint venture are currently met by funds generated
from operations. During the six months ended September 30, 1999, working capital
increased by $759,266 from $2,069,790 on March 31, 1999 to $2,829,056 on
September 30, 1999.
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<PAGE>
Year 2000 Compliance - The Company has undertaken a project that addresses the
Year 2000 (Y2K) issue of computer systems and other equipment with embedded
chips or processors not being able to properly recognize and process
date-sensitivity information after December 31, 1999. The Company's Y2K project
is designed to ensure the compliance of all of the Company's applications,
operating system and hardware platforms, and to address the compliance of key
business partners. Key business partners are those customers and vendors that
have a material impact on the Company's operations. The Company has hired 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>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
PART II
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL SECURITY INSTRUMENTS, INC.
Dated: /s/ Harvey Grossblatt
HARVEY GROSSBLATT
President, Chief Financial Officer
smb
10-Q.SEPT
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL SECURITY INSTRUMENTS, INC.
Dated: November 15, 1999
/s/HARVEY GROSSBLATT
President, Chief Financial Officer
smb
10-Q.SEPT
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<ARTICLE> 5
<LEGEND>
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<CIK> 0000102109
<NAME> UNIVERSAL SECURITY INSTRUMENTS, INC.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 191,887 191,887
<SECURITIES> 0 0
<RECEIVABLES> 1,006,060 1,006,060
<ALLOWANCES> 100,000 100,000
<INVENTORY> 1,777,650 1,777,650
<CURRENT-ASSETS> 2,932,639 2,932,639
<PP&E> 1,324,101 1,324,101
<DEPRECIATION> 1,109,809 1,109,809
<TOTAL-ASSETS> 5,517,022 5,517,022
<CURRENT-LIABILITIES> 1,521,626 1,521,626
<BONDS> 1,521,626 1,521,626
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<COMMON> 9,037 9,037
<OTHER-SE> 3,986,359 3,986,359
<TOTAL-LIABILITY-AND-EQUITY> 5,517,022 5,517,022
<SALES> 1,821,314 3,879,665
<TOTAL-REVENUES> 1,821,314 3,879,665
<CGS> 1,845,235 3,432,373
<TOTAL-COSTS> 1,845,235 3,432,373
<OTHER-EXPENSES> 618,533 1,291,179
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 32,600 80,631
<INCOME-PRETAX> (663,114) (12,245)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (663,114) (12,245)
<EPS-BASIC> (.73) (.01)
<EPS-DILUTED> (.73) (.01)
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