UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarter ended December 31, 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
- ----------------- ---------------------------- ------------------
February 11, 2000 Common Stock, $.01 par value 906,526
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UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
INDEX
Part I - FINANCIAL INFORMATION
Item l. Financial Statements
Consolidated balance sheets at December 31, 1999 and
March 31, 1999
Consolidated statements of operations for the nine months ended
December 31, 1999 and 1998 and three months ended December 31, 1999
and 1998
Consolidated statements of cash flows for the nine months
ended December 31, 1999 and 1998
Notes to consolidated financial statements
Item 2. Management's discussion and analysis of results
of operations and financial condition
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports
- 2 -
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UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
Dec 31, 1999 March 31, 1999
------------ --------------
CURRENT ASSETS
Cash $ 112,070 $ 193,107
---------- ----------
Accounts receivable:
Trade (less allowance for
doubtful accounts of $100,000
at December 31, 1999 and
March 31, 1999) 1,545,703 549,149
Officers and employees 3,187 321
----------- ----------
1,548,890 549,470
Inventories:
Finished goods - net of reserve 1,749,232 1,749,684
Raw materials-foreign locations 13,973 49,869
1,763,205 1,799,553
Prepaid expenses 53,838 112,419
Assets held for sale - net of
depreciation - 1,274,924
----------- ----------
TOTAL CURRENT ASSETS 3,478,003 3,929,473
INVESTMENT IN JOINT VENTURE 2,415,676 2,240,785
PROPERTY, PLANT AND EQUIPMENT 289,564 225,862
OTHER ASSETS 12,305 6,000
----------- ----------
TOTAL ASSETS $ 6,195,548 $6,402,120
=========== ==========
See notes to consolidated financial statements.
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UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Dec 31, 1999 March 31, 1999
------------ --------------
CURRENT LIABILITIES
Short-term borrowings $ 1,440,008 $ 786,484
Accounts payable 582,681 294,618
Accrued liabilities 113,448 86,973
Debt related to assets held
for sale - 1,246,973
------------ ------------
TOTAL CURRENT LIABILITIES 2,136,137 2,415,048
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value
per share; authorized
20,000,000 shares; issued
906,526 and 887,143
shares at December 31,
1999 and March 31, 1999 9,065 8,871
Additional paid-in capital 10,533,367 10,499,446
Retained earnings (deficit) (6,483,021) (6,521,245)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 4,059,411 3,987,072
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 6,195,548 $ 6,402,120
============ ============
See notes to consolidated financial statements.
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UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Nine Months Ended
-------------------------
Dec 31, 1999 Dec 31, 1998
------------ ------------
Net sales $ 6,271,631 $7,657,038
Cost of goods sold 4,702,728 6,597,185
Reserve for discontinuance of telephone
and video product lines ( 495,000) ___________
----------
1,073,903 1,059,853
Research and development expense 149,014 114,223
Selling, general and administrative expense 1,726,765 1,505,557
Operating loss (801,876) (559,927)
------------ -----------
Other income (expense):
Interest income 216 2,705
Interest expense (125,066) (181,670)
Gain of Sale of Building 804,861
Other ( 14,803) (247)
------------ ----------
665,208 (179,212)
LOSS BEFORE EQUITY IN
EARNINGS OF JOINT VENTURE (136,668) (739,139)
Equity in earnings of joint venture 174,892 340,844
------------ ----------
NET INCOME (LOSS) $ 38,224 $(398,295)
============ ==========
Per common share amounts:
Basic and diluted .04 (.46)
Weighted average number of common
shares outstanding
Basic and diluted 900,518 857,341
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
--------------------------
Dec 31, 1999 Dec 31, 1998
------------ ------------
Net sales $2,391,966 $2,019,608
Cost of goods sold 1,765,455 1,707,575
----------- -----------
626,511 312,033
Research and development expense 34,182 47,860
Selling, general and administrative expense 550,418 516,658
Operating Income (loss) 41,911 (252,485)
Other income (expense):
Interest income 89 176
Interest expense (44,435) (65,684)
Other ( 681) 3
----------- -----------
(45,027) (65,505)
LOSS BEFORE EQUITY IN EARNINGS
OF JOINT VENTURE ( 3,116) (317,990)
Equity in earnings of joint venture 53,585 122,282
----------- -----------
NET INCOME (LOSS) $ 50,469 $ (195,708)
=========== ===========
Per common share amounts:
Basic and diluted .06 (.21)
Weighted average number of common
shares outstanding
Basic and diluted 906,520 911,351
See notes to consolidated financial statements.
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UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Nine Months Ended
-------------------------
Dec 31, 1999 Dec 31, 1998
------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 38,224 $(398,295)
Adjustments to reconcile net
earnings (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 19,693 106,984
Undistributed earnings of Joint Venture (174,892) (40,844)
Gain on sale of building (804,861)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (999,420) 641,136
Decrease in inventories and prepaid expenses 94,929 349,574
Increase (decrease) in accounts payable
and accrued expenses 314,538 (220,785)
(Increase) decrease in other assets (6,305) 14,398
------------ ----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,518,094) 452,168
------------ ----------
INVESTING ACTIVITIES
Proceeds from sale of building 2,079,785
Purchase of property, plant and equipment (83,395) (38,574)
------------ ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,996,390 (38,574)
------------ ----------
FINANCING ACTIVITIES
Net borrowings (repayment) of short-term debt 653,524 (424,109)
Principal payments on long-term debt (11,904)
Payment on legal settlement (56,256)
Debt related to assets held for sale (1,246,973)
Sale of common stock 100,000
Purchase of common stock (53,727)
Issuance of common stock 34,116
------------ ----------
NET CASH USED IN FINANCING ACTIVITIES (559,333) (445,990)
------------ ----------
(DECREASE) INCREASE IN CASH (81,037) (32,396)
Cash at beginning of period 193,107 133,377
------------ ----------
CASH AT END OF PERIOD $ 112,070 $ 100,981
============ ==========
Supplemental information:
Interest paid $ 125,066 $ 181,670
Income taxes paid - -
See notes to consolidated financial statements.
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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
December 31, 1999 because it was immaterial to the Consolidated Statements of
Operations.
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 nine months ended December
31, 1999 and 1998:
1999 1998
---------- ----------
Net sales $4,692,110 $5,691,106
Gross profit 1,218,369 1,432,620
Net income 346,782 681,689
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Nine Months Ended December 31, 1999 Compared to
- -----------------------------------------------
Nine Months Ended December 31, 1998
- -----------------------------------
Sales - Net sales for the nine months ended December 31, 1999 were $6,271,631
compared to $7,657,038 for the comparable nine months in the prior fiscal year,
a decrease of $1,385,407. Net sales of security products increased by $34,177
and other products decreased by $1,419,584. The decrease in other products sales
resulted primarily from decreased demand for certain other products.
Net Income - The Company reported net income of $38,224 for the nine months
ended December 31, 1999 compared to a net loss of $398,295 for the corresponding
nine 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
$255,999 from the comparable nine 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 approximately $100,000 of higher rental and commission
expenses.
As a percentage of sales, research, selling, general and administrative expenses
were 30% for the nine months ended December 31, 1999 and 21% for the same period
in the prior fiscal year.
Interest Expense and Income - The Company's interest expense, net of interest
income, was $124,850 for the nine months ended December 31, 1999 compared to
$178,965 for the same period in 1998. The decrease in interest expense resulted
from the sale of the Company's headquarters facility which relieved the Company
of the related mortgage. 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 its sales
on higher margin core security products, including Smoke and Fire Alarms and
Carbon Monoxide Alarms. These sales will be to the Company's traditional retail
accounts and the electrical distribution trade through its new subsidiary, USI
ELECTRIC, INC. These products are manufactured by the Company's Joint Venture
ISO 9002 approved factory.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended December 31, 1999 Compared to
- ------------------------------------------------
Three Months Ended December 31, 1998
- ------------------------------------
Sales - Net sales for the three months ended December 31, 1999 were $2,391,966
compared to $2,019,608 for the comparable three months in the prior fiscal year,
an increase of $372,358. Net sales of security and other products increased by
$302,854 and $69,504, respectively. The increase in security sales resulted
primarily from increased demand for certain of the Company's security products.
The increase in other sales resulted from higher demand for certain of the
Company's products.
Net Income - The Company reported net income of $50,469 for the quarter ended
December 31, 1999 compared to a net loss of $195,708 for the corresponding
quarter of the prior fiscal year. The increase resulted from higher gross
margins from security sales.
Expenses - Research, selling, general and administrative expenses increased by
$20,082 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 24% for the three months ended December 31, 1999
and 28% for the same period in the last fiscal year.
Interest Expense and Income - The Company's interest expense, net of interest
income, was $44,346 for the quarter ended December 31, 1999 compared to $65,508
for the comparable period in 1998. The decrease in interest expense resulted
from the sale of the Company's headquarters facility which relieved the Company
of the related mortgage.
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 $1,542,000 has been
utilized in letter of credit commitments and short-term borrowings as of
December 31, 1999. As of December 31, 1999, the amount available for borrowings
under the line was approximately $250,000 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 $1,518,094 for the nine months ended December
31, 1999. This was primarily due to an increase in accounts receivable of
$999,420. For the same period last year, operating activities provided cash of
$452,168.
Investing activities provided cash of $1,996,390 for the nine months ended
December 31, 1999. This resulted primarily from the proceeds of the sale of the
building. For the same period last year, investing activities used cash of
$38,574.
Financing activities used cash of $559,333, primarily due to the repayments of
long term debt of $1,246,973. For the same period last year, financing
activities used cash of $445,990.
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 nine months and
three months ended December 31, 1999 were $4,692,110 and $1,729,720,
respectively, compared to $5,420,912 and $1,247,285, respectively, for the
comparable nine 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 nine months and three months ended December 31, 1999 was
$346,782 and $104,168, respectively, compared to $681,689 and $244,564
respectively, in the comparable nine months and three months last year.
Selling, general and administrative expenses were $1,016,884 (22% of sales) and
$347,546 (20% of sales), respectively, for the nine months and three months
ended December 31, 1999 and were $958,095 (17% of sales) and $326,262 (19% of
sales) for the comparable periods last year.
Interest income net of interest expense was $106,074 and $33,938 for the nine
months and three months ended December 31, 1999 compared to $101,199 and $40,127
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 nine months ended December 31, 1999, working capital
increased by $904,454 from $2,069,790 on March 31, 1999 to $2,974,244 on
December 31, 1999.
- 11 -
<PAGE>
Year 2000 Compliance - The Company undertook in 1999 to address 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 was designed to
ensure the compliance of all of the Company's applications, operating system and
hardware platforms, and to address the compliance by its key customers and
vendors. The Company hired a consultant to review its computer operations and
spent approximately $50,000 on the Y2K project.
As a result of the project, the Company was able to conclude that its computer
operations were Y2K compliant. The Company communicated with its key customers
and vendors to determine their Y2K readiness. Based on such communications and
on the Company's experience to date, it appears that the computer operations of
all of the Company's computer systems are working as usual and to date no Y2K
problems have been encountered. Although the Company does not now anticipate any
material Y2K problems arising, and the Company cannot give assurances that such
problems will not arise in the future, and if they occur, that they will not
have a material effect on the Company's operations.
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<PAGE>
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
PART II
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 11, 1999, the Company held its Annual Meeting of
Shareholders. The only matters submitted to the shareholders for a vote were (i)
the election of directors and (ii) the amendment to the Company's Non-Qualified
Stock Option Plan ("Stock Option Plan") to increase the number of shares
available for the grant of options under
the Plan.
The nominees submitted for election as directors were Stephen C.
Knepper, Michael Kovens, Harvey Grossblatt, Ronald Frank and Gary Goldberg, all
of then current directors of the Company. At least 833,329 shares were voted in
favor of each nominee, and no more than 920 shares were voted to withhold
approval of any director. As a result, all of the nominees were elected to serve
as directors until the next annual meeting of shareholders of the Company and
until their successors are duly elected and qualified.
Prior to the amendment to the Stock Option Plan, options to purchase
a total of 232,231 shares of the Company's Common Stock were available for
grant, of which 218,125 were outstanding, leaving a balance of only 14,106
available for future grant. Shareholders were asked to approve an amendment to
the Stock Option Plan to increase the total number of shares available for
grants of options by 250,000. At least 583,821 shares were voted in favor of the
amendment, and 12,168 shares were voted against the amendment. As a result, the
amendment to the Stock Option Plan was approved.
Item 5. Other Information
On December 1, 1999, Ronald Frank resigned as director of the
Company.
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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UNIVERSAL SECURITY INSTRUMENTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL SECURITY INSTRUMENTS, INC.
Dated: February 11, 2000 Harvey Grossblatt
-------------------------------------------
HARVEY GROSSBLATT
President, Chief Financial Officer
smb
10-Q.DEC
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UNIVERSAL SECURITY INSTRUMENTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL SECURITY INSTRUMENTS, INC.
Dated: February 11, 2000
-------------------------------------------
HARVEY GROSSBLATT
President, Chief Financial Officer
smb
10-Q.DEC
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<PAGE>
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(Replace this text with the legend)
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<CIK> 0000102109
<NAME> UNIVERSAL SECURITY INSTRUMENTS, INC.
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<EXCHANGE-RATE> 1 1
<CASH> 112,070 112,070
<SECURITIES> 0 0
<RECEIVABLES> 1,648,890 1,648,890
<ALLOWANCES> 100,000 100,000
<INVENTORY> 1,763,205 1,763,205
<CURRENT-ASSETS> 3,478,003 3,478,003
<PP&E> 289,564 289,564
<DEPRECIATION> 19,693 19,693
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<OTHER-SE> 4,050,346 4,050,346
<TOTAL-LIABILITY-AND-EQUITY> 6,195,548 6,195,548
<SALES> 2,391,966 6,271,631
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<CGS> 1,765,455 4,207,728
<TOTAL-COSTS> 1,765,455 4,207,728
<OTHER-EXPENSES> 584,600 1,875,779
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<INTEREST-EXPENSE> 44,435 125,066
<INCOME-PRETAX> 50,469 38,224
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<INCOME-CONTINUING> 50,469 38,224
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