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, 2000
( ) 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
7-A Gwynns Mill Court, 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 13, 2000 Common Stock, $.01 par value 912,270
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
INDEX
Part I - FINANCIAL INFORMATION
Item l. Financial Statements
Consolidated balance sheets at September 30, 2000 and
March 31, 2000
Consolidated statements of operations for the six months
ended September 30, 2000 and 1999 and three months ended
September 30, 2000 and 1999
Consolidated statements of cash flows for the six months
ended September 30, 2000 and 1999
Notes to consolidated financial statements
Item 2. Management's discussion and analysis of results
of operations and financial condition
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders
Item 6. Exhibits and Reports
- 2 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
ASSETS
<S> <C> <C>
Sept 30, 2000 March 31, 2000
CURRENT ASSETS
Cash $ 29,877 $ 92,017
Accounts receivable:
Trade (less allowance for
doubtful accounts of $100,000
at September 30, 2000 and
March 31, 2000) 949,629 595,880
Officers and employees 1,084 4,845
950,713 600,725
Inventories:
Finished goods 2,843,172 1,912,987
Raw materials-foreign locations 12,807 25,071
2,855,979 1,938,058
Prepaid expenses 106,668 91,754
TOTAL CURRENT ASSETS 3,943,237 2,722,554
INVESTMENT IN JOINT VENTURE 2,562,032 2,377,766
PROPERTY, PLANT AND EQUIPMENT - NET 344,325 363,920
OTHER ASSETS 12,305 12,305
TOTAL ASSETS $6,861,899 $5,476,545
See notes to consolidated financial statements.
</TABLE>
- 3 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Sept 30, 2000 March 31, 2000
CURRENT LIABILITIES
Short-term borrowings $ 2,061,883 $ 817,714
Accounts payable 505,368 399,100
Accrued liabilities 126,037 121,497
Current obligations under
capital lease 15,730 15,730
TOTAL CURRENT LIABILITIES 2,709,018 1,354,041
LONG-TERM OBLIGATIONS UNDER
CAPITAL LEASE 52,674 60,260
SHAREHOLDERS' EQUITY
Common stock, $.01 par value
per share; authorized
20,000,000 shares; issued
912,270 shares at September
30, 2000 and March 31, 2000 9,123 9,123
Additional paid-in capital 10,533,310 10,533,310
Retained earnings (deficit) (6,442,226) (6,480,189)
TOTAL SHAREHOLDERS' EQUITY 4,100,207 4,062,244
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 6,861,899 $ 5,476,545
See notes to consolidated financial statements.
</TABLE>
- 4 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<S> <C> <C>
For the Six Months Ended
Sept 30, 2000 Sept 30, 1999
Net sales $3,791,283 $3,879,665
Cost of goods sold 2,609,436 2,937,273
Reserve for discontinuance of telephone
and video product lines (495,000)
GROSS PROFIT 1,181,847 447,392
Research and development expense 84,710 114,832
Selling, general and administrative expense 1,137,948 1,176,347
Operating loss (40,811) (843,787)
Other income (expense):
Interest income 233 127
Interest expense (105,714) (80,631)
Gain on sale of building 804,861
Other (11) (14,122)
(105,492) 710,235
LOSS BEFORE EQUITY IN
EARNINGS OF JOINT VENTURE (146,303) (133,552)
Equity in earnings of joint venture 184,266 121,307
NET INCOME (LOSS) $ 37,963 $ (12,245)
Per common share amounts:
Basic .04 (.01)
Diluted .04 (.01)
Weighted average number of common
shares outstanding
Basic 912,270 897,565
Diluted 950,012 897,565
See notes to consolidated financial statements.
</TABLE>
- 5 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<S> <C> <C>
For the Three Months Ended
Sept 30, 2000 Sept 30, 1999
Net sales $1,740,167 $1,821,314
Cost of goods sold 1,118,716 1,350,235
Reserve for discontinuance of telephone
and video product lines (495,000)
GROSS PROFIT 621,451 (23,921)
Research and development expense 34,151 50,741
Selling, general and
administrative expense 574,625 567,792
Operating income (loss) 12,675 (642,454)
Other income (expense):
Interest income 22
Interest expense (65,019) (32,600)
Other (11) (176)
(65,030) (32,754)
LOSS BEFORE EQUITY IN EARNINGS
OF JOINT VENTURE (52,355) (675,208)
Equity in earnings of joint venture 57,845 12,094
NET INCOME (LOSS) $ 5,490 $ (663,114)
Per common share amounts:
Basic .01 (.73)
Diluted .01 (.73)
Weighted average number of common
shares outstanding
Basic 912,270 902,805
Diluted 950,012 902,805
See notes to consolidated financial statements.
</TABLE>
- 6 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<S> <C> <C>
For the Six Months Ended
Sept 30, 2000 Sept 30, 1999
OPERATING ACTIVITIES
Net income (loss) $ 37,963 $ (12,245)
Adjustments to reconcile net
earnings (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 23,759 14,469
Undistributed earnings of Joint venture (184,266) (121,307)
Gain on sale of building (804,861)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (349,988) (356,590)
(Increase) decrease in inventories and
prepaid expenses (932,835) 77,280
Increase in accounts payable and
accrued expenses 110,808 83,911
(Increase) in other assets (2,000)
NET CASH (USED IN) OPERATING ACTIVITIES (1,294,559) (1,121,343)
INVESTING ACTIVITIES
Proceeds from sale of building 2,079,785
Property, plant and equipment (4,164) (2,898)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (4,164) 2,076,887
FINANCING ACTIVITIES
Net borrowings of short-term debt 1,244,169 269,640
Principal payments on long-term debt (7,586)
Debt related to assets held for sale (1,246,973)
Issuance of common stock 20,569
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,236,583 (956,764)
(DECREASE) IN CASH (62,140) (1,220)
Cash at beginning of period 92,017 193,107
CASH AT END OF PERIOD $ 29,877 $ 191,887
Supplemental information:
Interest paid $ 105,714 $ 80,631
Income taxes paid - -
See notes to consolidated financial statements.
</TABLE>
- 7 -
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, 2000. 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, 2000 as a result of the carryforward of
prior years' operating losses.
Joint Venture - The Company maintains a 50% interest in a joint
venture with a Hong Kong corporation (Hong Kong joint venture)
which has manufacturing facilities in the People's Republic of
China, for the manufacturing of consumer electronic products. The
following represents summarized income statement information of the
Hong Kong joint venture for the six months ended September 30, 2000
and 1999:
<TABLE>
<S> <C> <C>
2000 1999
Net sales $3,866,428 $2,962,390
Gross profit 967,586 828,250
Net income 368,531 242,614
</TABLE>
- 8 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six Months Ended September 30, 2000 Compared to
Six Months Ended September 30, 1999
Sales - Net sales for the six months ended September 30, 2000 were
$3,791,283 compared to $3,879,665 for the comparable six months in
the prior fiscal year, a decrease of $88,382. Net sales of security
products increased by $450,407 and net sales of certain other
products decreased by $538,789. Security sales increased as a
result of higher demand of security products sold by the Company's
subsidiary, USI ELECTRIC, Inc. The decrease in sales of certain
other products resulted primarily from decreased demand.
Net Income - The Company reported a net income of $37,963 for the
six months ended September 30, 2000 compared to net loss of $12,245
for the corresponding six months of the prior fiscal year. The
increase in net income resulted from higher gross margins which
increased to 31% from 24%, excluding reserve, resulting from a
different product sales mix and higher Joint Venture earnings.
Additionally, the sale of the Company's headquarters which 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, was included in the September 1999 results.
Expenses - Research, selling, general and administrative expenses
decreased by $68,521 from the comparable six months in the prior
year. The decrease in research, selling, general and administrative
expenses resulted from lower research and development expense and
lower rental expense.
As a percentage of sales, research, selling, general and
administrative expenses were 32% for the six months ended September
30, 2000 and 33% for the same period in the prior fiscal year.
Interest Expense and Income - The Company's interest expense, net
of interest income, was $105,481 for the six months ended September
30, 2000 compared to $80,504 for the same period in 1999. The
increase in interest expense resulted from the debt service related
to higher levels of inventory and higher interest rates.
- 9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended September 30, 2000 Compared to
Three Months Ended September 30, 1999
Sales - Net sales for the three months ended September 30, 2000
were $1,740,167 compared to $1,821,314 for the comparable three
months in the prior fiscal year, a decrease of $81,147. Net sales
of security products increased by $469,332 and sales of other
products decreased by $550,479. The increase in security sales
resulted primarily from increased demand for smoke alarms sold by
the Company's subsidiary, USI ELECTRIC, INC. The decrease in other
sales resulted from lower demand for certain of the Company's
products with lower gross margins included in the September, 1999
results.
Net Income - The Company reported net income of $5,490 for the
quarter ended September 30, 2000 compared to a net loss of $663,114
for the corresponding quarter of the prior fiscal year. The
increase in net income resulted from higher gross margins which
increased to 36% from 26%, excluding reserve, resulting from a
different product sales mix and higher Joint Venture earnings.
Included in the September, 1999, results was 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
decreased by $9,757 from the comparable three months in the prior
year. As a percentage of sales, research, selling, general and
administrative expenses were 35% for the three months ended
September 30, 2000 and 34% for the same period in the last fiscal
year.
Interest Expense and Income - The Company's interest expense was
$65,019 for the quarter ended September 30, 2000 compared to
$32,578 for the comparable period in 1999. The increase in interest
expense resulted from the debt service related to higher levels of
inventory and higher interest rates.
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
$2,092,685 has been utilized in letter of credit commitments and
short-term borrowings as of September 30, 2000. As of September 30,
2000, the amount available for borrowings under the line was
approximately $25,000 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, inventory and a 1.5 acre parcel of the
Company's real estate.
- 10 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operating activities used cash of $1,294,559 for the six months
ended September 30, 2000. This was primarily due to increases in
accounts receivable of $349,988 and $932,835 in inventory and
prepaid expenses. Accounts receivable increased due to the addition
of a different customer base which required extended dating terms.
Inventories were higher due to a seasonal build-up and the addition
of several new products, such as Ground Fault Circuit Interrupters
and Door Chimes. For the same period last year, operating
activities used cash of $1,121,343.
Investing activities used cash of $4,164 in the current quarter.
For the same period last year, investing activities provided cash
of $2,076,887. This resulted primarily from the proceeds of the
sale of the building.
Financing activities provided cash of $1,236,583, primarily due to
increased borrowings under the line of credit. For the same period
last year, financing activities used cash of $956,764, primarily
due to the repayment of the mortgage from the proceeds on the sale
of the building.
The Company believes that its line of credit and working capital
provide 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, 2000 were
$3,866,428 and $1,855,213, respectively, compared to $2,962,390 and
$1,187,525, respectively, for the comparable six months and three
months in the prior fiscal year.
Net income for the six months and three months ended September 30,
2000 was $368,531 and $115,689, respectively, compared to $242,614
and $24,188, respectively, in the comparable six months and three
months 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, 2000, working capital increased by $866,958 from
$2,432,197 on March 31, 2000 to $3,299,155 on September 30, 2000.
Quantitative and Qualitative Disclosures About Market Risk - No
material changes have occurred in the quantitative and qualitative
market risk disclosures of the Company as presented in the
Company's Annual Report Form 10-K for the year ended March 31,
2000.
- 11 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
PART II
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 28, 2000, the Company held its Annual
Meeting of Shareholders. The only matter to the shareholders for a
vote was the election of directors.
The nominees submitted for election as directors were
Michael Kovens, Stephen C. Knepper and Harvey Grossblatt. The votes
for, against and abstained were as follows:
FOR AGAINST ABSTAINED
Michael Kovens 843,846 6,490 250
Stephen C. Knepper 843,846 6,415 250
Harvey Grossblatt 843,846 6,565 250
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 qualify.
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.
- 12 -
UNIVERSAL SECURITY INSTRUMENTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNIVERSAL SECURITY INSTRUMENTS, INC.
Dated: November 13, 2000 Harvey Grossblatt
HARVEY GROSSBLATT
President, Chief Financial Officer
- 13 -
