UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended June 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 0-7885
UNIVERSAL SECURITY INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0898545
State of Incorporation I.R.S. Employer Identification Number
10324 S. Dolfield Road, Owings Mills, MD 21117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 410-363-3000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 and 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to the filing requirements for at least the
past 90 days.
YES X NO _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Date Class Shares Outstanding
August 4, 1995 Common Stock, $.01 par value 3,245,577
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
INDEX
Part I - FINANCIAL INFORMATION
Item l. Financial Statements
Consolidated balance sheets at June 30, 1995 and March
31, 1995
Consolidated statements of operations for the three
months ended June 30, 1995 and 1994
Consolidated statements of cash flows for the three
months ended June 30, 1995 and 1994
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
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
June 30, 1995 March 31, 1995
CURRENT ASSETS
Cash and cash equivalents $ 238,659 $ 173,809
Time deposits 8,399 8,322
Accounts receivable:
Trade (less allowance for doubtful
accounts of $45,000 at June 30, 1995
and $50,000 at March 31, 1995) 1,570,117 3,129,869
Officers and employees 65,430 33,192
1,635,547 3,163,061
Inventories:
Finished goods 3,719,901 4,252,825
Raw materials-foreign locations 200,437 163,756
3,920,338 4,416,581
Prepaid expenses 519,703 427,716
TOTAL CURRENT ASSETS 6,322,646 8,189,489
INVESTMENT IN JOINT VENTURE 3,500,854 3,366,951
PROPERTY, PLANT AND EQUIPMENT 2,073,964 2,074,073
OTHER ASSETS 102,333 102,333
$11,999,797 $13,732,846
/TABLE
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 1995 March 31, 1995
CURRENT LIABILITIES
Short-term borrowings $ 1,880,975 $ 3,869,711
Current maturity of long-term debt 11,238 106,666
Accounts payable 450,064 560,064
Accounts payable - joint venture 784,552 750,000
Accrued liabilities:
Payroll, commissions and payroll taxes 114,578 128,600
Other 16,750 46,043
131,328 174,643
TOTAL CURRENT LIABILITIES 3,258,157 5,461,084
LONG-TERM DEBT, less current portion 1,288,762 497,222
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per share;
authorized 20,000,000 shares; issued
3,245,559 shares at June 30, 1995
and 3,245,382 shares at March 31, 1995 32,456 32,454
Additional paid-in capital 10,429,580 10,429,398
Retained earnings (deficit) (3,009,158) (2,687,312)
7,452,878 7,774,540
$11,999,797 $13,732,846
See notes to consolidated financial statements
/TABLE
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended
June 30, 1995 June 30, 1994
Net sales $5,037,361 $5,827,621
Cost of goods sold 4,408,179 5,006,389
629,182 821,232
Research and development expense 57,316 119,601
Selling, general and administrative expense 900,047 1,010,754
Operating (loss) (328,181) (309,123)
Other income (expense):
Interest income 1,636 1,351
Interest expense (127,699) (125,662)
Other (1,505) (1,295)
(127,568) (125,606)
EARNINGS (LOSS) BEFORE EQUITY
IN EARNINGS OF JOINT VENTURE (455,749) (434,729)
Equity in earnings of joint venture 133,903 465,282
NET (LOSS) INCOME $ (321,846) $ 30,553
Per common share amounts:
Primary $ (.10) $ .01
Fully diluted (.10) .01
Weighted average number of common
shares outstanding
Primary 3,245,470 3,240,329
Fully diluted 3,245,470 3,240,329
See notes to consolidated financial statements
/TABLE
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Three Months Ended
June 30, 1995 June 30, 1994
OPERATING ACTIVITIES
Net (loss) income $ (321,846) $ 30,553
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization 43,782 48,942
Undistributed earnings of joint venture (133,903) (465,282)
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,527,514 674,067
Decrease (increase) in inventories and
prepaid expenses 404,256 (836,173)
(Decrease) in accounts payable
and accrued expenses (118,763) (142,380)
Decrease in other assets 7,286
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,401,040 (682,987)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (43,673) (75,443)
(Increase) in time deposits (77) (66)
NET CASH (USED IN) INVESTING ACTIVITIES (43,750) (75,509)
FINANCING ACTIVITIES
Net (repayment) issuance of short-term debt (1,988,736) 916,124
Proceeds from issuance of long-term debt 1,300,000 110,000
Principal payments on long-term debt (603,888) (23,611)
Proceeds from issuance of common stock
under stock option plan and employee
stock purchase plan 184 208
NET CASH (USED IN) PROVIDED
BY FINANCING ACTIVITIES (1,292,440) 1,002,721
INCREASE IN CASH AND CASH EQUIVALENTS 64,850 244,225
Cash and cash equivalents at beginning of period 173,809 275,138
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 238,659 $ 519,363
Supplemental information:
Interest paid $ 127,699 $ 125,662
Income taxes paid - -
See notes to consolidated financial statements
/TABLE
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, 1995.
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 accruals),
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods.
Per Share Data - Primary and fully diluted net income per share is
computed by dividing net income by the weighted average number of common
and common equivalent shares outstanding. Common equivalent shares
include the dilutive effect of outstanding stock options calculated
under the treasury stock method.
Cash Equivalents - The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
Long-Term Debt - During the quarter ended June 30, 1995, the Company
refinanced the mortgage on its headquarters building. The terms of the
new financing 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 end of the 60 month period.
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. Additionally, the Hong
Kong joint venture has a 30% interest in a separate joint venture with
a People's Republic of China company to design and develop a portable
cellular phone for manufacture and sale in China. Included in the
results of the Hong Kong joint venture for the period June 30, 1994 is
$500,000 of profit related to a $3.5 million contract for the design and
development of the cellular telephone. The contract is being accounted
for under the percentage of completion method. The following represents
summarized income statement information of the Hong Kong joint venture
for the periods ended June 30, 1995 and 1994:
1995 1994
Net sales $3,217,892 $4,730,516
Gross profit 581,363 1,353,346
Net income 267,805 930,564
Commitments - The Company has employment agreements with two of its
officers, both expiring on March 31, 1998. The combined fixed aggregate
annual remuneration under these agreements is $500,000 per year. In
addition, the agreements provide incentive compensation to these
officers based on the Company's achievement of certain levels of
earnings. Outstanding letter of credit commitments approximated
$539,000 at June 30, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three Months Ended June 30, 1995 Compared to
Three Months Ended June 30, 1994
Sales - Net sales for the three months ended June 30, 1995 were
$5,037,361 compared to $5,827,621 for the comparable three months in the
prior fiscal year, a decrease of $790,260. Net sales of security
products increased by $503,477 as compared to the quarter ended June 30,
1994. Net sales of telecommunications and video products decreased by
$656,272 and $637,465, respectively, as compared to the quarter ended
June 30, 1994. The increase in security sales was due primarily to a
significant sale of smoke detectors to an existing customer. The
decrease in telecommunications and video sales was due to a decreased
demand for certain of the Company's telecommunications and video
products by its private label customers.
Net Income - The Company reported a net loss of $321,846 for the quarter
ended June 30, 1995 compared to net income of $30,553 for the
corresponding quarter of the prior fiscal year. The decrease in net
income was due primarily to a decrease in the Company's equity in its
joint venture's earnings and the decrease in sales, partially offset by
a reduction in operating expenses.
Expenses - Research, selling, general and administrative expenses
decreased by approximately $173,000 from the comparable three months in
the prior year. As a percentage of sales, research, selling, general
and administrative expenses were 19% for the three months ended June 30,
1995 and 19% for the same period in the last fiscal year. The decrease
in expenses was primarily due to the Company's recently implemented
major cost reduction programs.
Interest Expense and Income - The Company's interest expense, net of
interest income, increased from $124,311 for the quarter ended June 30,
1994 to $126,063 for the quarter ended June 30, 1995.
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 $2,420,000 has been utilized in letter of
credit commitments and short-term borrowings as of June 30, 1995.
As of June 30, 1995, 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% in excess of the prime rate of interest charged by the
Company's lender. The loan is secured by the Company's accounts
receivable and inventory. During the three months ended June 30, 1995,
working capital increased by $336,084.
Operating activities provided cash of $1,401,040 for the quarter ended
June 30, 1995. This was primarily due to a decrease in accounts
receivable of $1,527,514 and a decrease in inventories of $496,243,
partially offset by the net loss of $321,846. For the same period last
year, operating activities used cash of $682,987, primarily due to an
increase in inventories of $829,701 and the undistributed earnings
of the joint venture of $465,282 offset by a decrease in accounts
receivable of $674,067. The increase in inventories was partially
due to the negative impact on sales due to the nationwide
Teamster's trucking strike.
Investing activities used cash of $43,750 in the current quarter
and $75,509 in the same quarter last year, consisting primarily of
purchases of equipment.
Financing activities used cash of $1,292,440 primarily due to the
net repayment of short-term debt of $1,988,736 and the retirement
of long-term debt of $603,888, partially offset by the issuance of
long-term debt of $1,300,000. For the same period last year,
financing activities provided cash of $1,002,721 primarily due to
the net issuance of short-term debt.
During the quarter ended June 30, 1995, the Company refinanced the
mortgage on its headquarters building. The terms of the new
financing 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 end of the 60 month period. The
refinancing resulted in an increase in cash available to the
Company of approximately $700,000.
The Company believes that its line of credit and its working
capital provide it with sufficient resources to meet its
requirements for liquidity and working capital in the ordinary
course of its business over the next twelve months.
Hong Kong Joint Venture - Net sales of the joint venture for the
three months ended June 30, 1995 were $3,217,892 compared to
$4,730,516 for the comparable three months in the prior fiscal
year. The decrease in sales was primarily due to decreased sales
of telecommunications and video products to the Company.
Net income was $267,805 for the quarter ended June 30, 1995
compared to $930,564 in the comparable quarter last year. Included
in the results for the quarter ended June 30, 1994 is $500,000 of
profit related to a $3.5 million contract for the design and
development of the cellular telephone under a separate joint
venture arrangement. Exclusive of this item, the decrease in net
income is due to the decrease in sales.
Selling, general and administrative expenses were $384,669 and
$479,861 for the quarter ended June 30, 1995 and 1994,
respectively. As a percentage of sales, expenses were 12% and 11%
for 1995 and 1994, respectively.
Interest income net of interest expense was $38,154 for the quarter
ended June 30, 1995 compared to $18,888 for the same quarter last
year.
Cash needs of the Hong Kong joint venture are currently met by
funds generated from operations. During the quarter ended June 30,
1995, working capital increased by $267,055 from $2,656,378 on
March 31, 1995 to $2,923,433 on June 30, 1995.
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits included herein:
Exhibit Number
10.17 Deed of Trust with respect to the refinancing
of the Registrant's facility in Owings Mills,
Maryland.
10.18 Promissory Note with respect to the refinancing
of the Registrant's facility in Owings Mills,
Maryland.
11.1 Statement of computation of per share earnings.
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
UNIVERSAL SECURITY INSTRUMENTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNIVERSAL SECURITY INSTRUMENTS, INC.
Dated: August 11, 1995 Harvey Grossblatt
HARVEY GROSSBLATT
Executive Vice President
Dated: August 11, 1995 Ira Bormel
IRA BORMEL
Principal Financial Officer