-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HiEWOAajktTrAW8yxh1ziQQFNtE6mVJrhGmsXv5Gtel1eQpSSkG0QxTTYTNci9cP EXwt63TyfPRJfxVUEDCf2Q== 0000102109-96-000011.txt : 19960816 0000102109-96-000011.hdr.sgml : 19960816 ACCESSION NUMBER: 0000102109-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL SECURITY INSTRUMENTS INC CENTRAL INDEX KEY: 0000102109 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 520898545 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07885 FILM NUMBER: 96612383 BUSINESS ADDRESS: STREET 1: 10324 S DOLFIELD RD CITY: OWINGS MILLS STATE: MD ZIP: 21117-3586 BUSINESS PHONE: 4103633000 MAIL ADDRESS: STREET 1: 10324 S. DOLFIELD RD CITY: OWINGS MILLS STATE: MD ZIP: 21117-3586 10-Q 1 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, 1996 ( ) 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 1, 1996 Common Stock, $.01 par value 3,245,587 UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES INDEX Part I - FINANCIAL INFORMATION Item l. Financial Statements Consolidated balance sheets at June 30, 1996 and March 31, 1996 Consolidated statements of operations for the three months ended June 30, 1996 and 1995 Consolidated statements of cash flows for the three months ended June 30, 1996 and 1995 Notes to consolidated financial statements Item 2. Management's discussion and analysis of results of operations and financial condition Part II - OTHER INFORMATION Item 5. Other Information Item 6. Exhibits and Reports - 2 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS June 30, 1996 March 31, 1996 CURRENT ASSETS Cash and cash equivalents $ 178,327 $ 97,793 Time deposits 8,820 8,748 Accounts receivable: Trade (less allowance for doubtful accounts of $25,771 at June 30, 1996 and $25,771 at March 31, 1996) 1,531,877 2,033,092 Officers and employees 6,631 40,678 1,538,508 2,073,770 Inventories: Finished goods 4,244,421 4,099,907 Raw materials-foreign locations 306,925 152,303 4,551,346 4,252,210 Prepaid expenses 467,095 484,669 TOTAL CURRENT ASSETS 6,744,096 6,917,190 INVESTMENT IN JOINT VENTURE 2,668,137 3,660,350 PROPERTY, PLANT AND EQUIPMENT 1,944,114 1,985,790 OTHER ASSETS 113,061 113,061 $11,469,408 $12,676,391
- 3 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 1996 March 31, 1996 CURRENT LIABILITIES Short-term borrowings $ 2,589,831 $ 2,993,685 Current maturity of long-term debt 188,488 13,488 Accounts payable 1,235,648 858,557 Accounts payable - joint venture 750,000 Accrued liabilities: Payroll, commissions and payroll taxes 184,873 71,372 Other 43,056 35,980 TOTAL CURRENT LIABILITIES 4,241,896 4,723,082 LONG-TERM DEBT, less current portion 1,399,200 1,277,394 SHAREHOLDERS' EQUITY Common stock, $.01 par value per share; authorized 20,000,000 shares; issued 3,245,587 shares at June 30, 1996 and 3,245,587 shares at March 31, 1996 32,456 32,456 Additional paid-in capital 10,429,588 10,429,588 Retained earnings (deficit) (4,633,732) (3,786,129) 5,828,312 6,675,915 $11,469,408 $12,676,391
See notes to consolidated financial statements - 4 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Three Months Ended June 30, 1996 June 30, 1995 Net sales $4,346,913 $5,037,361 Cost of goods sold 3,500,311 4,408,179 846,602 629,182 Research and development expense 48,455 57,316 Selling, general and administrative expense 1,102,821 900,047 Operating loss (304,674) (328,181) Other income (expense): Interest income 1,665 1,636 Interest expense (113,040) (127,699) Other (449,968) (1,505) (561,343) (127,568) LOSS BEFORE EQUITY IN EARNINGS OF JOINT VENTURE (866,017) (455,749) Equity in earnings of joint venture 18,414 133,903 NET LOSS $ (847,603) $ (321,846) Per common share amounts: Primary $ (.26) $ (.10) Fully diluted (.26) (.10) Weighted average number of common shares outstanding Primary 3,245,587 3,245,470 Fully diluted 3,245,587 3,245,470
See notes to consolidated financial statements - 5 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the Three Months Ended June 30, 1996 June 30, 1995 OPERATING ACTIVITIES Net loss $ (847,603) $ (321,846) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 41,677 43,782 Distributed (undistributed) earnings of joint venture 992,213 (133,903) Legal settlement 300,000 Changes in operating assets and liabilities: Decrease in accounts receivable 535,263 1,527,514 (Increase) decrease in inventories and prepaid expenses (281,564) 404,256 Decrease in accounts payable and accrued expenses (252,332) (118,763) NET CASH PROVIDED BY OPERATING ACTIVITIES 487,654 1,401,040 INVESTING ACTIVITIES Property, plant and equipment (43,673) Increase in time deposits (72) (77) NET CASH USED IN INVESTING ACTIVITIES (72) (43,750) FINANCING ACTIVITIES Net repayment of short-term debt (403,854) (1,988,736) Proceeds from issuance of long-term debt 1,300,000 Principal payments on long-term debt (3,194) (603,888) Proceeds from issuance of common stock under stock option plan and employee stock purchase plan 184 NET CASH USED IN FINANCING ACTIVITIES (407,048) (1,292,440) INCREASE IN CASH AND CASH EQUIVALENTS 80,534 64,850 Cash and cash equivalents at beginning of period 97,793 173,809 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 178,327 $ 238,659 Supplemental information: Interest paid $ 111,844 $ 127,699 Income taxes paid - -
See notes to consolidated financial statements - 6 - 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, 1996. 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 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 (loss) 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 - In conjunction with the settlement of litigation with Black & Decker, the Company agreed to pay the sum of $300,000. The repayment terms are $100,000 payable 10 days from the date of the settlement and $200,000 payable in 32 equal installments. 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. The following represents summarized income statement information of the Hong Kong joint venture for the quarters ended June 30, 1996 and 1995: 1996 1995 Net sales $1,859,574 $3,217,892 Gross profit 396,569 581,363 Net income 36,828 267,805
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. - 7 - Subsequent Events - Since June 30, 1996, the following events have occurred: (i) the Company settled the suit filed by Black & Decker against the Company for patent infringement in connection with the marketing by the Company of a flexible flashlight under the name "PRETZL LITE." Under the terms of the settlement agreement entered into on July 19, 1996, the Company agreed to pay Black & Decker $300,000 as follows: $100,000 within 10 days and $200,000 in 32 consecutive monthly payments of $6,250 beginning September 1, 1996. Under the terms of a Consent Decree entered in the U.S. District Court for the Eastern District of Virginia, the Company was enjoined from future sales of the product, except for approximately 31,300 units to specified customers and the Company was ordered to turn over to Black & Decker for destruction its molds and marketing and packaging materials for the product. The total expenses related to the settlement amounted to approximately $450,000 and have been recorded in the three month period ended June 30, 1996; (ii) the Company sold undeveloped real estate adjacent to its plant which resulted in a gain of approximately $314,000, which will be recorded in the quarter ending September 30, 1996; and (iii) commencing in August, the Company began implementation of an additional phase of its cost reduction program. - 8 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995 Sales - Net sales for the three months ended June 30, 1996 were $4,346,913 compared to $5,037,361 for the comparable three months in the prior fiscal year, a decrease of $690,448. Net sales of security products increased by $932,148 as compared to the quarter ended June 30, 1995. Net sales of telecommunications and video products decreased by $1,390,640 and $231,956, respectively, as compared to the quarter ended June 30, 1995. 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 $847,603 for the quarter ended June 30, 1996 compared to net loss of $321,846 for the corresponding quarter of the prior fiscal year. The decrease in net income was due to a decrease in the Company's equity in the earnings of its joint venture, and the costs of settlement of Black & Decker's patent infringement suit against the Company, including fees and expenses, in the aggregate approximate amount of $450,000. Expenses - Research, selling, general and administrative expenses increased by approximately $202,000 from the comparable three months in the prior year. As a percentage of sales, research, selling, general and administrative expenses were 25% for the three months ended June 30, 1996 and 19% for the same period in the last fiscal year. Interest Expense and Income - The Company's interest expense, net of interest income, decreased from $126,063 for the quarter ended June 30, 1995 to $111,375 for the quarter ended June 30, 1996. 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 $2,589,000 has been utilized in letter of credit commitments and short-term borrowings as of June 30, 1996. As of June 30, 1996, the amount available for borrowings under the line was approximately $100,000 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 collateralized by the Company's accounts receivable and inventory. Operating activities provided cash of $487,654 for the quarter ended June 30, 1996. This was primarily due to a decrease in accounts receivable of $535,263 and a partnership distribution of approximately $1,000,000, partially offset by the net loss of $847,603. For the same period last year, operating activities provided cash of $1,401,040, primarily due to a decrease in accounts receivable of $1,527,514 and a decrease in inventories of $49,624 offset by a net loss of $321,846. - 8 - Investing activities used cash of $72 in the current quarter and $43,750 in the same quarter last year. Financing activities used cash of $407,048 primarily due to the net repayment of short-term debt of $403,854. For the same period last year, financing activities used $1,292,440 primarily due to the net repayments of short-term debt. 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, 1996 were $1,859,574 compared to $3,217,892 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 $36,828 for the quarter ended June 30, 1996 compared to $267,805 in the comparable quarter last year. The decrease in net income is due to the decrease in sales. Selling, general and administrative expenses were $430,224 and $384,669 for the quarter ended June 30, 1996 and 1995, respectively. As a percentage of sales, expenses were 23% and 12% for 1996 and 1995, respectively. Interest income net of interest expense was $13,023 for the quarter ended June 30, 1996 compared to $38,154 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, 1996, working capital increased by $651,541 from $712,439 on March 31, 1996 to $1,363,980 on June 30, 1996. Subsequent Events - Since June 30, 1996, the following events have occurred: (i) the Company settled the suit filed by Black & Decker against the Company for patent infringement in connection with the marketing by the Company of a flexible flashlight under the name "PRETZL LITE." Under the terms of the settlement agreement entered into on July 19, 1996, the Company agreed to pay Black & Decker $300,000 as follows: $100,000 within 10 days and $200,000 in 32 consecutive monthly payments of $6,250 beginning September 1, 1996. Under the terms of a Consent Decree entered in the U.S. District Court for the Eastern District of Virginia, the Company was enjoined from future sales of the product, except for approximately 31,300 units to specified customers and the Company was ordered to turn over to Black & Decker for destruction its molds and marketing and packaging materials for the product. The total expenses related to the settlement amounted to approximately $450,000 and have been recorded in the three month period ended June 30, 1996; (ii) the Company sold undeveloped real estate adjacent to its plant which resulted in a gain of approximately $314,000, which will be recorded in the quarter ending September 30, 1996; and (iii) commencing in August, the Company began implementation of an additional phase of its cost reduction program. - 10 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES PART II Item 5. Other Information On August 1, 1996, the Board of Directors of the Corporation (i) adopted amendments to the Company's by-laws creating the office of Vice Chairman of the Company, (ii) accepted the resignation of Michael Kovens as President and elected him to the office of Vice Chairman, (iii) elevated Harvey Grossblatt from Executive Vice President to President, and (iv) reduced the annual salary of Stephen Knepper, Chairman of the Board of Directors of the Company, from $250,000 to $50,000. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits included herein: Exhibit Number 3(ii) By-Law Amendments (b) No reports on Form 8-K were filed during the quarter for which this report is filed. - 11 - 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 14, 1996 Harvey Grossblatt HARVEY GROSSBLATT President Dated: August 14, 1996 Grant Pierpont GRANT PIERPONT Principal Financial Officer - 12 - EX-27 2
5 3-MOS MAR-30-1997 JUN-30-1996 178,327 8,820 1,564,279 25,771 4,551,346 6,744,096 1,985,821 41,677 11,469,408 4,241,896 0 0 0 32,456 5,795,856 11,469,408 4,346,913 4,346,913 3,500,311 3,500,311 1,151,276 0 113,040 (847,603) 0 (847,603) 0 0 0 (847,603) (.26) (.26)
EX-3 3 EXHIBIT 3 AMENDMENT TO BY-LAWS (i) Add "Vice Chairman" as an officer of the Corporation in the first sentence of Section 1 of Article III. (ii) Add the following as Section 2A of the By-laws: "Section 2A Vice Chairman of the Board The Vice Chairman of the Board shall be a director of the Corporation. In the event of the absence of the Chairman of the Board, the Vice Chairman shall perform all of the duties of the Chairman and when so acting have all of the powers of the Chairman. He shall have authority to sign and execute in the name of the Corporation all authorized deeds, contracts and other instruments." (iii) Insert the words "Vice Chairman of the Board" after the words "Chairman of the Board" in the second line of Section 3 of Article III and in the first line of Section 4 of Article III. -----END PRIVACY-ENHANCED MESSAGE-----