-----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, VH5+4CNPiWdMe0HKTiiTGTAS4NenifiUigsJp8pc+c5FkOGzCMqONURev8Unn6Tt QoZteYYyq7UT1C1qGNZMRw== 0000102109-02-000002.txt : 20020414 0000102109-02-000002.hdr.sgml : 20020414 ACCESSION NUMBER: 0000102109-02-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 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: 02544917 BUSINESS ADDRESS: STREET 1: 7-A GWYNNS MILL COURT CITY: OWINGS MILLS STATE: MD ZIP: 21117-3586 BUSINESS PHONE: 4103633000 MAIL ADDRESS: STREET 1: 7-A GWYNNS MILL COURT CITY: OWINGS MILLS STATE: MD ZIP: 21117-3586 10-Q 1 d10q-123102.txt DECEMBER 31, 2001 10-Q 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, 2001 ( ) 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 February 14, 2002 Common Stock, $.01 par value 1,009,770 UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES INDEX Part I - FINANCIAL INFORMATION Item l. Financial Statements Consolidated balance sheets at December 31, 2001 and March 31, 2001 (unaudited) Consolidated statements of operations for the nine months ended December 31, 2001 and 2000 and three months ended December 31, 2001 and 2000 (unaudited) Consolidated statements of cash flows for the nine months ended December 31, 2001 and 2000 (unaudited) Notes to consolidated financial statements (unaudited) 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 6. Exhibits and Reports - 2 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS December 31, 2001 March 31, 2001 CURRENT ASSETS Cash $ 21,073 $ 34,642 Accounts receivable: Trade (less allowance for doubtful accounts of $100,000 at December 31, 2001 and March 31, 2001) 1,920,766 900,841 Officers and employees 4,405 7,048 1,925,171 907,889 Inventories 1,113,165 2,143,793 Prepaid expenses 60,319 57,671 TOTAL CURRENT ASSETS 3,119,728 3,143,995 INVESTMENT IN JOINT VENTURE 2,324,351 2,418,010 PROPERTY, PLANT AND EQUIPMENT - NET 298,386 329,243 OTHER ASSETS 16,094 16,107 TOTAL ASSETS $5,758,559 $5,907,355 See notes to consolidated financial statements. - 3 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY December 31, 2001 March 31, 2001 CURRENT LIABILITIES Short-term borrowings $ 1,753,863 $ 1,791,442 Accounts payable 326,555 614,280 Accrued liabilities 163,641 137,511 Current obligations under capital lease 15,730 15,730 TOTAL CURRENT LIABILITIES 2,259,789 2,558,963 LONG-TERM CAPITAL LEASE OBLIGATIONS 33,709 45,088 SHAREHOLDERS' EQUITY Common stock, $.01 par value per share; authorized 20,000,000 shares; issued 948,520 shares at December 31, 2001 and 912,270 at March 31, 2001 9,485 9,123 Additional paid-in capital 10,572,370 10,533,310 Accumulated deficit (7,116,794) (7,239,129) TOTAL SHAREHOLDERS' EQUITY 3,465,061 3,303,304 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,758,559 $ 5,907,355 See notes to consolidated financial statements. - 4 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Nine Months Ended December 31, December 31, 2001 2000 Net sales $7,873,998 $6,313,660 Cost of goods sold 5,782,782 4,421,734 GROSS PROFIT 2,091,216 1,891,926 Research and development expense 154,807 133,414 Selling, general and administrative expense 2,164,186 1,798,063 Operating loss (227,777) (39,551) Other income (expense): Interest expense (156,218) (183,683) Other (11) 216 (156,229) (183,467) LOSS BEFORE EQUITY IN EARNINGS OF JOINT VENTURE (384,006) (223,018) Equity in earnings of joint venture 506,341 64,711 NET INCOME (LOSS) $ 122,335 $ (158,307) Net income (loss) per common share amounts: Basic .13 (.17) Diluted .13 (.17) Weighted average number of common shares outstanding Basic 918,282 912,270 Diluted 927,439 912,270 See notes to consolidated financial statements. - 5 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Three Months Ended December 31, December 31, 2001 2000 Net sales $2,965,386 $2,522,377 Cost of goods sold 2,175,036 1,812,298 GROSS PROFIT 790,350 710,079 Research and development expense 49,894 48,704 Selling, general and administrative expense 800,119 660,115 Operating (loss) income (59,663) 1,260 Other income (expense): Interest expense (35,948) (77,969) Other (11) (6) (35,959) (77,975) LOSS BEFORE EQUITY IN EARNINGS OF JOINT VENTURE (95,622) (76,715) Equity in earnings (loss) of joint venture 132,055 (119,555) NET INCOME (LOSS) $ 36,433 $ (196,270) Net income (loss) per common share amounts: Basic .04 (.22) Diluted .04 (.22) Weighted average number of common shares outstanding Basic 930,305 912,270 Diluted 949,963 912,270 See notes to consolidated financial statements. - 6 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the Nine Months Ended December 31, December 31, 2001 2000 OPERATING ACTIVITIES Net income (loss) $ 122,335 $ (158,307) Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 33,179 34,867 Undistributed earnings of Joint venture (506,341) (64,711) Changes in operating assets and liabilities: Increase in accounts receivable (1,017,282) (726,028) Decrease (increase) in inventories and prepaid expenses 1,027,980 (561,858) Increase (decrease) in accounts payable and accrued expenses 271,048 (25,249) Decrease (increase) in other assets 13 (2,000) NET CASH USED IN OPERATING ACTIVITIES (69,068) (1,503,286) INVESTING ACTIVITIES Distribution by Joint Venture 67,357 -0- Purchase of equipment (2,322) (5,253) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 65,035 (5,253) FINANCING ACTIVITIES Net (repayments) borrowings of short-term debt (37,579) 1,453,503 Principal payments on long-term debt (11,379) (11,379) Issuance of common stock from exercise of employee stock options 39,422 -0- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (9,536) 1,442,124 DECREASE IN CASH (13,569) (66,415) Cash at beginning of period 34,642 92,017 CASH AT END OF PERIOD $ 21,073 $ 25,602 Supplemental information: Interest paid $ 156,218 $ 183,683 Income taxes paid -0- -0- Non-cash investing transactions: Joint Venture dividend applied to reduce Joint Venture payable 532,643 -0- See notes to consolidated financial statements. - 7 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Statement of Management - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of the Company's management, the interim consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted. The interim consolidated financial statements should be read in conjunction with the Company's March 31, 2001 audited financials statements filed with the Securities and Exchange Commission on Form 10-K. The interim operating results are not necessarily indicative of the operating results for the full fiscal year. Income Taxes - No income tax expense has been provided for the period ended December 31, 2001 as a result of the carryforward of prior year's 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 balance sheet and income statement information of the Hong Kong joint venture for the nine months ended December 31, 2001 and 2000: 2001 2000 Net sales $7,509,279 $4,964,858 Gross profit 2,183,185 1,063,519 Net income 1,012,681 129,425 Total current assets 3,932,812 3,309,276 Total assets 6,074,501 5,539,066 Total liabilities 1,380,889 901,146 During the nine month periods ended December 31, 2001 and 2000, the Company purchased products for resale from the Hong Kong Joint Venture of approximately $3,265,000 and $3,318,000, respectively. At December 31, 2001 and 2000, the Company had amounts payable to the Hong Kong Joint Venture of $200,000 and $146,237, respectively. Net Income (Loss) Per Common Share - Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the year. Diluted earnings per common share is computed based on the weighted average number of common shares outstanding plus the effect of stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on the Company's average stock price. - 8 - A reconciliation of the numerators and denominators utilized in the computation of basic and diluted earnings per share for the three and nine month periods ended December 31, 2001 and 2000 is as follows: Three months ended Nine months ended December 31, December 31, 2001 2000 2001 2000 Basic EPS computation Net income (loss) applicable to common shares 36,433 (196,270) 122,335 (158,307) Weighted average common shares - basic 930,305 912,270 918,282 912,270 Basic EPS 0.04 (0.22) 0.13 (0.17) Diluted EPS computation Net income (loss) applicable to common shares 36,433 (196,270) 122,335 (158,307) Weighted average common shares basic 930,305 912,270 918,282 912,270 Weighted average common shares from employee stock options 19,658 - 9,157 - 949,963 912,270 927,439 912,270 Diluted EPS 0.04 (0.22) 0.13 (0.17) - 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Item 2. Nine Months Ended December 31, 2001 Compared to Nine Months Ended December 31, 2000 Sales - Net sales for the nine months ended December 31, 2001 were $7,873,998 compared to $6,313,660 for the comparable nine months in the prior fiscal year, an increase of $1,560,338. Net sales of security products increased by $2,408,263 and other products decreased by $847,925. The increase in security sales resulted primarily from increased demand for certain of the Company's security products 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. Net Income - The Company reported net income of $122,335 for the nine months ended December 31, 2001 compared to a net loss of $158,307 for the corresponding nine months of the prior fiscal year. The increase in net income resulted from higher Joint Venture earnings, partially offset by higher selling, general and administrative expenses for the Company's subsidiary, USI ELECTRIC, INC. The increase in Joint Venture earnings is due to higher sales to other customers. Expenses - Research, selling, general and administrative expenses increased by $387,516 from the comparable nine months in the prior year. Research, selling, general and administrative expenses increased in support of higher USI ELECTRIC, INC. sales. As a percentage of sales, research, selling, general and administrative expenses were 29% for the nine months ended December 31, 2001 and 31% for the same period in the prior fiscal year. Interest Expense and Income - The Company's interest expense was $156,218 for the nine months ended December 31, 2001 compared to $183,683 for the same period in 2000. The decrease in interest expense resulted from lower interest rates. - 10 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Three Months Ended December 31, 2001 Compared to Three Months Ended December 31, 2000 Sales - Net sales for the three months ended December 31, 2001 were $2,965,386 compared to $2,522,377 for the comparable three months in the prior fiscal year, an increase of $443,009. Net sales of security products increased by $768,948 and other products decreased by $325,939. The increase in security sales resulted primarily from increased demand for certain of the Company's security products 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. Net Income - The Company reported net income of $36,433 for the quarter ended December 31, 2001 compared to net loss of $196,270 for the corresponding quarter of the prior fiscal year. The increase resulted from higher joint venture earnings, partially offset by higher selling, general and administrative costs. The increase in Joint Venture earnings is due to higher sales to other customers. Expenses - Research, selling, general and administrative expenses increased by $141,194 from the comparable three months in the prior year. Selling, general and administrative expenses increased in support of higher USI ELECTRIC, INC. sales. As a percentage of sales, research, selling, general and administrative expenses were 29% for the three months ended December 31, 2001 and 28% for the same period in the last fiscal year. Interest Expense and Income - The Company's interest expense was $35,948 for the quarter ended December 31, 2001 compared to $77,969 for the comparable period in 2000. The decrease in interest expense resulted from lower levels of debt as well as lower rates of interest. 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 has a factoring agreement with this financial institution for a portion of its trade accounts receivable. The Company's maximum bank line of credit is currently the lower of $7,500,000 or specified percentages of the Company's factored accounts receivable and inventory. Approximately $1,753,863 has been utilized in letter of credit commitments and short-term borrowings as of December 31, 2001. As of December 31, 2001, the amount available for borrowings under the line was approximately $211,000 based on the specified percentages. - 11 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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 factored accounts receivable, inventory and a 1.5 acre parcel of real estate owned by the Company. Operating activities used cash of $69,068 for the nine months ended December 31, 2001. This was primarily due to increases in accounts receivable of $1,017,282, increases in accounts payable, related primarily to repayment of trade payables due the Joint Venture and undistributed Joint Venture earnings of $506,341, partially offset by a decrease in inventory of $1,027,980. The decrease in inventory is due to changes in product mix and higher sales. For the same period last year, operating activities used cash of $1,503,286. Investing activities provided cash of $65,035 for the nine months ended December 31, 2001 primarily from a distribution of $67,357 from the Company's Joint Venture. On August 21, 2001, the Company agreed to amend the Joint Venture Agreement. As part of this amendment, the Hong Kong Joint Venture agreed to declare a dividend of $1,200,000, of which the $600,000 due to the Company was applied to settle amounts due by the Company to the Hong Kong Joint Venture. Investing activities used cash of $5,253 for the nine months ended December 31, 2000. Financing activities used cash of $9,536, primarily due to net repayments of short-term debt, partially offset by the issuance of common stock on the exercise of stock options by an employee. For the same period last year, financing activities provided cash of $1,442,124. The Company believes without the sale of real estate it currently owns which it has listed for sale, or additional distributions from its Hong Kong Joint Venture, that the Company's planned cash flow from operations, current availability under its line of credit and working capital may not be sufficient to continue the Company's current business plan, including continued expansion into the electrical distribution trade market. The Company, if necessary, could raise funds by selling other assets, including inventory, at prices less than market or implementing cost reductions. The Company believes that it could scale back operations further without negatively impacting business growth. After December 31, 2001, the Company received a contract in the amount of $350,000 for the sale of its 1.5 acre excess parcel of land which has no debt and is subject to certain contingencies. - 12 - Hong Kong Joint Venture - Net sales of the joint venture for the nine months and three months ended December 31, 2001 were $7,509,279 and $2,498,291, compared to $4,964,858 and $1,098,430, respectively, for the comparable nine months and three months in the prior fiscal year. The increase in sales for both periods was primarily due to higher sales to other customers. Net income for the nine months ended December 31, 2001 was $1,012,681 and $264,108 for the three months ended December 31, 2001, compared to net income of $129,425 and a loss of $239,106, respectively, in the comparable nine months and three months last year. The higher net income for the three months and nine months ended December 31, 2001 resulted primarily from higher sales to other customers. Cash needs of the Hong Kong joint venture are currently met by funds generated from operations. During the nine months ended December 31, 2001, working capital increased by $343,933 from $2,621,132 on March 31, 2001 to $2,965,065 on December 31, 2001. Item 3. 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, 2001. - 13 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES PART II Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 3. Exhibits required to be filed by Item 601 of Regulation S-K Exhibit No. 3.(i) Articles of Incorporation, as amended (incorporated by reference to USI's Annual Report on Form 10-K for the year ended March 31, 1998) (ii) Bylaws, as amended (incorporated by reference to Exhibit 3 to USI's Quarterly Report on Form 10-Q for the period ended June 30, 1986 and Exhibit 3.5 to USI's Quarterly Report on Form 10-Q for the period ended June 30, 1993) 10.1 Non-Qualified Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to USI's Annual Report on Form 10-K for the year ended March 31, 1999) 10.2 Hong Kong Joint Venture Agreement (confidential treatment of Name requested and filed separately with the Commission) (incorporated by reference to Exhibit 10.15 to USI's Annual Report on Form 10-K for the year ended March 31, 1994, File No 0-7885) 10.3 Amendment, dated August 21, 2001, to Hong Kong Joint Venture Agreement (confidential treatment of name requested and filed on Form 10-Q for the quarter ended September 30, 2001) (incorporated by reference to Exhibit 10.3 to USI's Quarterly Report on Form 10-Q for the period ended September 30, 2001) 10.16 Discount Factoring Agreement with Congress Talcott, Inc. dated February 28, 1995 (incorporated by reference to Exhibit 10.16 to USI's Annual Report on Form 10-K for the year ended March 31, 1997) 10.19 Lease between Universal Security Instruments, Inc. and National Instruments Company dated October 21, 1999 for its office and warehouse located at 7-A Gwynns Mill Court, Owings Mills, MD 21117 (incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 2000, File No. 0-7885) (b) No reports on Form 8-K were filed during the quarter for which this report is filed - 14 - 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 14, 2001 Harvey Grossblatt HARVEY GROSSBLATT President, Chief Financial Officer smb 2001 DEC 10-Q - 15 - -----END PRIVACY-ENHANCED MESSAGE-----