UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-7885
UNIVERSAL SECURITY INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0898545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7-A Gwynns Mill Court
Owings Mills, Maryland 21117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 363-3000
Inapplicable
(Former name, former address and former fiscal year if
changed from last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act. Yes No X
--- ---
At August 14, 2003, the number of shares outstanding of the registrant's common
stock was 1,127,295.
TABLE OF CONTENTS
Part I - Financial Information Page
----
Item 1. Consolidated Financial Statements (unaudited):
-------
Consolidated Balance Sheets at June 30, 2003
and March 31, 2003 3
Consolidated Statements of Earnings for the
Three Months Ended June 30, 2003 and 2002 4
Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 2003 and 2002 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
------- Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure 11
------- About Market Risk
Item 4. Disclosure Controls and Procedures 11
-------
Part II - Other Information
Item 5. Other Information 12
-------
Item 6. Exhibits and Reports on Form 8-K 12
-------
Signatures 13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS June 30, 2003 March 31, 2003
------------- --------------
CURRENT ASSETS
Cash $20,089 $51,112
Accounts receivable:
Trade (less allowance for doubtful accounts of $50,000 and $10,000
at June 30 and March 31, 2003, respectively) 297,442 207,539
Employees 14,900 16,303
--------- ---------
312,342 223,842
Amount due from factor 1,022,993 623,566
Inventory 2,742,200 3,224,229
Prepaid expenses 112,891 136,343
--------- ---------
TOTAL CURRENT ASSETS 4,210,515 4,259,092
INVESTMENT IN JOINT VENTURE 4,538,403 3,831,583
PROPERTY, PLANT AND EQUIPMENT - NET 275,143 279,896
OTHER ASSETS 11,472 11,472
--------- ---------
TOTAL ASSETS $9,035,533 $8,382,043
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $931,585 $1,173,175
Accrued liabilities 726,854 684,979
Current obligations under capital lease 23,250 23,250
--------- ---------
TOTAL CURRENT LIABILITIES 1,681,689 1,881,404
--------- ---------
LONG-TERM CAPITAL LEASE OBLIGATIONS 3,431 7,224
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per share; authorized 20,000,000 shares;
issued and outstanding 1,123,024 and 1,121,982 shares at June 30, 2003
and March 31, 2003, respectively
Additional paid-in capital 11,063,859 11,059,381
Accumulated deficit (3,724,688) (4,577,186)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 7,350,413 6,493,415
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,035,533 $8,382,043
========== ==========
See accompanying notes to consolidated financial statements.
3
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended June 30,
2003 2002
---- ----
Net sales $4,431,950 $3,750,926
Cost of good sold 2,971,705 2,667,701
---------- ----------
GROSS PROFIT 1,460,245 1,083,225
Research and development expense 64,617 60,400
Selling, general and administrative expense 1,171,330 949,214
---------- ----------
Operating income 224,298 73,611
Other (expense):
Interest expense (32,710) (36,937)
---------- ----------
INCOME BEFORE EARNINGS FROM JOINT VENTURE
191,588 36,674
Earnings from Joint Venture:
Equity in earnings of Joint Venture 706,820 540,266
Cost allocatable to Joint Venture (45,910) -
---------- ----------
-
NET INCOME $852,498 $ 576,940
======== =========
Net income per common share amounts:
Basic $0.76 $0.57
Diluted $0.68 $0.55
Weighted average number of common shares outstanding
Basic 1,123,024 1,014,770
Diluted 1,250,191 1,057,976
See accompanying notes to consolidated financial statements.
4
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended June 30,
2003 2002
---- ----
OPERATING ACTIVITIES
Net income $852,498 $576,940
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization 8,540 9,088
Earnings of the Joint Venture (706,820) (540,266)
Change in allowance for doubtful accounts 40,000 (68,358)
Changes in operating assets and liabilities:
Increase in accounts receivable and amounts due from factor (527,927) (482,205)
Decrease (increase) in inventories and prepaid expenses 505,481 (86,520)
Decrease in other assets - 1,800
(Decrease) increase in accounts payable and accrued expenses (199,715) 654,023
-------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (27,943) 64,502
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,787) (4,165)
-------- -------
NET CASH USED IN INVESTING ACTIVITIES (3,787) (4,165)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock from exercise of employee stock options 4,500 -
Principal payments on capital lease (3,793) (3,793)
-------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 707 (3,793)
-------- -------
(DECREASE) INCREASE IN CASH (31,023) 56,544
Cash at beginning of period 51,112 19,383
-------- -------
CASH AT END OF PERIOD $20,089 $75,927
======== =======
Supplemental information:
Interest paid $32,710 $36,674
Income tax paid - -
Non-cash financing activities:
Issuance of 10,000 shares of common stock in satisfaction of amounts payable - 27,200
Repayment of trade payables due the Joint Venture in lieu of cash distribution $ - $363,420
See accompanying notes to condensed consolidated financial statements.
5
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, 2003
audited financial 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 quarter ended June 30, 2003 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 ("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 quarters ended June 30, 2003 and 2002:
2003 2002
---------- ----------
Net sales $6,761,546 $5,924,469
Gross profit 1,976,146 1,996,960
Net income 1,276,037 1,380,526
Total current assets 10,867,013 6,829,366
Total assets 13,263,518 9,104,579
Total current liabilities 4,444,823 2,556,300
During the three months ended June 30, 2003 and 2002, respectively, the Company
purchased $1,448,693 and $1,283,757 of products from the Hong Kong Joint
Venture. At June 30, 2003 and 2002, the Company had amounts payable to the Hong
Kong Joint Venture of $382,462 and $130,596, respectively. The Company has
adjusted its equity in earnings of the Joint Venture to reflect certain
adjustments required by US GAAP.
In 2002, the Company amended its employment agreements so that bonus payments
are allocated between domestic operations and joint venture operations. The
Company recorded $45,910 of costs allocatable to the joint venture in the
accompanying statement of operations for the three months ended June 30, 2003.
Net Income Per Common Share
Basic earnings per common share is computed based on the weighted average number
of common shares outstanding during the periods presented. 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.
6
A reconciliation of the weighted average shares of common stock utilized in the
computation of basic and diluted earnings per share for the three month periods
ended June 30, 2003 and 2002 is as follows:
Three months ended June 30,
2003 2002
--------- ---------
Weighted average number of common
shares outstanding for basic EPS 1,123,024 1,014,770
Shares issued upon the assumed
exercise of outstanding stock
options 127,167 43,206
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding for diluted EPS 1,250,191 1,057,976
========= =========
Stock Based Compensation
The Company uses the intrinsic value method as defined by Accounting Principles
Board Opinion No. 25 to account for stock-based employee compensation. The
Company has adopted the disclosure requirements of Financial Accounting
Standards Board (FASB) Statement No. 123, Accounting for Stock-Based
Compensation, as amended by FASB No. 148 during fiscal 2003. The following table
illustrates the effect on net income and earnings per share as if the fair value
based method had been applied to all outstanding and unvested awards in each
period.
Three months ended June 30,
2003 2002
---- ----
Net income, as reported $852,498 $576,940
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects (20,985) (12,182)
-------- -------
Pro forma net income $831,513 $564,758
======== ========
Earnings per share:
Basic - as reported $0.76 $0.57
===== =====
Basic - pro forma $0.74 $0.56
===== =====
Diluted - as reported $0.68 $0.55
===== =====
Diluted - pro forma $0.67 $0.53
===== =====
Contingencies
The Company has outstanding letters of credit in the amount of $582,249 as of
June 30, 2003.
Subsequent Events
As disclosed in the Company's filing on Form 8-K (filed on July 25, 2003), on
July 28, 2003 the Company's Common Stock commenced trading on the American Stock
Exchange under the new ticker symbol UUU.
7
On August 1, 2003 (subsequent to the close of the period covered by this
Quarterly Report), the Company closed on the sale of a 1.5 acre parcel of excess
land for gross sale proceeds of $350,000. Any income on the sale of this parcel
will be calculated and reported for the Company's fiscal quarter ending
September 30, 2003.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002
Sales. Net sales for the three months ended June 30, 2003 were $4,431,950
compared to $3,750,926 for the comparable three months in the prior fiscal year,
an increase of $681,024. Net sales of safety products increased by $1,196,192 as
compared to the quarter ended June 30, 2002. Net sales of other products
decreased by $515,168, as compared to the quarter ended June 30, 2002. The
primary reason for the increase in safety sales was higher smoke alarm sales.
The major reason for lower other products sales was lower private label sales of
speakers.
Gross Profit Margin. The gross profit margin is calculated as net sales
less cost of goods sold expressed as a percentage of net sales. The Company's
gross profit margins increased 14%, to 33% of sales for the quarter ended June
30, 2003 from 29% for the corresponding quarter last year. The increase resulted
from a higher concentration of sales by the Company's USI Electric subsidiary,
whose products sell at better margins, and increased sales without increased
fixed costs.
Expenses. Selling, general and administrative expenses increased by
$222,116 from the comparable three months in the prior year. As a percentage of
sales, research, selling, general and administrative expenses were 28% for the
three month period ended June 30, 2003 and 27% for the three month period ended
June 30, 2002. The increase in selling, general and administrative expenses was
mainly due to higher commission and freight costs associated with the Company's
higher sales.
Interest Expense and Income. The Company's interest expense, net of
interest income, decreased from $36,937 for the quarter ended June 30, 2002 to
$32,710 for the quarter ended June 30, 2003. The lower interest expenses
resulted primarily from lower interest rates.
Net Income. The Company reported a net profit of $852,498 for the quarter
ended June 30, 2003 compared to net profit of $576,940 for the corresponding
quarter of the prior fiscal year. The primary reasons for the increase in profit
were higher Joint Venture earnings and higher gross profit from Company sales,
partially offset by higher selling, general and administrative expenses
associated with increased sales and higher legal costs partly associated with
defending patent litigation.
FINANCIAL CONDITION AND LIQUIDITY
Cash needs of the Company are currently met by funds generated from
operations and the Company's Factoring Agreement which supplies both short-term
borrowings and letters of credit to finance foreign inventory purchases. The
Company's maximum amount available under the Factoring Agreement is currently
$7,500,000. However, based on specified percentages of the Company's accounts
receivable and inventory and letter of credit commitments, at June 30, 2002, the
Company had $1,855,249 available under the Factoring Agreement, of which
$582,249 had been utilized in connection with outstanding letters of credit as
of June 30, 2003. The interest rate under the Factoring Agreement on the
uncollected factored accounts receivable and any additional borrowings is equal
to 1% in excess of the prime rate of interest charged by the Company's lender,
which was 5% at June 30, 2003. Borrowings are collateralized by all the
Company's accounts receivable, inventory and a 1.5 acre parcel of land which is
adjacent to the Company's prior headquarters. On August 1, 2003 (subsequent to
the close of the period covered by this Quarterly Report), the Company sold the
parcel of land which secured the borrowings under the Factoring Agreement and
used the proceeds to reduce the outstanding principal balance due under the
Factoring Agreement.
Operating activities used cash of $27,943 for the quarter ended June 30,
2003. This was primarily due to an increase in accounts receivable and amount
due from factor of $527,927, and equity in the earnings from the Company's Joint
9
Venture of $706,820, which were offset by an increase in accounts payable and
accrued expenses of $199,715, and a decrease in inventories and prepaid expenses
of $505,481. For the same period last year, operating activities provided cash
of $64,502.
Investing activities used cash of $3,787 in the current quarter and $4,165
cash in the prior quarter, primarily to acquire equipment.
Financing activities provided cash of $707. For the same period last year,
financing activities used cash of $3,793.
The Company believes that funds available under the Factoring Agreement 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. Net sales of the joint venture for the three months ended June
30, 2003 were $6,761,546 compared to $5,924,469 for the comparable three months
in the prior fiscal year. The increase in sales was primarily due to increased
sales of smoke alarms to non-related customers.
Net Income. Net income was $1,276,037 for the quarter ended June 30, 2003
compared to $1,380,526 in the comparable quarter last year. The decrease in net
income resulted from lower selling prices.
Gross Margins. Gross margins of the Hong Kong Joint Venture for the quarter
ended June 30, 2003 decreased from 34% to 29% compared to the prior year's
period. The primary reason for this decrease was lower selling prices.
Expenses. Selling, general and administrative expenses were $690,143 for
the quarter ended June 30, 2003, compared to $528,354 for the prior year's
period, a 31% increase. As a percentage of sales, expenses were 10% and 9% for
the quarters ended June 30, 2003 and 2002, respectively. The increase in
selling, general and administrative expense as a percent of sales was due to
higher sales volume.
Interest Income and Expense. Interest income, net of interest expense, was
$557 for the quarter ended June 30, 2003, compared to interest expense of $4,149
for the prior year's period. The increase in interest income is due to higher
cash balances.
Liquidity. Cash needs of the Hong Kong Joint Venture are currently met by
funds generated from operations. During the quarter ended June 30, 2003, working
capital increased by $839,408 from $5,582,783 on March 31, 2003 to $6,422,191 on
June 30, 2003. During the quarter ended June 30, 2002, working capital increased
by $457,436 from $3,815,630 on March 31, 2002 to $4,273,066 on June 30, 2002.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of the Company's consolidated
financial statements and results of operations are based upon the Company's
Consolidated Financial Statement included as part of this document. The
preparation of these consolidated financial statements requires management to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosures of contingent assets
and liabilities. On an ongoing basis, the Company evaluates these estimates,
including those related to bad debts, inventories, income taxes, and
contingencies and litigation. The Company bases these estimates on historical
experiences and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily available from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect
management's more significant judgments and estimates used in the preparation of
its consolidated financial statements. For a detailed discussion on the
application on these and other accounting policies see Note A to the
10
consolidated financial statements included in Item 8 of the Form 10-K for the
year ended March 31, 2003. Certain of our accounting policies require the
application of significant judgment by management in selecting the appropriate
assumptions for calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty and actual results
could differ from these estimates. These judgments are based on our historical
experience, terms of existing contracts, current economic trends in the
industry, information provided by our customers, and information available from
outside sources, as appropriate. Our critical accounting policies include:
The Company's revenue recognition policies are in compliance with Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
issued by the Securities and Exchange Commission. Revenue is recognized at the
time product is shipped and titled passes pursuant to the terms of the agreement
with the customer, the amount due from the customer is fixed and collectibility
of the related receivable is reasonably assured. The Company establishes
allowances to cover anticipated doubtful accounts based upon historical
experience.
Inventories are valued at the lower of market or cost. Cost is determined
on the first-in first-out method. The Company has recorded a reserve for
obsolescence or unmarketable inventory equal to the difference between the cost
of inventory and the estimated market value based upon assumptions about future
demand and market conditions. Management reviews the reserve quarterly.
The Company currently has significant deferred tax assets resulting from
tax credit carryforwards, net operating loss carryforwards and deductible
temporary differences, which will reduce taxable income in future periods. The
Company has provided a valuation allowance on future tax benefits such as
foreign tax credits, foreign net operating losses, capital losses and net
operating losses.
A valuation allowance is required when it is more likely than not that all
or a portion of a deferred tax assets will not be realized. Forming a conclusion
that a valuation allowance is not needed is difficult when there is a negative
evidence such as cumulative losses and losses in recent years. Cumulative losses
weigh heavily in the overall assessment. As a result of management's assessment,
the Company established a full valuation allowance for its remaining net
deferred tax assets at March 31, 2003.
The Company is subject to lawsuits and other claims, related to patents and
other matters. Management is required to assess the likelihood of any adverse
judgments or outcomes to these matters, as well as potential ranges of probable
losses. A determination of the amount of reserves required, if any, for these
contingencies is based on a careful analysis of each individual issue with the
assistance of outside legal counsel. The required reserves may change in the
future due to new developments in each matter or changes in approach such as a
change in settlement strategy in dealing with these matters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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, 2003.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures that
is designed to provide reasonable assurance that information, which is required
to be disclosed by the Company in the reports that it files or submits under the
Securities and Exchange Act of 1934, as amended, is accumulated and communicated
to management in a timely manner. The Company's Chief Executive Officer and
Chief Financial Officer have evaluated this system of disclosure controls and
procedures as of the end of the period covered by this quarterly report, and
believe that the system is operating effectively to ensure appropriate
disclosure. There have been no changes in the Company's internal control over
financial reporting during the most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
11
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
As disclosed in the Company's filing on Form 8-K (filed on July 25, 2003),
on July 28, 2003 the Company's Common Stock commenced trading on the American
Stock Exchange under the new ticker symbol UUU.
On August 1, 2003 (subsequent to the close of the period covered by this
Quarterly Report), the Company closed on the sale of a 1.5 acre parcel of excess
land for gross sale proceeds of $350,000. Any income on the sale of this parcel
will be calculated and reported for the Company's fiscal quarter ending
September 30, 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No.
- -----------
3.1 Articles of Incorporation (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the period ended December 31, 1988,
File No. 0-7885)
3.2 Articles Supplementary, filed October 14, 2003 (incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form 8-K
filed October 31, 2002, file No. 0-7885)
3.3 Bylaws, as amended (incorporated by reference to Exhibit 3 to the
Company's Form 8-A/A filed July 24, 2003)
10.1 Non-Qualified Stock Option Plan, as amended (incorporated by reference
to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
year ended March 31, 1999, File No. 0-7885)
10.2 Hong Kong Joint Venture Agreement, as amended (incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K
for the year ended March 31, 2003, File No. 0-7885)
10.3 Amended Factoring Agreement with CIT Group (successor to Congress
Talcott, Inc.) dated November 14, 1999 (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year
ended March 31, 2003, File No. 0-7885)
10.4 Amendment to Factoring Agreement with CIT Group (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 2002, File No. 0-7885)
10.5 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, Maryland
21117 (incorporated by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended March 31, 2000,
File No. 0-7885)
10.6 Amended and Restated Employment Agreement dated April 1, 2003 between
the Company and Harvey B. Grossblatt (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year
ended March 31, 2003, File No. 0-7885)
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
32.1 Section 1350 Certifications*
99.1 Press Release dated August 14, 2003*
*Filed herewith
(b) Reports on Form 8-K:
None.
12
SIGNATURES
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.
(Registrant)
Date: August 14, 2003 By: /s/ Harvey B. Grossblatt
----------------------------------
Harvey B. Grossblatt
President, Chief Financial Officer
13
Exhibit 31.1
------------
CERTIFICATION
I, Stephen C. Knepper, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Universal
Security Instruments, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the Registrant's
internal control over financial reporting that occurred
during the Registrant's most recent fiscal quarter (the
Registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal
control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the Registrant's auditors and the audit committee of Registrant's
board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the Registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal control over financial reporting.
Date: August 14, 2003 /s/ Stephen C. Knepper
------------------------------------
Stephen C. Knepper
Chief Executive Officer
Exhibit 31.2
------------
CERTIFICATION
I, Harvey B. Grossblatt, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Universal
Security Instruments, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the Registrant's
internal control over financial reporting that occurred
during the Registrant's most recent fiscal quarter (the
Registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal
control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the Registrant's auditors and the audit committee of Registrant's
board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the Registrant's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal control over financial reporting.
Date: August 14, 2003 /s/ Harvey B. Grossblatt
------------------------------------
Harvey B. Grossblatt
Chief Financial Officer
Exhibit 32.1
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SECTION 1350 CERTIFICATIONS
In connection with the Quarterly Report of Universal Security
Instruments, Inc. (the "Company") on Form 10-Q for the period ending June 30,
2003 as filed with the Securities and Exchange Commission and to which this
Certification is an exhibit (the "Report"), the undersigned hereby certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company for the periods reflected therein.
Date: August 14, 2003 /s/ Stephen C. Knepper
------------------------------------
Stephen C. Knepper
Chief Executive Officer
/s/ Harvey B. Grossblatt
------------------------------------
Harvey B. Grossblatt
Chief Financial Officer
For Immediate Release
Contact: Harvey Grossblatt, President
Universal Security Instruments, Inc.
410-363-3000, Ext. 224
or
Don Hunt, Jeff Lambert
Lambert, Edwards & Associates, Inc.
616-233-0500
Universal Security Instruments Posts Record Earnings For First Quarter
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Earnings Rise 44% on an 18% Increase in Sales
OWINGS MILLS, MD, August 14, 2003: Universal Security Instruments, Inc. (AMEX:
UUU) today announced record quarterly earnings on increased sales for its first
quarter ended June 30, 2003. The Company cited continued market share expansion
and highly efficient operations as primary factors.
The Owings Mills, MD-based designer and marketer of safety and security
equipment posted net earnings of $852,498, or $0.76 per basic share ($0.68 per
diluted share), on net sales of $4,431,950 in the first quarter of fiscal 2004,
compared with net earnings of $576,940, or $0.57 per basic and $0.55 per diluted
share, on net sales of $3,750,926 in the same period of last year.
The Company said the financial performance marked the highest net income
reported in any quarter in its 34-year history and its ninth consecutive quarter
of profitability. The results are also the first reported by Universal since its
move to the American Stock Exchange on July 28.
"Our record-setting first-quarter results reflect new gains in market share,
along with our ability to hold the line on operational costs while maintaining
our product quality. We experienced strong activity in the wholesale and
electrical distribution businesses during the quarter and gross margins improved
14%, to 33% from 29% in the same quarter last year. We are pleased with our
progress overall," said Steve Knepper, chairman of the board and chief executive
officer of Universal Security Instruments. "On the horizon, October 5 through 11
is Fire Prevention Week; typically one of the heaviest volume periods for our
industry. We are working hard to increase our momentum and are looking forward
to making the most of the busy fall selling season."
Commenting on Universal Security Instruments' recent listing on the American
Stock Exchange, Knepper said: "Our move to the AMEX offers our shareholders
improved liquidity and transparency for their stock. We will continue to focus
on increasing market share and leveraging our competitive advantages to maximize
shareholder return."
UNIVERSAL SECURITY INSTRUMENTS, INC. (www.universalsecurity.com), founded in
1969, is a Maryland-based manufacturer and worldwide marketer of safety and
security products directly and through its 50%-owned Hong Kong joint venture.
(2)
UNIVERSAL SECURITY INSTRUMENTS, INC.
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
(UNAUDITED)
First Quarter Ended June 30,
2003 2002
----- ----
Sales $4,431,950 $3,750,926
Net income* 852,498 576,940
Income per share
Basic .76 .57
Diluted .68 .55
Weighted average number of common
shares outstanding
Basic 1,123,024 1,014,770
Diluted 1,250,191 1,057,976
*Due to the tax benefit carryforward of prior years' operating losses, no tax
liability was incurred.
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Statements contained in this press release that are not historical facts are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Although UNIVERSAL SECURITY INSTRUMENTS, INC.
believes that the expectations reflected in such forward-looking statements are
reasonable; the forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projections.