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,
2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-31747
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.) |
| |
|
| 11407 Cronhill Drive, Suite A |
|
| 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 ¨
No x
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x
No ¨
Indicate
by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨
Accelerated filer ¨
Non-Accelerated Filer ¨
Smaller Reporting Company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
At August 6, 2015, the number of shares
outstanding of the registrant’s common stock was 2,312,887.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
UNIVERSAL SECURITY INSTRUMENTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | |
June 30 | | |
March 31 | |
| | |
2015 | | |
2015 | |
| ASSETS | |
| | | |
| | |
| CURRENT ASSETS | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 253,362 | | |
$ | 49,427 | |
| Funds held by Factor | |
| - | | |
| 631,906 | |
| Accounts receivable: | |
| | | |
| | |
| Trade less allowance for doubtful accounts | |
| 483,684 | | |
| 381,254 | |
| Receivables from employees | |
| 59,613 | | |
| 53,990 | |
| Receivable from Hong Kong Joint Venture | |
| 448,510 | | |
| 135,768 | |
| | |
| 991,807 | | |
| 571,012 | |
| | |
| | | |
| | |
| Amount due from factor | |
| 1,266,571 | | |
| 1,217,311 | |
| Inventories | |
| 4,683,601 | | |
| 3,852,182 | |
| Prepaid expense | |
| 476,399 | | |
| 438,745 | |
| | |
| | | |
| | |
| TOTAL CURRENT ASSETS | |
| 7,671,740 | | |
| 6,760,583 | |
| | |
| | | |
| | |
| INVESTMENT IN HONG KONG JOINT VENTURE | |
| 12,562,630 | | |
| 12,943,280 | |
| | |
| | | |
| | |
| PROPERTY AND EQUIPMENT – NET | |
| 96,353 | | |
| 104,618 | |
| | |
| | | |
| | |
| INTANGIBLE ASSET - NET | |
| 70,429 | | |
| 71,547 | |
| | |
| | | |
| | |
| OTHER ASSETS | |
| 26,000 | | |
| 26,000 | |
| | |
| | | |
| | |
| TOTAL ASSETS | |
$ | 20,427,152 | | |
$ | 19,906,028 | |
| | |
| | | |
| | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | | |
| | |
| Line of Credit - Factor | |
$ | 426,732 | | |
$ | - | |
| Accounts payable | |
| 1,128,061 | | |
| 668,846 | |
| Due to Hong Kong Joint Venture | |
| 814,409 | | |
| 299,985 | |
| Accrued liabilities: | |
| | | |
| | |
| Accrued payroll and employee benefits | |
| 107,257 | | |
| 69,180 | |
| Accrued - other | |
| 64,288 | | |
| 111,020 | |
| | |
| | | |
| | |
| TOTAL CURRENT LIABILITIES | |
| 2,540,747 | | |
| 1,149,031 | |
| | |
| | | |
| | |
| COMMITMENTS AND CONTINGENCIES | |
| - | | |
| - | |
| | |
| | | |
| | |
| SHAREHOLDERS’ EQUITY | |
| | | |
| | |
| Common stock, $.01 par value per share; 20,000,000 authorized, 2,312,887 shares outstanding at March 31, 2015 and June 30, 2015 | |
| 23,129 | | |
| 23,129 | |
| Additional paid-in capital | |
| 12,885,841 | | |
| 12,885,841 | |
| Retained earnings | |
| 3,811,255 | | |
| 4,588,332 | |
| Accumulated other comprehensive income | |
| 1,166,180 | | |
| 1,259,695 | |
| TOTAL SHAREHOLDERS’ EQUITY | |
| 17,886,405 | | |
| 18,756,997 | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | |
$ | 20,427,152 | | |
$ | 19,906,028 | |
The accompanying notes are an integral
part of these consolidated financial statements
UNIVERSAL SECURITY INSTRUMENTS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
| | |
Three Months Ended June 30, | |
| | |
2015 | | |
2014 | |
| | |
| | |
| |
| Net sales | |
$ | 2,936,490 | | |
$ | 2,514,385 | |
| Cost of goods sold – acquired from Joint Venture | |
| 1,911,257 | | |
| 1,710,999 | |
| Cost of goods sold – other | |
| 142,806 | | |
| 191,898 | |
| | |
| | | |
| | |
| GROSS PROFIT | |
| 882,427 | | |
| 611,488 | |
| | |
| | | |
| | |
| Research and development expense | |
| 200,303 | | |
| 161,964 | |
| Selling, general and administrative expense | |
| 1,163,786 | | |
| 1,187,491 | |
| | |
| | | |
| | |
| Operating loss | |
| (481,662 | ) | |
| (737,967 | ) |
| | |
| | | |
| | |
| Other expense: | |
| | | |
| | |
| Interest (expense) income - net | |
| (8,282 | ) | |
| 7,645 | |
| | |
| | | |
| | |
| LOSS BEFORE EQUITY IN EARNINGS OF JOINT VENTURE | |
| (489,944 | ) | |
| (730,322 | ) |
| | |
| | | |
| | |
| Equity in loss of Joint Venture | |
| (287,133 | ) | |
| (12,527 | ) |
| | |
| | | |
| | |
| Loss from operations before income taxes | |
| (777,077 | ) | |
| (742,849 | ) |
| | |
| | | |
| | |
| Income tax benefit | |
| 0 | | |
| 0 | |
| | |
| | | |
| | |
| NET LOSS | |
$ | (777,077 | ) | |
$ | (742,849 | ) |
| | |
| | | |
| | |
| Loss per share: | |
| | | |
| | |
| Basic | |
$ | (0.34 | ) | |
$ | (0.32 | ) |
| Diluted | |
$ | (0.34 | ) | |
$ | (0.32 | ) |
| | |
| | | |
| | |
| Shares used in computing net loss per share: | |
| | | |
| | |
| Basic | |
| 2,312,887 | | |
| 2,312,887 | |
| Diluted | |
| 2,312,887 | | |
| 2,312,887 | |
The accompanying notes are an integral
part of these condensed consolidated financial statements.
UNIVERSAL SECURITY INSTRUMENTS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(Unaudited)
| | |
Three Months Ended June 30, | |
| | |
2015 | | |
2014 | |
| NET LOSS | |
$ | (777,077 | ) | |
$ | (742,849 | ) |
| | |
| | | |
| | |
| Other Comprehensive Income (Loss) | |
| | | |
| | |
| Company’s portion of Joint Ventures: | |
| | | |
| | |
| Currency translation | |
| - | | |
| 14,597 | |
| Investment Securities | |
| (93,515 | ) | |
| (20,388 | ) |
| | |
| | | |
| | |
| COMPREHENSIVE LOSS | |
$ | (870,592 | ) | |
$ | (748,640 | ) |
The accompanying notes are an integral
part of these condensed consolidated financial statements.
UNIVERSAL SECURITY INSTRUMENTS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
| | |
Three Months Ended June 30, | |
| | |
2015 | | |
2014 | |
| OPERATING ACTIVITIES | |
| | | |
| | |
| Net Loss | |
$ | (777,077 | ) | |
$ | (742,849 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | |
| | | |
| | |
| | |
| | | |
| | |
| Depreciation and amortization | |
| 9,385 | | |
| 11,737 | |
| | |
| | | |
| | |
| Equity in Loss of the Joint Venture | |
| 287,133 | | |
| 12,527 | |
| Changes in operating assets and liabilities: | |
| | | |
| | |
| (Increase) Decrease in accounts receivable and amounts due from factor | |
| (470,055 | ) | |
| 681,394 | |
| (Increase) Decrease in inventories and prepaid expenses | |
| (869,073 | ) | |
| 725,026 | |
| Increase in accounts payable and accrued expenses | |
| 964,984 | | |
| 218,669 | |
| | |
| | | |
| | |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | |
| (854,703 | ) | |
| 906,504 | |
| | |
| | | |
| | |
| NET CASH USED IN INVESTING ACTIVITIES | |
| - | | |
| - | |
| | |
| | | |
| | |
| FINANCING ACTIVITIES: | |
| | | |
| | |
| Borrowings from Factor | |
| 426,732 | | |
| - | |
| | |
| | | |
| | |
| NET CASH USED BY FINANCING ACTIVITIES | |
| 426,732 | | |
| - | |
| | |
| | | |
| | |
| NET (DECREASE) INCREASE IN CASH | |
| (427,971 | ) | |
| 906,594 | |
| | |
| | | |
| | |
| Cash at beginning of period | |
| 681,333 | | |
| 2,050,993 | |
| | |
| | | |
| | |
| CASH AT END OF PERIOD | |
$ | 253,362 | | |
$ | 2,957,497 | |
| | |
| | | |
| | |
| Supplemental information: | |
| | | |
| | |
| Interest paid | |
| 9,785 | | |
| - | |
| Income taxes | |
| - | | |
| - | |
The accompanying notes are an integral
part of these condensed consolidated financial statements.
UNIVERSAL SECURITY INSTRUMENTS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
Statement of Management
The condensed consolidated
financial statements include the accounts of Universal Security Instruments, Inc. (USI or the Company) and its majority owned subsidiaries.
Except for the consolidated balance sheet as of March 31, 2015, which was derived from audited financial statements, the accompanying
condensed consolidated financial statements are unaudited. Significant inter-company accounts and transactions have been eliminated
in consolidation. In the opinion of the Company’s management, the interim condensed 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 condensed consolidated
financial statements should be read in conjunction with the Company’s March 31, 2015 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.
Financial
Condition and Liquidity
The accompanying condensed
consolidated financial statements have also been prepared on the basis that the Company will continue to operate as a going concern.
Accordingly, assets and liabilities are recorded on the basis that the Company will be able to realize its assets and discharge
its liabilities in the normal course of business. Our history of operating losses, declining revenues on an annual basis and limited
financing raises substantial doubt about our ability to continue as a going concern. The Company is monitoring its liquidity and
working capital position in light of continued operating losses, and decreases in its cash and working capital position over the
past four fiscal years of operations. In addition to the expanded factoring agreement with Merchant Factors Corporation (Merchant)
as discussed below, the Company believes that its cash position can be improved by a combination of reductions in inventory and
by lowering expenses. In addition, the Company is prepared to initiate changes in its operations, if needed, to reduce its operating
costs while maintaining its current level of customer service. However, there are potential risks, including that the Company’s
revenues may not reach levels required to return to profitability, costs may exceed the Company’s estimates, or the Company’s
working capital needs may be greater than anticipated. Any of these factors may change the Company’s expectation of cash
usage in the remainder of the fiscal year ending 2016, and beyond, or may significantly affect the Company’s level of liquidity.
These financial statements do not include any adjustments that might result from the Company not being able to continue as a going
concern.
Line of Credit – Factor
On January 15, 2015,
the Company entered into an expanded financing and discount factoring agreement with Merchant Factors Corporation for the purpose
of factoring the Company’s trade accounts receivable and to provide financing secured by finished goods inventory. The agreement
replaces the financing and factoring agreement with CIT which was terminated on the same date. In accordance with the provisions
of the Discount Factoring Agreement with Merchant, the Company may take advances, recorded as a liability of the Company, equal
to eighty percent (80%) of the factored trade accounts receivable balance less applicable factoring commissions. Additionally,
the Discount Factoring Agreement with Merchant enables the Company to borrow up to fifty percent (50%) of eligible inventories
subject to a borrowing limitation on inventory of $1,000,000. As of June 30, 2015 our borrowings under the Discount Factoring Agreement
with Merchant total $426,732. Advances on factored trade accounts receivable and borrowing on inventories are secured by all of
the Company’s trade accounts receivable and inventories, and bear interest at the prime commercial rate of interest, as published,
plus two percent (Effective rate 3.25% at June 30, 2015). Advances under the factoring agreement are made at the sole discretion
of Merchant, based on their assessment of the receivables, inventory and our financial condition at the time of each request for
an advance.
Use of Estimates
The preparation of
the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America (US-GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ materially from those estimates.
Joint Venture
The Company and its
co-venturer, a Hong Kong corporation, each own a 50% interest in a Hong Kong joint venture, Eyston Company Limited (the “Hong
Kong Joint Venture”), that manufactures security products in its facilities located in the People’s Republic of China.
The following represents summarized balance sheet and income statement information of the Hong Kong Joint Venture as of and for
the three months ended June 30, 2015 and 2014:
| | |
2015 | | |
2014 | |
| Net sales | |
$ | 4,612,505 | | |
$ | 3,664,900 | |
| Gross profit | |
| 366,307 | | |
| 939,947 | |
| Net loss | |
| (784,927 | ) | |
| (121,206 | ) |
| Total current assets | |
| 11,740,633 | | |
| 17,237,635 | |
| Total assets | |
| 31,066,085 | | |
| 35,671,149 | |
| Total current liabilities | |
| 6,024,586 | | |
| 7,359,434 | |
During the three months
ended June 30, 2015 and 2014, the Company purchased $2,753,772 and $1,076,376, respectively, of products directly from the Hong
Kong Joint Venture for resale. For the three month period ended June 30, 2015 and 2014, the Company has adjusted its loss of the
Joint Venture to reflect a decrease of $105,329 and $48,076, respectively, to eliminate inter-Company profit on purchases held
by the Company in inventory.
Income Taxes
We calculate our interim
tax provision in accordance with the guidance for accounting for income taxes in interim periods. At the end of each interim period,
we estimate the annual effective tax rate and apply that tax rate to our ordinary quarterly pre-tax income. The tax expense or
benefit related to discrete events during the interim period is recognized in the interim period in which those events occurred.
In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the
change occurs.
The Company recognizes
a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities
and their reported amounts in the financial statements. These temporary differences may result in taxable or deductible amounts
in future years when the reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are reviewed
periodically for recoverability and a valuation allowance is provided whenever it is more likely than not that a deferred tax asset
will not be realized. The Company has established a valuation allowance to fully offset the value of the deferred tax assets. Our
ability to realize the tax benefits associated with the deferred tax assets depends primarily upon the timing of future taxable
income and the expiration dates of the components of the deferred tax assets. If sufficient future taxable income is generated,
we may be able to offset a portion of future tax expenses.
The Company follows
ASC 740-10 that gives guidance to tax positions related to the recognition and measurement of a tax position taken or expected
to be taken in a tax return and requires that we recognize in our financial statements the impact of a tax position, if that position
is more likely than not to be sustained upon an examination, based on the technical merits of the position. Interest and penalties
related to income tax matters are recorded as income tax expenses.
Accounts Receivable and Amount Due from
Factor
The Company assigns
the majority of its short-term receivables arising in the ordinary course of business to our factor. At the time a receivable is
assigned to our factor the credit risk associated with the credit worthiness of the debtor is assumed by the factor. The Company
continues to bear any credit risk associated with delivery or warranty issues related to the products sold.
Management assesses
the credit risk of both its trade accounts receivable and its financing receivables based on the specific identification of accounts
that have exceeded credit terms. An allowance for uncollectible receivables is provided based on that assessment. Changes in the
allowance account are charged to operations in the period the change is determined. Amounts ultimately determined to be uncollectible
are eliminated from the receivable accounts and from the allowance account in the period that the receivables’ status is
determined to be uncollectible.
Based on the nature
of the factoring agreement and prior experience, no allowance related to Amounts Due from Factor has been provided. At June 30,
2015 and 2014, an allowance of approximately $57,000 has been provided for uncollectible trade accounts receivable.
Net Loss per Common Share
Basic net loss per
common share is computed based on the weighted average number of common shares outstanding during the periods presented. Diluted
loss 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, if any. 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. There
were no potentially dilutive stock equivalents outstanding during the periods presented. As a result, basic and diluted weighted
average common shares outstanding are identical for both periods.
Contingencies
From time to time,
the Company is involved in various lawsuits and legal matters. It is the opinion of management, based on consultation with legal
counsel, that material losses from litigation are not reasonably possible.
Recent Accounting Pronouncements not
yet Adopted
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from
Contracts with Customers,” which requires an entity to recognize revenues when promised goods or services are transferred
to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.
In August 2015 ASU No. 2015-14 was issued and delays implementation as noted below. The new standard will replace most of the existing
revenue recognition standards in U.S. GAAP when it becomes effective for periods beginning after December 15, 2017. Early
adoption is permitted for periods beginning after December 15, 2016. The new standard can be applied retrospectively to each
prior reporting period presented or retrospectively with the cumulative effect of the change recognized at the date of the initial
application. We are currently assessing the impact the adoption of ASU 2014-09 will have on our condensed consolidated financial
position, results of operations and cash flows.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used throughout
this Report, “we,” “our,” “the Company” “USI” and similar words refers to Universal
Security Instruments, Inc.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains certain forward-looking statements reflecting our current expectations with respect to
our operations, performance, financial condition, and other developments. These forward-looking statements may generally
be identified by the use of the words “may”, “will”, “believes”, “should”, “expects”,
“anticipates”, “estimates”, and similar expressions. These
statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a
number of risks and uncertainties. We caution readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made, and readers are advised that various factors could affect our financial performance and
could cause our actual results for future periods to differ materially from those anticipated or projected. While
it is impossible to identify all such factors, such factors include, but are not limited to, those risks identified in
our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.
overview
We are in the business
of marketing and distributing safety and security products which are primarily manufactured by our 50%-owned Hong Kong Joint Venture.
Our financial statements detail our sales and other operational results only, and report the financial results of the Hong Kong
Joint Venture using the equity method. Accordingly, the following discussion and analysis of the three month periods ended June
30, 2015 and 2014 relate to the operational results of the Company. A discussion and analysis of the Hong Kong Joint Venture’s
operational results for these periods is presented below under the heading “Joint Venture.”
The Company has developed
new products based on new smoke and gas detection technologies, with what the Company believes are improved sensing technology
and product features. To date we have applied for thirteen patents on these new technologies and features and have been granted
ten patents (including six for the new technologies and features), and we are currently awaiting
notification from the U.S. Patent Office regarding the three remaining patent applications. Most of our new technologies and features
have been trademarked under the trade name IoPhic®
Results
of Operations
Three Months Ended June 30, 2015
and 2014
Sales. Net sales
for the three months ended June 30, 2015 were $2,936,490 compared to $2,514,385 for the comparable three months in the prior fiscal
year, an increase of $422,105 (16.8%). The primary reason for the increase in net sales volumes is the introduction of and sales
of the Company’s sealed battery smoke and carbon monoxide products.
Gross Profit Margin.
Gross profit margin is calculated as net sales less cost of goods sold expressed as a percentage of net sales. Our gross profit
margin was 30.1% and 24.3% of sales for the quarters ended June 30, 2015 and 2014, respectively. The increase in gross profit margin
was primarily due to higher margins realized on sales of the Company’s sealed battery smoke and carbon monoxide products.
Expenses. Research
and development expense increased by $38,339 to $200,303 for the three month period ended June 30, 2015, from $161,964 for the
three months in the prior year. The increase is due to the increase in expenditures to independent testing laboratories and is
related to new product development.
Selling, general and
administrative expense decreased by $23,705 from the comparable three months in the prior year. As a percentage of net sales, these
expenses decreased to 39.6% for the three month period ended June 30, 2015 from 47.2% for the 2014 period. The decrease in costs
as a percentage was primarily due to selling, general and administrative expenses that have remained constant as compared to increased
sales in the current period. Selling, general and administrative expense also reflects an increase in professional fees associated
with the audit for the fiscal year ended March 31, 2015, and offset by reductions in salaries and wages.
Interest Expense
and Income. Net interest expense was $8,282 for the quarter ended June 30, 2015, compared to net interest income of $7,645
for the quarter ended June 30, 2014. The increase in interest expense, net of interest income, is due to a decrease in funds on
deposit with our factor and an increase in borrowing from our factor as well as interest incurred on extended payment terms provided
by our Hong Kong Joint Venture.
Income Taxes.
During the quarter ended June 30, 2015, the Company generated additional net operating losses of $471,989. For the corresponding
2014 period, the Company generated net income tax benefits of $694,837. The provision for income taxes for the quarter ended June
30, 2015, as compared to the same quarter in the prior year, is determined principally by the loss from operations and the amount
and timing of the unrealized earnings of and the payment of dividends by the Hong Kong Joint Venture. The income tax benefits generated
for the three months ended June 30, 2015 and 2014 have been fully reserved, and accordingly, no income tax benefit is recognized
on the Company’s statement of operations at June 30, 2015 or June 30, 2014.
Net Income.
We reported a net loss of $777,077 for the quarter ended June 30, 2015, compared to a net loss of $742,849 for the corresponding
quarter of the prior fiscal year, a $34,228 increase in the loss. The reason for the increase in net loss is principally due to
an increase in our equity in the loss of the Hong Kong Joint Venture and increased professional fees associated with the audit
for the fiscal year ended March 31, 2015, offset by increased sales and higher gross profits on sales of the Company’s sealed
battery smoke and carbon monoxide products in domestic operations.
Financial
Condition and Liquidity
Our primary sources
of liquidity at June 30, 2015 are our cash and cash equivalents on hand, our Discount Factoring Agreement with Merchant and projected
cash flows from operating activities. The Company is monitoring its liquidity and working capital position in light of continued
operating losses, and decreases in its cash and working capital position over the past four fiscal years of operations. In addition
to the expanded factoring agreement with Merchant, the Company believes that its cash position can be improved by a combination
of reductions in inventory and by lowering expenses. The Company believes it should return to profitability with the completion
of its line of new sealed battery smoke and carbon monoxide alarms, beginning in the second half of the fiscal year ending March
31, 2016. In addition, the Company is prepared to initiate changes in its operations, if needed, to reduce its operating costs
while maintaining its current level of customer service. However, there are potential risks, including that the Company’s
revenues may not reach levels required to return to profitability, costs may exceed the Company’s estimates, or the Company’s
working capital needs may be greater than anticipated. Any of these factors may change the Company’s expectation of cash
usage in the remainder of the fiscal year ending 2016, and beyond, or may significantly affect the Company’s level of liquidity.
Our factored accounts
receivable as of the end of March 31, 2015 was $1,217,311, and was $1,266,571 as of June 30, 2015. Our prepaid expense as of March
31, 2015 was $438,745, and was $476,399 as of June 30, 2015. As of June 30, 2015 our borrowing under the Discount Factoring Agreement
with Merchant totaled $426,732.
Operating activities
used cash of $854,703 for the three months ended June 30, 2015. This was primarily due to an increase in inventories and prepaid
expenses of $869,073, increases in accounts receivable and amounts due from factor of $470,055, and a loss from operations of $777,077,
offset by increases in accounts payable and accrued expenses of $964,984. For the same period last year, operating activities provided
cash of $906,504, primarily due to a decrease in inventories and prepaid expenses of $725,026, decreases in accounts receivable
and amounts due from factor of $681,394, and increases in accounts payable and accrued expenses of $218,669 offset by a loss from
operations of $742,849.
There were no investing
activities during the three months ended June 30, 2015 or 2014.
Financing activities
provided $426,732 of cash borrowed from our factor during the three months ended June 30, 2015, and there were no financing activities
during the three months ended June 30, 2014.
Joint
Venture
Net Sales. Net
sales of the Joint Venture for the three months ended June 30, 2015 were $4,612,505, compared to $3,664,900, for the comparable
period in the prior fiscal year. The increase in net sales by the Joint Venture for the three month period was due to higher volumes
of sales of sealed battery smoke and carbon monoxide alarm products to the Company and to unaffiliated customers of the Joint Venture.
Gross Margins.
Gross margins of the Joint Venture for the three month period ended June 30, 2015 decreased to 7.9% from 25.6% for the 2014 corresponding
period. The lower gross margin in the 2015 period was due to various factors including lower margin sales in Europe in an effort
to match competitor pricing and maintain market share, lower margin sales to the Company related to the introduction of the Companies
new line of sealed smoke and carbon monoxide alarms, and due to higher labor costs and product mix of the Joint Venture’s
sales. Since gross margins depend on sales volume of various products, with varying margins, lower sales of higher margin products
and increased sales of lower margin products affect the overall gross margins.
Expenses. Selling,
general and administrative expense was $1,209,176, for the three month period ended June 30, 2015, compared to $1,094,879 in the
prior year’s respective period. As a percentage of sales, expenses were 26.2% for the three month period ended June 30, 2015,
compared to 29.9% for the three month period ended June 30, 2014. The decrease in selling, general and administrative expenses,
as a percent of sales, was primarily due to fixed costs that do not change in the same proportion as the increase in sales while
the increase in absolute dollar amounts is associated with increased sales in the current quarter as compared to sales in the comparable
quarter of the prior year.
Interest Income
and Expense. Net interest income on assets held for investment was $116,570 and $131,112 for the three month period ended June
30, 2015 and 2014, respectively.
Net Loss. The net
loss for the three months ended June 30, 2015 was $784,927, compared to a net loss of $121,206, in the comparable period last year
due to lower margins on sales to the Company and to unaffiliated customers.
Liquidity. Cash
needs of the Joint Venture are currently met by funds generated from operations. During the three months ended June 30, 2015, working
capital increased by $328,514 from $5,387,533 on March 31, 2015 to $5,716,047 on June 30, 2015.
Critical
Accounting Policies
Management’s
discussion and analysis of our consolidated financial statements and results of operations are based on our Condensed Consolidated
Financial Statements 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, we evaluate these estimates, including those related to bad debts, inventories,
income taxes, and contingencies and litigation. We base these estimates on historical experiences, future projections 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.
We believe 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 consolidated financial statements included in Item 8 of the Form 10-K for the year ended March 31, 2015. 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:
Revenue Recognition.
We recognize sales upon shipment of products net of applicable provisions for any discounts or allowances. The shipping date from
our warehouse is the appropriate point of revenue recognition since upon shipment we have substantially completed our obligations
which entitle us to receive the benefits represented by the revenues, and the shipping date provides a consistent point within
our control to measure revenue. Customers may not return, exchange or refuse acceptance of goods without our approval. We have
established allowances to cover anticipated doubtful accounts based upon historical experience.
Inventories. Inventories
are valued at the lower of cost or market. Cost is determined on the first-in first-out method. We evaluate inventories on a quarterly
basis and write down inventory that is deemed obsolete or unmarketable in an amount equal to the difference between the cost
of inventory and the estimated market value based upon assumptions about future demand and market conditions.
Income Taxes. The
Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets
or liabilities and their reported amounts in the financial statements. These temporary differences may result in taxable or deductible
amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets
are reviewed periodically for recoverability and a valuation allowance is provided whenever it is more likely than not that a deferred
tax asset will not be realized. A full valuation allowance was established during the previous fiscal year ended March 31, 2014.
Our ability to realize the tax benefits associated with the deferred tax assets depends primarily upon the timing of future taxable
income and the expiration dates of the components of the deferred tax assets. If sufficient future taxable income is generated,
we may be able to offset a portion of future tax expenses.
The Company follows the financial pronouncement
that gives guidance related to the financial statement of recognition and measurement of a tax position taken or expected to be
taken in a tax return and requires that we recognize in our financial statements the impact of a tax position, if that position
is more likely than not to be sustained upon an examination, based on the technical merits of the position. Interest and penalties
related to income tax matters are recorded as income tax expenses.
Accounts Receivable
and Amount Due From Factor. The Company assigns the majority of its short-term receivables arising in the ordinary course of
business to our factor. At the time a receivable is assigned to our factor the credit risk associated with the credit worthiness
of the debtor is assumed by the factor. The Company continues to bear any credit risk associated with delivery or warranty issues
related to the products sold.
Management assesses
the credit risk of both its trade accounts receivable and its financing receivables based on the specific identification of accounts
that have exceeded credit terms. An allowance for uncollectible receivables is provided based on that assessment. Changes in the
allowance account from one accounting period to the next are charged to operations in the period the change is determined. Amounts
ultimately determined to be uncollectible are eliminated from the receivable accounts and from the allowance account in the period
that the receivables’ status is determined to be uncollectible.
Based on the nature
of the factoring agreement and prior experience, no allowance related to the Amount Due from Factor has been provided. An allowance
of $57,000 has been provided for uncollectible trade accounts receivable as of June 30, 2015 and 2014.
Contingencies. From
time to time, we are 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. It is the opinion of management, based on consultation
with legal counsel, that material losses from litigation are not reasonably likely.
Warranties.
We generally provide warranties from one to ten years to the non-commercial end user on all products sold. The manufacturers of
our products provide us with a one-year warranty on all products we purchase for resale. A reserve for claims for warranty replacement
of $25,000 has been provided for products beyond the one-year warranty period covered by the manufacturers.
Recent Accounting Pronouncements not
yet Adopted
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from
Contracts with Customers,” which requires an entity to recognize revenues when promised goods or services are transferred
to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.
In August 2015 ASU No. 2015-14 was issued and delays implementation as noted below. The new standard will replace most of the existing
revenue recognition standards in U.S. GAAP when it becomes effective for periods beginning after December 15, 2017. Early
adoption is permitted for periods beginning after December 15, 2016. The new standard can be applied retrospectively to each
prior reporting period presented or retrospectively with the cumulative effect of the change recognized at the date of the initial
application. We are currently assessing the impact the adoption of ASU 2014-09 will have on our condensed consolidated financial
position, results of operations and cash flows.
ITEM 4. CONTROLS
AND PROCEDURES
We maintain a system
of disclosure controls and procedures (as such item is defined in Rules 13a-15€ and 15d-15(c) of the Exchange Act) that is
designed to provide reasonable assurance that information, which is required to be disclosed by us in the reports that we file
or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to
management in a timely manner. Our 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 have concluded that due to the material
weakness in our internal control over financial reporting, as noted below, our disclosure controls and procedures were not effective
as of June 30, 2015. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
As described in our
Annual Report on Form 10-K for our fiscal year ended March 31, 2015, as filed with the Securities and Exchange Commission
on August 25, 2015, our management determined that our processes, procedures and controls related to financial reporting were not
effective as a result of material weaknesses identified. Material weaknesses arose in our oversight of the accounting function
of the Hong Kong Joint Venture (HKJV) that by virtue of the Hong Kong Joint Venture’s materiality to the Company extends
the material weakness to our system of disclosure controls and procedures. Under the terms of the Joint Venture Agreement, the
Company does not have operating control over the daily operations of the HKJV. The Company has discussed these weaknesses with
management of the HKJV and will monitor implementation of suggested improvements. In addition, material weaknesses arose in our
domestic operations in the reconciliation of account balances and period end cut-off procedures, as well as the application of
period costs to the inventory as burden.
Notwithstanding the identified material
weakness described above, management believes that the financial statements and other financial information included in this report
present fairly in all material respects our financial condition, results of operations and cash flows at and for the periods presented
in accordance with accounting principles generally accepted in the United States.
With the oversight of our audit committee
of our board of directors, we have since taken steps and plan to take additional measures to remediate the underlying causes of
the material weakness described above.
Changes in Internal Control over Financial
Reporting. There have not been any changes in our internal control over financial reporting that occurred during the quarter
ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
From time to time,
the Company is involved in various lawsuits and legal matters. It is the opinion of management, based on the advice of legal counsel,
that these matters will not have a material adverse effect on the Company’s financial statements.
ITEM 6. 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. 1-31747) |
| 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. 1-31747) |
| 3.3 |
Bylaws, as amended (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed July 13, 2011, File No. 1-31747) |
| 10.1 |
2011 Non Qualified Stock Option Plan (incorporated by reference to the Company’s Proxy Statement with respect to the Company’s 2011 Annual Meeting of Shareholders, filed July 26, 2011, File No. 1-31747) |
| 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. 1-31747) |
| 10.3 |
Amended and Restated Factoring Agreement between the Registrant and The CIT Group/Commercial Services, Inc. (“CIT”), dated June 22, 2007 (substantially identical agreement entered into by the Registrant’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 26, 2007, file No. 1-31747) |
| 10.4 |
Amended and Restated Inventory Security Agreement between the Registrant and CIT, dated June 22, 2007 (substantially identical agreement entered into by the Registrant’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 26, 2007, file No. 1-31747) |
| 10.5 |
Amendment, dated December 22, 2009, to Amended and Restated Factoring Agreement between the Registrant and CIT dated June 22, 2007 (substantially identical agreement entered into by the Registrant’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed February 16, 2010, file No. 1-31747) |
| 10.6 |
Lease between Universal Security Instruments, Inc. and St. John Properties, Inc. dated November 4, 2008 for its office and warehouse located at 11407 Cronhill Drive, Suites A-D, Owings Mills, Maryland 21117 (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10 Q for the period ended December 31, 2008, File No. 1-31747) |
| 10.7 |
Amendment to Lease between Universal Security Instruments, Inc. and St. John Properties, Inc. dated June 23, 2009 (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10 K for the year ended March 31, 2009, File No. 1-31747) |
| 10.8 |
Amended and Restated Employment Agreement dated July 18, 2007 between the Company and Harvey B. Grossblatt (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2007, File No. 1-31747), as amended by Addendum dated November 13, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 15, 2007, File No. 1-31747), by Addendum dated September 8, 2008 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 8, 2008, File No. 1-31747), by Addendum dated March 11, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 12, 2010, File No. 1-31747), by Addendum dated July 19, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 20, 2012, File No. 1-31747) , by Addendum dated July 3, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 8, 2013, File No. 1-31747), by addendum dated July 21, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 21, 2014, File No. 1-31747), and by addendum dated July 23, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 28, 2015, File No. 1-31747) |
| 31.1 |
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer* |
| 31.2 |
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer* |
| 32.1 |
Section 1350 Certifications* |
| 99.1 |
Press Release dated September 28, 2015* |
| 101 | Interactive data files providing financial information from the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended June 30,2015 in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation
S-T: (i) Condensed Consolidated Balance Sheets, June 30, 2015 and March 31, 2015, (ii) Condensed Consolidated Statements of Earnings
for the three months ended June 30, 2015 and 2014, (iii) Condensed Consolidated Statements of Cash Flows for the three months ended
June 30, 2015 and 2014, and (v) Notes to Consolidated Financial Statements* |
*Filed herewith
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: September 28, 2015 |
By: |
/s/ Harvey B. Grossblatt |
| |
|
Harvey B. Grossblatt |
| |
|
President, Chief Executive Officer |
| |
|
(principal executive officer) |
| |
|
|
| |
By: |
/s/ James B. Huff |
| |
|
James B. Huff |
| |
|
Vice President, Chief Financial Officer |
| |
|
(principal financial officer) |
Exhibit 31.1
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)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) 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) | Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; |
| (c) | 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 |
| (d) | 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: September 28, 2015 |
By: |
/s/ Harvey B. Grossblatt |
| |
|
Harvey B. Grossblatt, Chief Executive Officer |
| |
|
(principal executive officer) |
Exhibit 31.2
CERTIFICATION
I, James B. Huff, 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)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) 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) | Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; |
| (c) | 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 |
| (d) | 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: September 28, 2015 |
By: |
/s/ James B. Huff |
| |
|
James B. Huff, Chief Financial Officer |
| |
|
(principal financial officer) |
Exhibit 32.1
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, 2015 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: September 28, 2015 |
By: |
/s/ Harvey B. Grossblatt |
| |
|
Harvey B. Grossblatt |
| |
|
President, Chief Executive Officer |
| |
|
(principal executive officer) |
| |
By: |
/s/ James B. Huff |
| |
|
James B. Huff |
| |
|
Vice President, Chief Financial Officer |
| |
|
(principal financial officer) |
Exhibit 99.1
| |
For Immediate Release
Contact: Harvey Grossblatt, CEO
Universal Security Instruments, Inc.
410-363-3000, Ext. 224
or
Don Hunt, Jeff Lambert
Lambert, Edwards & Associates, Inc.
616-233-0500 |
Universal Security Instruments
Reports First-Quarter Results
OWINGS MILLS, MD, September 28, 2015 –
Universal Security Instruments, Inc. (NYSE Amex: UUU) today reported results for its first fiscal quarter ended June 30, 2015.
Universal reported sales of $2,936,490
for the quarter ended June 30, 2015 versus $2,514,385 for the comparable period of last year. While operating losses decreased
from $737,967 in the 2014 quarter to $481,662 in the 2015 quarter on improved margins, the Company reported a net loss of $777,077,
or $0.34 per basic and diluted share, compared to a net loss of $742,849 or $0.32 per basic and diluted share, for the same period
last year.
“The Company received two additional
approvals for its sealed smoke alarm and carbon monoxide alarm products to complete its line of ionization smoke alarms and will
start to deliver these two models in the quarter ending September 30, 2015. The primary reason for the increase in sales and higher
gross margins during the current quarter was due to the delivery of our new sealed products and we expect this trend to continue.
Our Joint Venture continues to experience diminished gross profit margins due to higher labor and material costs. We anticipate
that the Joint Venture will be able to improve its gross profit margins later this fiscal year.” said Harvey Grossblatt,
Universal CEO.
UNIVERSAL SECURITY INSTRUMENTS, INC. is
a U.S.-based manufacturer (through its Hong Kong Joint Venture) and distributor of safety and security devices. Founded in 1969,
the Company has an over 40-year heritage of developing innovative and easy-to-install products, including smoke, fire and carbon
monoxide alarms. For more information on Universal Security Instruments, visit our website at www.universalsecurity.com.
"Safe Harbor” Statement under
the Private Securities Litigation Reform Act of 1995: Certain matters discussed in this news release may constitute forward-looking
statements within the meaning of the federal securities laws that inherently include certain risks and uncertainties. Actual
results could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors,
including, among other items, our Hong Kong Joint Venture's respective ability to maintain operating profitability, currency fluctuations,
the impact of current and future laws and governmental regulations affecting us and our Hong Kong Joint Venture and other factors
which may be identified from time to time in our Securities and Exchange Commission filings and other public announcements.
We do not undertake and specifically disclaim any obligation to update any forward-looking statements to reflect occurrence of
anticipated or unanticipated events or circumstances after the date of such statements. We will revise our outlook from time
to time and frequently will not disclose such revisions publicly.
— more —
Universal/Page 2
UNIVERSAL SECURITY INSTRUMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| | |
Three Months Ended June 30, | |
| | |
2015 | | |
2014 | |
| Sales | |
$ | 2,936,490 | | |
$ | 2,514,385 | |
| | |
| | | |
| | |
| Net loss: | |
$ | (777,077 | ) | |
$ | (742,849 | ) |
| Net loss per share – basic | |
$ | (0.34 | ) | |
$ | (0.32 | ) |
| Net loss per share – diluted | |
$ | (0.34 | ) | |
$ | (0.32 | ) |
| | |
| | | |
| | |
| Weighted average number of common shares outstanding: | |
| | | |
| | |
| Basic | |
| 2,312,887 | | |
| 2,312,887 | |
| Diluted | |
| 2,312,887 | | |
| 2,312,887 | |
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| |
| |
| | |
June 30, 2015 | | |
June 30, 2014 | |
| ASSETS | |
| | |
| |
| Cash | |
$ | 253,362 | | |
$ | 2,957,497 | |
| Accounts receivable and amount due from factor | |
| 2,258,378 | | |
| 1,607,728 | |
| Inventory | |
| 4,683,601 | | |
| 3,530,159 | |
| Prepaid expense | |
| 476,399 | | |
| 345,040 | |
| | |
| | | |
| | |
| TOTAL CURRENT ASSETS | |
| 7,671,740 | | |
| 8,440,424 | |
| INVESTMENT IN HONG KONG JOINT VENTURE | |
| 12,562,630 | | |
| 14,125,751 | |
| PROPERTY, PLANT AND EQUIPMENT – NET | |
| 166,782 | | |
| 210,495 | |
| OTHER ASSETS AND DEFERRED TAX ASSET | |
| 26,000 | | |
| 38,134 | |
| TOTAL ASSETS | |
$ | 20,427,152 | | |
$ | 22,814,804 | |
| |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| Line of credit - Factor | |
$ | 426,732 | | |
$ | - | |
| Accounts payable and accrued expenses | |
| 1,942,470 | | |
| 779,797 | |
| Accrued liabilities | |
| 171,545 | | |
| 224,433 | |
| TOTAL CURRENT LIABILITIES | |
| 2,540,747 | | |
| 1,004,230 | |
| LONG TERM OBLIGATION | |
| - | | |
| 25,000 | |
| SHAREHOLDERS’ EQUITY: | |
| | | |
| | |
| Common stock, $.01 par value per share; authorized 20,000,000 shares; issued and outstanding 2,312,887 at June 30, 2015 and June 30, 2014 | |
| 23,129 | | |
| 23,129 | |
| Additional paid-in capital | |
| 12,885,841 | | |
| 12,885,841 | |
| Retained earnings | |
| 3,811,255 | | |
| 7,692,267 | |
| Equity in Comprehensive Income of Joint Venture | |
| 1,166,180 | | |
| 1,184,337 | |
| TOTAL SHAREHOLDERS’ EQUITY | |
| 17,886,405 | | |
| 21,785,574 | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | |
$ | 20,427,152 | | |
$ | 22,814,804 | |
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