Universal Security Instruments, Inc. — Form 10-Q Summary
Filing identity: The supplied metadata names Universal Safety Products, Inc., but the filing itself identifies the registrant as Universal Security Instruments, Inc. (NYSE American: UUU). Verify the intended company. Reporting period: quarter ended June 30, 2021, compared with the quarter ended June 30, 2020. Financial statements are unaudited.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $4.668 million | $2.941 million |
| Gross profit / margin | $1.258 million / 27.0% | $1.077 million / 36.6% |
| Operating income (loss) | $24,130 | ($43,444) |
| Interest expense | $9,489 | $35,538 |
| Net income (loss) | $14,641 | ($78,982) |
| Operating cash flow | ($196,612) | $747,020 |
| Cash at period end | $50,371 | $278,234 |
Sales rose 58.7%, principally from large national retailers; Eyston-sourced products accounted for $4.267 million of quarterly revenue, while GFCI and ventilation-fan sales were $400,707. Gross margin contracted 9.6 percentage points, which management attributed to higher supply-chain, customs, port-handling and freight costs. The prior-year margin benefited from refunds of tariffs paid on products later determined not to be subject to tariffs. SG&A increased to $1.133 million from $986,669, though it fell as a share of sales to 24.3% from 33.6%. R&D expense declined 24.5% to $101,056.
Balance sheet and liquidity
- At June 30, 2021, total assets were $7.634 million, current assets $7.445 million, current liabilities $2.903 million, and shareholders’ equity $4.731 million.
- Cash fell by $110,233 during the quarter. Operating activities used $196,612, mainly reflecting a $321,292 increase in accounts receivable and amounts due from the factor; financing activities provided $86,379.
- Factoring-facility borrowings were about $105,000 at June 30, with reported unused availability of about $2.428 million. By August 19, unused availability had fallen to about $223,000 after inventory purchases to support expected September-quarter shipments. Advances are discretionary, secured by receivables and inventory, and bear interest at prime plus 2% (5.25% at June 30).
- The $1.081 million unsecured Eyston note was classified as current at June 30 and is due April 19, 2022; it bears interest at 5.25% at June 30. The balance sheet also reports $128,341 of current operating lease liabilities.
- Management said credit availability and cash flows should fund operations for 12 months, conditional on its sales plan continuing to succeed; it cautioned that no assurance could be given.
Changes, outlook and risks
- The quarter moved from a net loss to modest net income, driven primarily by higher sales to large national retailers. Management said certain retailer purchases were in-store tests, making the durability of this sales increase important to assess.
- COVID-19-related restrictions and delays in Hong Kong, China and the United States disrupted shipping and receiving. Management also cited freight-forwarding delays at California ports and said the pandemic’s full financial impact could not yet be quantified.
- All products are imported from China. Certain carbon monoxide and photoelectric alarms and USB devices were subject to 25% tariffs; management warned that further tariff increases not offset by higher selling prices could harm results and cash flow.
- The company was out of compliance with the NYSE American continued-listing equity requirement of $6.0 million after recent losses. The Exchange accepted a compliance plan through February 28, 2022 and will monitor progress. June 30 equity was $4.731 million.
- Management cited a history of insufficient sales for profitable operations and limited financing sources. Its plan centers on sales of sealed-battery ionization smoke alarms, carbon monoxide products and GFCIs, including through major home-improvement retailers.
- Two customers represented 13.9% and 10.1% of quarterly sales. The company depends on Eyston for all smoke-alarm and carbon-monoxide-alarm products it sells. Management said routine legal matters were not expected to have a material adverse effect. No formal numerical earnings or revenue guidance was provided.
Most important facts to verify
- Confirm the registrant intended: the filing is for Universal Security Instruments, Inc., not the company named in the request metadata.
- Whether retailer test orders convert into recurring sales, and whether the company can ship the orders supporting its sales outlook.
- Whether factoring availability recovers after inventory shipments, given the sharp decline reported between June 30 and August 19 and the lender’s discretion over advances.
- Whether gross margins improve as freight, port-handling, customs and tariff costs change.
- Progress toward the NYSE American listing-equity requirement before the February 28, 2022 plan deadline, and repayment of the Eyston note due April 19, 2022.