Universal Security Instruments, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2020. The filing identifies the registrant as Universal Security Instruments, Inc. (NYSE American: UUU), a marketer and distributor of safety and security products.
Financial performance
| Metric | Three months ended Dec. 31, 2020 | Three months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2019 |
|---|---|---|---|---|
| Net sales | $5.12 million | $3.22 million | $14.52 million | $11.19 million |
| Gross profit / margin | $1.52 million / 29.7% | $770,000 / 23.9% | $4.70 million / 32.4% | $3.11 million / 27.8% |
| Operating income (loss) | $92,404 | $(483,689) | $797,029 | $(837,638) |
| Net income (loss) | $78,318 | $(1.01) million | $725,181 | $(2.32) million |
| Basic and diluted EPS | $0.03 | $(0.44) | $0.31 | $(1.00) |
| Cash from operating activities | Not presented for the quarter | $1.83 million | $309,795 |
For the nine months, operating cash flow benefited mainly from a $2.02 million reduction in inventory, prepaid expenses and other, and was partly offset by a $1.02 million increase in receivables and amounts due from the factor. Financing activities used $1.34 million, primarily reflecting repayment of factor borrowings, partly offset by the $221,400 Paycheck Protection Program (PPP) loan. Cash increased by $487,110 to $580,904.
Balance sheet and liquidity
At December 31, 2020, total assets were $7.54 million, current assets $7.26 million, and current liabilities $1.24 million. Shareholders’ equity was $5.17 million, up from $4.45 million at March 31, 2020, but below the Exchange’s $6.0 million continued-listing equity requirement. The Company had no factor borrowings and approximately $3.48 million of unused availability under its factoring facility; advances are secured by receivables and inventory and are at the factor’s discretion.
Liabilities included a $221,400 current bank note for the PPP loan, which bears 1% interest and management expects to be forgiven, and a $1.08 million unsecured note payable to former joint-venture partner Eyston, due April 19, 2022. Operating lease liabilities totaled $211,526.
Changes, outlook and risks
- Quarterly sales rose 59.0% and nine-month sales rose 29.8% year over year. Growth chiefly reflected fulfilling orders for a new large national retailer when its usual supplier experienced pandemic-related delays, as well as a 1,350-store product test at another national retailer.
- Profitability improved from prior-year losses. Gross margins benefited from lower tariff costs and, for the nine-month period, refunds of tariffs previously paid. Research and development and interest expenses also declined. Prior-year results included losses from the Hong Kong joint venture, which the Company sold effective March 31, 2020.
- Management said sales had been depressed earlier in calendar 2020 by COVID-19 restrictions, and that pandemic-related shipping or supply delays could recur. The Company imports all products from China; tariffs on certain products, and any increases not offset by pricing, could adversely affect results.
- One customer represented 14.1% of quarterly sales and 26.4% of nine-month sales. The large retailer’s test was expected to conclude later in the fiscal year; continued sales growth is not assured.
- The Exchange accepted the Company’s plan to regain listing compliance by February 28, 2022, with periodic progress reviews. Management expects cash and credit availability to fund operations for the next 12 months, conditional on its plans succeeding; the filing provides no formal numerical earnings or revenue guidance.
- The Company cites a history of insufficient sales to generate profitable operations and limited financing sources. Routine legal matters were not expected by management to have a material adverse effect. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Investor verification priorities
- Track progress toward the $6.0 million equity listing standard and the Exchange’s February 28, 2022 plan deadline.
- Assess whether the retailer-driven sales increase and product test translate into recurring orders, and monitor customer concentration.
- Verify PPP loan forgiveness and the Company’s ability to access factor advances, which are discretionary despite stated availability.
- Review tariff refunds and future tariff exposure, as well as pandemic-related sourcing and shipping risks.
- Reconcile the filing’s reported nine-month net income of $725,181 with the equity rollforward, which separately shows quarterly results of $(78,982), $725,845 and $78,318; the reported quarterly figures sum to $725,181.