Universal Security Instruments Reports Significant Financial Improvements in Q3 and H1 2024

Universal Security Instruments, Inc. (USI) reported significant financial improvements for the three and six months ended September 30, 2024, compared to the same periods in 2023.

For the three-month period, net sales surged to $7.2 million, a 93.8% increase from $3.7 million in the prior year. Gross profit also rose to $2.0 million, up from $1.3 million, although the gross profit margin decreased to 27.7% from 35.2%, attributed to higher costs of electronic components and an increased allowance for excess and obsolete inventory. Operating income turned positive at $678,220, contrasting with an operating loss of $157,588 in the previous year. Net income before taxes reached $588,578, leading to a net income of $576,978, a substantial recovery from a net loss of $186,425 in Q3 2023. Earnings per share improved to $0.25 from a loss of $0.08.

For the six-month period, net sales increased by 13.3% to $11.8 million from $10.4 million. Gross profit rose slightly to $3.1 million, but the gross profit margin fell to 26.1% from 29.0%. Operating income for the six months was $280,902, compared to $62,710 in the previous year. The net income for this period was $134,772, a significant turnaround from a net loss of $21,295 in 2023, with earnings per share improving to $0.06 from a loss of $0.01.

USI's financial activities included a net cash used in operating activities of $3.3 million for the six months ended September 30, 2024, primarily due to increases in accounts receivable and inventories. However, financing activities provided $3.4 million, reflecting a net borrowing under a line of credit agreement. As of September 30, 2024, USI had $4.2 million outstanding under this agreement, with an effective interest rate of 10.0%.

Strategically, USI entered into an asset purchase agreement with Feit Electric Company, Inc. on October 31, 2024, to sell certain inventory and non-tangible assets, pending stockholder approval. Additionally, the company increased its reserve for excess and obsolete inventory by $300,000 during the quarter, reflecting potential losses from the proposed sale.

The company continues to face challenges, including identified material weaknesses in its internal controls over financial reporting, particularly regarding classification and documentation. Management has outlined remediation plans to address these weaknesses. Despite these issues, USI believes its cash balances and available borrowing will suffice to meet its cash requirements in the near term.