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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, 2004
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 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 3, 2004, the number of shares outstanding of the registrant's common
stock was 1,580,729.
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TABLE OF CONTENTS
Part I - Financial Information Page
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets at June 30, 2004
and March 31, 2004 3
Consolidated Statements of Earnings for the Three
Months Ended June 30, 2004 and 2003 4
Consolidated Statements of Cash Flows for the Three
Months Ended June 30, 2004 and 2003 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
------- Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure About Market
------- Risk 11
Item 4. Controls and Procedures 11
-------
Part II - Other Information
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, 2004 March 31, 2004
------------- --------------
CURRENT ASSETS
Cash $ 45,610 $ 188,190
Accounts receivable:
Trade (less allowance for doubtful accounts of $15,000 at June 30 and
March 31, 2004, respectively) 366,894 90,852
Employees 24,199 23,770
----------- -----------
391,093 114,622
Amount due from factor 2,068,836 3,111,003
Inventory 3,427,754 2,867,650
Prepaid expenses 442,260 107,052
----------- -----------
TOTAL CURRENT ASSETS 6,375,553 6,388,517
DEFERRED TAX ASSET 56,899 56,899
INVESTMENT IN JOINT VENTURE 5,374,225 4,832,286
PROPERTY, PLANT AND EQUIPMENT - NET 89,526 93,431
OTHER ASSETS 15,486 15,486
----------- -----------
TOTAL ASSETS $11,911,689 $11,386,619
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $1,143,358 $1,517,305
Accrued liabilities 756,069 663,818
Current obligations under capital lease 4,436 7,224
----------- -----------
TOTAL CURRENT LIABILITIES 1,903,863 2,188,347
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per share; authorized 20,000,000 shares;
issued and outstanding 1,577,063 and 1,552,896 shares at June 30, 2004
and March 31, 2004, respectively 15,771 15,529
Additional paid-in capital 11,231,918 11,188,903
Accumulated deficit (1,239,863) (2,006,160)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 10,007,826 9,198,272
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,911,689 $11,386,619
=========== ===========
See accompanying notes to consolidated financial statements.
3
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended June 30,
2004 2003
---- ----
Net sales $4,874,782 $4,431,950
Cost of good sold 3,390,069 2,971,705
---------- ----------
GROSS PROFIT 1,484,713 1,460,245
Research and development expense 66,226 64,617
Selling, general and administrative expense 1,181,358 1,217,240
---------- ----------
Operating income 237,129 178,388
Other (expense):
Interest expense (12,771) (32,710)
---------- ----------
INCOME BEFORE EARNINGS FROM JOINT VENTURE
224,358 145,678
Earnings from Joint Venture:
Equity in earnings of Joint Venture 541,939 706,820
---------- ----------
NET INCOME $ 766,297 $ 852,498
========= =========
Net income per common share amounts:
Basic $0.49 $0.57
Diluted $0.44 $0.51
Weighted average number of common shares outstanding
Basic 1,564,702 1,497,365
Diluted 1,757,283 1,666,921
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,
2004 2003
---- ----
OPERATING ACTIVITIES
Net income $ 766,297 $ 852,498
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization 8,095 8,540
Earnings of the Joint Venture (541,939) (706,820)
Change in allowance for doubtful accounts - 40,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable and amounts due from factor 765,696 (527,927)
Increase (decrease) in inventories and prepaid expenses (895,312) 505,481
Decrease in accounts payable and accrued expenses (281,696) (199,715)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (178,859) (27,943)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (4,190) (3,787)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (4,190) (3,787)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock from exercise of employee stock 43,257 4,500
options
Principal payments on capital lease (2,788) (3,793)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 40,469 707
--------- ---------
DECREASE IN CASH (142,580) (31,023)
Cash at beginning of period 188,190 51,112
CASH AT END OF PERIOD $ 45,610 $ 20,089
Supplemental information:
Interest paid $ 12,771 $ 32,710
Income tax paid - -
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, 2004
audited financials 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, 2004 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 (Hong Kong 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, 2004
and 2003:
2004 2003
----------- -----------
Net sales $ 6,843,904 $ 6,761,546
Gross profit 2,214,058 1,976,146
Net income 1,238,336 1,276,037
Total current assets 6,789,802 10,867,013
Total assets 13,841,081 13,263,518
Total current liabilities 4,547,686 4,444,823
During the three months ended June 30, 2004 and 2003, respectively, the Company
purchased $2,693,179 and $1,448,693 of products from the Hong Kong Joint
Venture. At June 30, 2004 and 2003, the Company had amounts payable to the Hong
Kong Joint Venture of $341,451 and $382,462, respectively. The Company has
adjusted its equity in earnings of the Joint Venture to reflect certain
adjustments required by US GAAP, such as intercompany profit and recording the
investment in bonds at cost instead of market value as required by Hong Kong
GAAP.
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.
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, 2004 and 2003 is as follows:
6
Three months ended June 30,
2004 2003
-------- --------
Weighted average number of common
shares outstanding for basic EPS 1,564,702 1,497,365
Shares issued upon the assumed
exercise of outstanding stock
options 192,581 169,556
--------- ---------
Weighted average number of common
and common equivalent shares
outstanding for diluted EPS 1,757,283 1,666,921
========= =========
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,
2004 2003
-------- --------
Net income, as reported $766,297 $852,498
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects (14,531) (20,985)
-------- --------
Pro forma net income $751,766 $831,513
======== ========
Earnings per share:
Basic - as reported $0.49 $0.57
===== =====
Basic - pro forma $0.48 $0.56
===== =====
Diluted - as reported $0.44 $0.51
===== =====
Diluted - pro forma $0.43 $0.50
===== =====
All share and per share amounts included in the consolidated financial
statements have been retroactively adjusted to reflect the 4-for-3 stock
dividend paid on April 5, 2004 to shareholders of record on March 15, 2004.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As used throughout this Report, "we," "our," "the Company" and similar
words refers to Universal Security Instruments, Inc.
FORWARD-LOOKING STATEMENTS
When used in this discussion and elsewhere in this Quarterly Report on Form
10-Q, the words or phrases "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. 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, including
regional and national economic conditions, unfavorable judicial decisions,
substantial changes in levels of market interest rates, credit and other risks
of lending and investment activities and competitive and regulatory factors
could affect our financial performance and could cause our actual results for
future periods to differ materially from those anticipated or projected. 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.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003
Sales. Net sales for the three months ended June 30, 2004 were $4,874,782
compared to $4,431,950 for the comparable three months in the prior fiscal year,
an increase of $442,832 (10%). Net sales of safety products increased by
$315,258 as compared to the quarter ended June 30, 2003. Net sales of other
products increased by $127,574, as compared to the quarter ended June 30, 2003.
The primary reason for the increase in safety sales was higher smoke alarm
sales. The major reason for higher other products sales was higher private label
sales, a trend which we do not anticipate will continue.
Gross Profit Margin. The gross profit margin is calculated as net sales
less cost of goods sold expressed as a percentage of net sales. Our gross profit
margins were 30% compared to 33% of sales for the quarter ended June 30, 2003.
The primary reason for this decrease was higher safety product costs.
Expenses. Research, selling, general and administrative expenses decreased
by $34,273 from the comparable three months in the prior year. As a percentage
of sales, research, selling, general and administrative expenses were 26% for
the three month period ended June 30, 2004 and 29% for the three month period
ended June 30, 2003. The decrease in selling and general administrative expense
as a percent of sales was due to higher sales volume and variable costs which
did not increase at the same rate as sales.
Interest Expense and Income. Our interest expense, net of interest income,
decreased from $32,710 for the quarter ended June 30, 2003 to $12,771 for the
quarter ended June 30, 2004. The lower interest expenses resulted primarily from
lower interest rates and lower outstanding loan balances.
Net Income. We reported a net profit of $766,297 for the quarter ended June
30, 2004 compared to net profit of $852,498 for the corresponding quarter of the
prior fiscal year. The primary reason for the decrease in profit was lower Hong
Kong Joint Venture earnings, partially offset by higher operating profit from
Company sales.
FINANCIAL CONDITION AND LIQUIDITY
Our cash needs are currently met by funds generated from operations and our
Factoring Agreement which supplies both short-term borrowings and letters of
credit to finance foreign inventory purchases. The maximum amount available
under the Factoring Agreement is currently $7,500,000. However, based on
specified percentages of our accounts receivable and inventory and letter of
credit commitments, at June 30, 2004, we had $3,956,734 available under the
Factoring Agreement, of which $1,208,734 had been utilized in connection with
8
outstanding letters of credit as of June 30, 2004. 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 our lender, which was 5.5% at June 30, 2004. Borrowings are
collateralized by all of our accounts receivable and inventory.
Operating activities used cash of $178,859 for the quarter ended June 30,
2004. This was primarily due to a decrease in accounts receivable and amount due
from factor of $765,696, and equity in the earnings from our Hong Kong Joint
Venture of $541,935, which were offset by an increase in inventories and prepaid
expenses of $895,312. For the same period last year, operating activities used
cash of $27,943.
Investing activities used cash of $4,190 in the current quarter and $3,787
cash in the prior quarter, primarily to acquire equipment.
Financing activities provided cash of $40,469 primarily due to the exercise
of employee stock options. For the same period last year, financing activities
provided cash of $707.
We believe that funds available under the Factoring Agreement and our
working capital provide us with sufficient resources to meet our requirements
for liquidity and working capital in the ordinary course of business over the
next twelve months.
On August 4, 2004 (subsequent to the period covered by this Report),
Stephen C. Knepper, our Chairman and Chief Executive Officer, died suddenly and
unexpectedly. While Mr. Knepper's contributions to the Company and our success
cannot be overstated, management believes that Mr. Knepper's passing will not
have a material adverse effect on our growth and results of operations.
HONG KONG JOINT VENTURE
Net Sales. Net sales of the joint venture for the three months ended June
30, 2004 were $6,843,904 compared to $6,761,546 for the comparable three months
in the prior fiscal year. The increase in sales was primarily due to increased
sales of smoke alarms to the Company.
Net Income. Net income was $1,238,336 for the quarter ended June 30, 2004
compared to $1,276,037 in the comparable quarter last year. The decrease in net
income resulted from higher selling, general and administrative costs.
Gross Margins. Gross margins of the Hong Kong Joint Venture for the quarter
ended June 30, 2004 increased to 32% from 29% compared to the prior year's
period. The primary reason for this increase was higher selling prices and lower
purchase price of raw materials.
Expenses. Selling, general and administrative expenses were $864,871 for
the quarter ended June 30, 2004, compared to $690,143 for the prior year's
period, a 25% increase. As a percentage of sales, expenses were 13% and 10% for
the quarters ended June 30, 2004 and 2003, respectively. The primary reason for
the increase in selling, general and administrative expense as a percent of
sales was the valuation of investment bonds at fair market value as required by
Hong Kong GAAP.
Interest Income and Expense. Interest income, net of interest expense, was
$9,780 for the quarter ended June 30, 2004, compared to interest income of $557
for the prior year's period. The increase in interest income is due to
purchasing of higher interest bearing bonds.
Liquidity. Cash needs of the Hong Kong Joint Venture are currently met by
funds generated from operations. During the quarter ended June 30, 2004, working
capital increased by $923,459 from $1,318,657 on March 31, 2004 to $2,242,116 on
June 30, 2004. During the quarter ended June 30, 2003, working capital increased
by $839,407 from $5,582,783 on March 31, 2003 to $6,422,190 on June 30, 2003.
9
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of our consolidated financial
statements and results of operations are based on our 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, we evaluate these estimates, including those related to bad
debts, inventories, income taxes, and contingencies and litigation. We base
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.
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,
2004. 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:
Our 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 title 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. We established 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. We have 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.
We currently have 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. We have
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,
we established a full valuation allowance for its remaining net deferred tax
assets at March 31, 2004.
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. 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.
10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
No material changes have occurred in our quantitative and qualitative
market risk disclosures as presented in our Annual Report Form 10-K for the year
ended March 31, 2004.
ITEM 4. CONTROLS AND PROCEDURES
We maintain a system of disclosure controls and procedures 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 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 believe that the system is
operating effectively to ensure appropriate disclosure. There have been no
changes in our internal control over financial reporting during the most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Management is aware that there is a lack of segregation of duties at the
Company due to the small number of employees dealing with general administrative
and financial matters. However, at this time management has decided that
considering the employees involved and the control procedures in place, the
risks associated with such lack of segregation are insignificant and the
potential benefits of adding employees to clearly segregate duties do not
justify the expenses associated with such increases. Management will
periodically reevaluate this situation.
We have also been advised that the independent registered public accounting
firm for the Hong Kong Joint Venture has identified certain internal control
deficiencies at the Hong Kong Joint Venture which the auditors consider to be
"significant deficiencies" that, in the aggregate, constitute "material
weaknesses" under U.S. accounting standards. The Hong Kong Joint Venture's
independent auditors have advised the Hong Kong Joint Venture that these
internal control deficiencies do not affect the results reported in the Hong
Kong Joint Venture's consolidated financial statements as of June 30, 2004. The
Hong Kong Joint Venture is in the process of addressing these deficiencies and
Company management will continue to monitor the Hong Kong Joint Venture's
progress in this area.
11
PART II - OTHER INFORMATION
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
10.1 Non-Qualified Stock Option Plan, as amended (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, 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*
32.1 Section 1350 Certification*
99.1 Press Release dated August 13, 2004*
*Filed herewith
(b) Reports on Form 8-K:
On June 3, 2004, the Registrant filed a Current Report on Form 8-K
reporting, under Item 5, reporting the filing of an amended complaint
in the lawsuit against the Company and the members of its Board of
Directors by Michael Kovens.
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 16, 2004 By: /s/ Harvey B. Grossblatt
---------------------------------
Harvey B. Grossblatt
President, Chief Financial Officer
13
Exhibit 3.3
-----------
BY-LAWS
UNIVERSAL SECURITY INSTRUMENTS, INC.
(As amended on August 12, 2004)
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
--------------
The annual meeting of the stockholders of the Corporation shall be
held at the principal office of the Corporation in Owings Mills, Maryland, on
such date in the month of October as may be selected by the Board of Directors
at 10:30 o'clock a.m. (or such other time and place as may be fixed by the Board
of Directors) for the election of directors and for the transaction of general
business. Such annual meetings shall be general meetings, that is to say, open
for the transaction of any business within the powers of the Corporation without
special notice of such business, except in any case in which special notice is
required by statute.
Section 2. Special Meetings.
----------------
(a) General. Special meetings of the stockholders of the Corporation
may be called at any time by either the Chairman of the Board or the President
and shall be called by the President or the Secretary at the request in writing
of a majority of the Board of Directors, or at the request in writing of the
holders of a majority of all the shares outstanding and entitled to vote.
(b) Stockholder Requested Special Meetings.
(1) Any stockholder of record seeking to have stockholders
request a special meeting shall, by sending written notice to the Secretary of
the Corporation (the "Record Date Request Notice") by registered mail, return
receipt requested, request the Board of Directors to fix a record date to
determine the stockholders entitled to request a special meeting (the "Request
Record Date"). The Record Date Request Notice shall set forth the purpose of the
meeting and the matters proposed to be acted on at it, shall be signed by one or
more stockholders of record as of the date of signature (or their agents duly
authorized in writing), shall bear the date of signature of each such
stockholder (or such agent) and shall set forth all information relating to each
such stockholder that must be disclosed in solicitations of proxies for election
of directors in an election contest (even if an election contest is not
involved), or is otherwise required, in each case pursuant to Regulation 14A (or
any successor provision) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Upon receiving the Record Date Request Notice, the Board
of Directors may fix a Request Record Date. The Request Record Date shall not
precede and shall not be more than ten days after the close of business on the
date on which the resolution fixing the Request Record Date is adopted by the
Board of Directors. If the Board of Directors, within ten days after the date on
which a valid Record Date Request Notice is received, fails to adopt a
resolution fixing the Request Record Date and make a public announcement of such
Request Record Date, the Request Record Date shall be the close of business on
the tenth day after the first date on which the Record Date Request Notice is
received by the Secretary.
(2) In order for any stockholder to request a special meeting,
one or more written requests for a special meeting signed by stockholders of
record (or their agents duly authorized in writing) as of the Request Record
Date entitled to cast not less than a majority (the "Special Meeting
Percentage") of all of the votes entitled to be cast at such meeting (the
"Special Meeting Request") shall be delivered to the Secretary. In addition, the
Special Meeting Request shall set forth the purpose of the meeting and the
matters proposed to be acted on at it (which shall be limited to the matters set
forth in the Record Date Request Notice received by the Secretary), shall bear
the date of signature of each such stockholder (or such agent) signing the
- i -
Special Meeting Request, shall set forth the name and address, as they appear in
the Corporation's books, of each stockholder signing such request (or on whose
behalf the Special Meeting Request is signed), the class, series and number of
all shares of stock of the Corporation which are owned by each such stockholder,
and the nominee holder for, and number of, shares owned by such stockholder
beneficially but not of record, shall be sent to the Secretary by registered
mail, return receipt requested, and shall be received by the Secretary within 60
days after the Request Record Date. Any requesting stockholder may revoke his,
her or its request for a special meeting at any time by written revocation
delivered to the Secretary.
(3) The Secretary shall inform the requesting stockholders of the
reasonably estimated cost of preparing and mailing the notice of meeting
(including the Corporation's proxy materials). The Secretary shall not be
required to call a special meeting upon stockholder request and such meeting
shall not be held unless, in addition to the documents required by paragraph (2)
of this Section 2(b), the Secretary receives payment of such reasonably
estimated cost prior to the mailing of any notice of the meeting.
(4) Except as provided in the next sentence, any special meeting
shall be held at such place, date and time as may be designated by the Chairman
of the Board, the President or a majority of the Board of Directors, whoever has
called or requested the meeting. In the case of any special meeting called by
the Secretary upon the request of stockholders (a "Stockholder Requested
Meeting"), such meeting shall be held at such place, date and time as may be
designated by the Board of Directors; provided, however, that the date of any
Stockholder Requested Meeting shall be not more than 90 days after the record
date for such meeting (the "Meeting Record Date"); and provided further that if
the Board of Directors fails to designate, within ten days after the date that a
valid Special Meeting Request is actually received by the Secretary (the
"Delivery Date"), a date and time for a Stockholder Requested Meeting, then such
meeting shall be held at 2:00 p.m. local time on the 90th day after the Meeting
Record Date or, if such 90th day is not a Business Day (as defined below), on
the first preceding Business Day; and provided further that in the event that
the Board of Directors fails to designate a place for a Stockholder Requested
Meeting within ten days after the Delivery Date, then such meeting shall be held
at the principal executive office of the Corporation. In fixing a date for any
special meeting, the Chairman of the Board, the President or the Board of
Directors may consider such factors as he, she or it deems relevant within the
good faith exercise of business judgment, including, without limitation, the
nature of the matters to be considered, the facts and circumstances surrounding
any request for the meeting and any plan of the Board of Directors to call an
annual meeting or a special meeting. In the case of any Stockholder Requested
Meeting, if the Board of Directors fails to fix a Meeting Record Date that is a
date within 30 days after the Delivery Date, then the close of business on the
30th day after the Delivery Date shall be the Meeting Record Date.
(5) If written revocations of requests for the special meeting
have been delivered to the Secretary and the result is that stockholders of
record (or their agents duly authorized in writing), as of the Request Record
Date, entitled to cast less than the Special Meeting Percentage have delivered,
and not revoked, requests for a special meeting to the Secretary, the Secretary
shall: (i) if the notice of meeting has not already been mailed, refrain from
mailing the notice of the meeting and send to all requesting stockholders who
have not revoked such requests written notice of any revocation of a request for
the special meeting, or (ii) if the notice of meeting has been mailed and if the
secretary first sends to all requesting stockholders who have not revoked
requests for a special meeting written notice of any revocation of a request for
the special meeting and written notice of the Secretary's intention to revoke
the notice of the meeting, revoke the notice of the meeting at any time before
ten days before the commencement of the meeting. Any request for a special
meeting received after a revocation by the Secretary of a notice of a meeting
shall be considered a request for a new special meeting.
(6) The Chairman of the Board, the President or the Board of
Directors may appoint regionally or nationally recognized independent inspectors
of elections to act as the agent of the Corporation for the purpose of promptly
performing a ministerial review of the validity of any purported Special Meeting
Request received by the Secretary. For the purpose of permitting the inspectors
to perform such review, no such purported request shall be deemed to have been
delivered to the Secretary until the earlier of (i) five Business Days after
receipt by the Secretary of such purported request and (ii) such date as the
independent inspectors certify to the Corporation that the valid requests
received by the Secretary represent at least a majority of the issued and
outstanding shares of stock that would be entitled to vote at such meeting.
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Nothing contained in this paragraph (6) shall in any way be construed to suggest
or imply that the Corporation or any stockholder shall not be entitled to
contest the validity of any request, whether during or after such five Business
Day period, or to take any other action (including, without limitation, the
commencement, prosecution or defense of any litigation with respect thereto, and
the seeking of injunctive relief in such litigation).
(7) For purposes of these Bylaws, "Business Day" shall mean any
day other than a Saturday, a Sunday or a day on which banking institutions in
the State of Maryland are authorized or obligated by law or executive order to
close.
Section 3. Notice of Meetings.
------------------
Not less than ten (10) days and not more than ninety (90) days written
or printed notice of every annual meeting and of every special meeting of the
stockholders shall be given to each holder of stock having voting rights whose
name appears as a holder of record upon the books of the Corporation at the
close of business on the date fixed by the Board of Directors for the
determination of stockholders entitled to notice of such meeting, and, if no
such date shall have been fixed by the Board for such purpose, then to the
holders of record on the date when such notice shall be given. Such notices of
annual or special meetings shall state the place, day and hour of such meeting,
and, in the case of special meetings, shall also state the business proposed to
be transacted thereat. Such notice shall be given to each stockholder either by
mail, by presenting it to such stockholder personally, by leaving it at the
stockholder's residence or usual place of business or by any other means
permitted by Maryland law. If mailed, such notice shall be deemed to be given
when deposited in the United States mail addressed to the stockholder at the
stockholder's address as it appears on the records of the Corporation, with
postage thereon prepaid. No notice of the time, place or purpose of any meeting
of stockholders, whether prescribed by law, by the Charter, or by these By-Laws,
need be given to any stockholder who attends in person, or by proxy, or who, in
writing executed and filed with the records of the meeting either before or
after the holding thereof, waives such notice. No notice of any meeting, regular
or special, be given to any stockholder who is not entitled to vote thereat.
Section 4. Quorum.
------
At any meeting of stockholders, the presence, in person or by proxy,
of shareholders entitled to cast a majority of votes thereat shall constitute a
quorum for the election of directors or for the transaction of other business;
but, in the absence of a quorum, the stockholders entitled to vote who shall be
present in person or by proxy at any meeting (or adjournment thereof), may, by
vote of a majority of shares so present and entitled to vote, adjourn the
meeting from time to time, but not for a period of over thirty (30) days at any
one time, by announcement at the meeting until a quorum shall attend. At any
such adjourned meeting at which a quorum shall be present, any business may be
transacted at the meeting as originally notified.
Section 5. Organization and Conduct.
------------------------
Every meeting of stockholders shall be conducted by an individual
appointed by the Board of Directors to be chairman of the meeting or, in the
absence of such appointment, by the Chairman of the Board or, in the case of a
vacancy in the office or absence of the Chairman of the Board, by one of the
following officers present at the meeting: the Vice Chairman of the Board, if
there be one, the President, the Vice Presidents in their order of rank and
seniority, or, in the absence of such officers, a chairman chosen by the
stockholders by the vote of a majority of the votes cast by stockholders present
in person or by proxy. The Secretary, or, in the Secretary's absence, an
Assistant Secretary, or in the absence of both the Secretary and Assistant
Secretaries, an individual appointed by the Board of Directors or, in the
absence of such appointment, an individual appointed by the chairman of the
meeting shall act as secretary. In the event that the Secretary presides at a
meeting of the stockholders, an Assistant Secretary, or in the absence of
Assistant Secretaries, an individual appointed by the Board of Directors or the
chairman of the meeting, shall record the minutes of the meeting. The order of
business and all other matters of procedure at any meeting of stockholders shall
be determined by the chairman of the meeting. The chairman of the meeting may
prescribe such rules, regulations and procedures and take such action as, in the
discretion of such chairman, are appropriate for the proper conduct of the
meeting, including, without limitation, (a) restricting admission to the time
set for the commencement of the meeting; (b) limiting attendance at the meeting
- iii -
to stockholders of record of the Corporation, their duly authorized proxies and
other such individuals as the chairman of the meeting may determine; (c)
limiting participation at the meeting on any matter to stockholders of record of
the Corporation entitled to vote on such matter, their duly authorized proxies
and other such individuals as the chairman of the meeting may determine; (d)
limiting the time allotted to questions or comments by participants; (e)
maintaining order and security at the meeting; (f) removing any stockholder or
any other individual who refuses to comply with meeting procedures, rules or
guidelines as set forth by the chairman of the meeting; and (g) recessing or
adjourning the meeting to a later date and time and place announced at the
meeting. Unless otherwise determined by the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with the rules of
parliamentary procedure.
Section 6. Proxies.
-------
Stockholders may vote either in person or by proxy, but no proxy which
is dated more than eleven months before the meeting at which it is offered shall
be accepted unless such proxy shall on its face name a longer period for which
it is to remain in force. Every proxy shall be executed by the stockholder or by
the stockholder's duly authorized agent in any manner permitted by law. Such
proxy or evidence of authorization of such proxy shall be filed with the
Secretary of the Corporation before or at the meeting.
Section 7. Voting.
------
At every meeting of the stockholders, every stockholder of the
Corporation shall be entitled to one (1) vote for each share of voting stock
registered in his name on the books of the Corporation on the date for the
determination of voting rights thereat. The affirmative vote of the holders of a
majority of the stock issued and entitled to vote shall be sufficient and
necessary to elect directors or for the taking or authorization of any action by
the stockholders.
Section 8. Advance Notice of Stockholder Nominees for Director and Other
Stockholder Proposals.
-------------------------------------------------------------
(a) Annual Meetings of Stockholders.
(1) Nominations of individuals for election to the Board of
Directors and the proposal of other business to be considered by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the Corporation who was a stockholder
of record both at the time of giving of notice by the stockholder as provided
for in this Section 8(a) and at the time of the annual meeting, who is entitled
to vote at the meeting and who has complied with this Section 8(a).
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of paragraph
(1) of this Section 8(a), the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for action by the stockholders. To be timely, a
stockholder's notice shall set forth all information required under this Section
8 and shall be delivered to the Secretary at the principal executive office of
the Corporation not less than 120 days nor more than 150 days prior to the first
anniversary of the date of mailing of the notice for the preceding year's annual
meeting; provided, however, that in the event that the date of the mailing of
the notice for the annual meeting is advanced or delayed by more than 30 days
from the first anniversary of the date of mailing of the notice for the
preceding year's annual meeting, notice by the stockholder to be timely must be
so delivered not earlier than the 150th day prior to the date of mailing of the
notice for such annual meeting and not later than the close of business on the
later of the 120th day prior to the date of mailing of the notice for such
annual meeting or the tenth day following the day on which public announcement
of the date of mailing of the notice for such meeting is first made. In no event
shall the public announcement of a postponement or adjournment of an annual
meeting commence a new time period for the giving of a stockholder's notice as
described above. Such stockholder's notice shall set forth (i) as to each
individual whom the stockholder proposes to nominate for election or reelection
as a director, (A) the name, age, business address and residence address of such
- iv -
individual, (B) the class, series and number of any shares of stock of the
Corporation that are beneficially owned by such individual, (C) the date such
shares were acquired and the investment intent of such acquisition and (D) all
other information relating to such individual that is required to be disclosed
in solicitations of proxies for election of directors in an election contest
(even if an election contest is not involved), or is otherwise required, in each
case pursuant to Regulation 14A (or any successor provision) under the Exchange
Act and the rules thereunder (including such individual's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (ii) as to any other business that the stockholder proposes to bring
before the meeting, a description of such business, the reasons for proposing
such business at the meeting and any material interest in such business of such
stockholder and any Stockholder Associated Person (as defined below),
individually or in the aggregate, including any anticipated benefit to the
stockholder and the Stockholder Associated Person therefrom; (iii) as to the
stockholder giving the notice and any Stockholder Associated Person, the class,
series and number of all shares of stock of the Corporation which are owned by
such stockholder and by such Stockholder Associated Person, if any, and the
nominee holder for, and number of, shares owned beneficially but not of record
by such stockholder and by any such Stockholder Associated Person; (iv) as to
the stockholder giving the notice and any Stockholder Associated Person covered
by clauses (ii) or (iii) of this paragraph (2) of this Section 8(a), the name
and address of such stockholder, as they appear on the Corporation's stock
ledger and current name and address, if different, and of such Stockholder
Associated Person; and (v) to the extent known by the stockholder giving the
notice, the name and address of any other stockholder supporting the nominee for
election or reelection as a director or the proposal of other business on the
date of such stockholder's notice.
(3) Notwithstanding anything in this subsection (a) of this
Section 8 to the contrary, in the event the Board of Directors increases or
decreases the maximum or minimum number of directors in accordance with Article
II, Section 1 of these Bylaws, and there is no public announcement of such
action at least 100 days prior to the first anniversary of the date of mailing
of the notice of the preceding year's annual meeting, a stockholder's notice
required by this Section 8(a) shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the principal executive office of the
Corporation not later than the close of business on the tenth day following the
day on which such public announcement is first made by the Corporation.
(4) For purposes of this Section 8, "Stockholder Associated
Person" of any stockholder shall mean (i) any person controlling, directly or
indirectly, or acting in concert with, such stockholder, (ii) any beneficial
owner of shares of stock of the Corporation owned of record or beneficially by
such stockholder and (iii) any person controlling, controlled by or under common
control with such Stockholder Associated Person.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
individuals for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record both at the time of giving of notice
provided for in this Section 8 and at the time of the special meeting, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Section 8. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more individuals to the Board of
Directors, any such stockholder may nominate an individual or individuals (as
the case may be) for election as a director as specified in the Corporation's
notice of meeting, if the stockholder's notice required by paragraph (a)(2) of
this Section 8 shall be delivered to the Secretary at the principal executive
office of the Corporation not earlier than the 150th day prior to such special
meeting and not later than the close of business on the later of the 120th day
prior to such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of a postponement or adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
- v -
(c) General.
(1) Upon written request by the Secretary or the Board of
Directors or any committee thereof, any stockholder proposing a nominee for
election as a director or any proposal for other business at a meeting of
stockholders shall provide, within five Business Days of delivery of such
request (or such other period as may be specified in such request), written
verification, satisfactory, in the discretion of the Board of Directors or any
committee thereof or any authorized officer of the Corporation, to demonstrate
the accuracy of any information submitted by the stockholder pursuant to this
Section 8. If a stockholder fails to provide such written verification within
such period, the information as to which written verification was requested may
be deemed not to have been provided in accordance with this Section 8.
(2) Only such individuals who are nominated in accordance with
this Section 8 shall be eligible for election as directors, and only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with this Section 8. The chairman of
the meeting shall have the power to determine whether a nomination or any other
business proposed to be brought before the meeting was made or proposed, as the
case may be, in accordance with this Section 8.
(3) For purposes of this Section 8, (a) the "date of mailing of
the notice" shall mean the date of the proxy statement for the solicitation of
proxies for election of directors and (b) "public announcement" shall mean
disclosure (i) in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or (ii) in a document publicly filed
by the Corporation with the Securities and Exchange Commission pursuant to the
Exchange Act.
(4) Notwithstanding the foregoing provisions of this Section 8, a
stockholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 8. Nothing in this Section 8 shall be deemed
to affect any right of a stockholder to request inclusion of a proposal in, nor
the right of the Corporation to omit a proposal from, the Corporation's proxy
statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange
Act.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Election and Powers.
-------------------
The business and property of the Corporation shall be conducted and
managed by its Board of Directors which shall consist of not less than three (3)
members nor more than fifteen (15) members. The Board of Directors may increase
or decrease the number of directors (but the number of Directors shall not be
more than 15 or less than 3) at any meeting called for that purpose. The members
of the Board of Directors shall be elected at the annual meeting of stockholders
by holders of stock represented in person or by proxy at such meeting and
entitled to vote thereat. Each director elected at any annual meeting shall hold
office until his successor shall have been elected and qualified or until he
shall die or resign, or shall have been removed.
Section 2. First Regular Meeting.
---------------------
After each meeting of stockholders at which a Board of Directors shall
have been elected, the Board of Directors so elected shall meet for the purpose
or organization and the transaction of other business, at such time and place as
may be designated by the Chairman of the Board, or in the absence of a Chairman
of the Board, the President.
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Section 3. Additional Regular Meetings.
---------------------------
Regular meetings of the Board of Directors shall be held at such times
as may be fixed by resolution of the Board.
Section 4. Special Meetings.
----------------
Special meetings of the Board of Directors shall be held whenever
called by the Chairman of the Board, the President, or by a majority of the
Directors either in writing or by vote.
Section 5. Place of Meetings.
-----------------
Subject to the provisions of Section 2 of this Article II, the Board
of Directors may hold its regular meetings at such place or places as it may
from time to time determine. Each special meeting of the Board of Directors
shall be held at such place as shall be designated in the notice of the meeting.
Section 6. Notice of Meeting.
-----------------
Notice of any special meeting of the Board of Directors shall be
delivered personally or by telephone, electronic mail, facsimile transmission,
United States mail or courier to each director at his or her business or
residence address. Notice by personal delivery, telephone, electronic mail,
facsimile transmission or courier shall be given at least 24 hours prior to the
meeting. Notice by United States mail shall be given at least two days prior to
the meeting. Telephone notice shall be deemed to be given when the director or
his or her agent is personally given such notice in a telephone call to which
the director or his or her agent is a party. Electronic mail notice shall be
deemed to be given upon transmission of the message to the electronic mail
address given to the Corporation by the director. Facsimile transmission notice
shall be deemed to be given upon completion of the transmission of the message
to the number given to the Corporation by the director and receipt of a
completed answer-back indicating receipt. Notice by United States mail shall be
deemed to be given when deposited in the United States mail properly addressed,
with postage thereon prepaid. Notice by courier shall be deemed to be given when
deposited with or delivered to a courier properly addressed. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statute or these Bylaws. No notice of any meeting need
be given to any director, who, in writing executed and filed with the records of
the meeting either before or after the holding thereof, waives such notice.
Section 7. Quorum.
------
A majority of the Board of Directors shall be necessary and sufficient
to constitute a quorum for the transaction of business at every meeting of the
Board of Directors.
Section 8. Voting.
------
The affirmative vote of a majority of the directors present at any
meeting of the Board of Directors at which a quorum is present shall be
sufficient and necessary for the taking or authorization of any action by the
Board of Directors.
Section 9. Organization.
------------
At all meetings of the Board of Directors the Chairman of the Board,
or in his absence, the President shall preside. The Secretary of the Corporation
shall act as Secretary at all meetings of the Board, and in his absence the
Chairman of the meeting may designate any person to act as Secretary.
- vii -
Section 10. Removal.
-------
Any director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and then only by the affirmative vote of
at least two thirds of the votes entitled to be cast generally in the election
of directors.
Section 11. Vacancies.
---------
If for any reason any or all of the directors cease to be directors,
such event shall not terminate the Corporation or affect these Bylaws or the
powers of the remaining directors hereunder (even if fewer than three directors
remain). Any vacancy on the Board of Directors may be filled only by a majority
of the remaining directors, even if the remaining directors do not constitute a
quorum. Any director elected to fill a vacancy shall serve for the remainder of
the full term of the class in which the vacancy occurred and until a successor
is elected and qualifies.
Section 12. Compensation.
------------
Directors, as such, shall not receive any stated compensation for
their services, but by resolution of the Board of Directors and a fixed sum and
expenses of attendance, if any, may be allowed for attendance at any regular or
special meeting thereof. Nothing in this Section shall be construed to preclude
a director from serving the Corporation in any other capacity and receiving
compensation therefor.
Section 13. Executive Committee.
-------------------
The Board of Directors may designate by vote of a majority of the
whole Board, three or more directors to constitute an executive committee, and
may designate one of such members to act as Chairman. Vacancies in the Executive
Committee may be filled by the remaining members of the Executive Committee at a
meeting at which a quorum is present. The Executive Committee may exercise such
powers of the Board of Directors in the management of business and affairs of
the Corporation as the Board may from time to time confer upon it, and shall
have the power to authorize the seal of the Corporation to be affixed to all
papers which may require it. A majority of the members of the Executive
Committee may determine its action and fix the time and place of its meetings
unless otherwise provided by the Board of Directors.
Section 14. Other Committees.
----------------
The Board of Directors may designate, by resolution, one or more
directors to constitute a committee, other than an executive committee, such
other committee to serve at the pleasure of the Board of Directors.
Section 15. Nomination of Directors.
-----------------------
Nominations for directors to be elected at the Corporation's annual
meeting of stockholders shall be made by the Board of Directors of the
Corporation. Nominations for directors to be elected at the Corporation's annual
meeting of stockholders may be made by stockholders in accordance with the
procedures set forth in Article I Section 9 of these By-Laws. Only such persons
who are nominated in accordance with the procedures set forth in these By-Laws
shall be eligible to serve as directors.
Section 16. Qualification of Directors.
--------------------------
Unless waived by the affirmative vote a majority of directors then in
office, no individual may be nominated or serve as a director unless: (i) such
individual has continuously been the record and beneficial owner (as defined in
Rule 13d-3 promulgated under the Exchange Act) of at least one percent of the
issued and outstanding shares of voting stock of the Corporation for a period of
at least one year immediately preceding the nomination of such individual as a
director; and (ii) such individual's principal residence was in the State of
- viii -
Maryland during the entire year immediately preceding the nomination of such
individual as a director. The Board of Directors may require such evidence of
any proposed nominee's satisfaction of each of the foregoing qualifications as
it deems necessary.
ARTICLE III
OFFICERS
Section 1. Officers.
--------
The officers of the Corporation shall be a Chairman of the Board (if
elected by the Board of Directors), a Vice Chairman of the Board (if elected by
the Board of Directors), a President, one or more Vice Presidents (if elected by
the Board of Directors), a Secretary and a Treasurer, all of whom shall be
elected by, and be subject to the control of, the Board of Directors. The
officers shall be elected annually by the Board of Directors at its first
meeting following the annual meeting of stockholders, subject to changes or
additions at other regular or special meetings of the Board of Directors. Each
of such officers shall hold office for a term of one year, and thereafter until
his successor is elected and qualified or until his death, resignation or
removal. The Board of Directors may appoint such other officers and assistant
officers as it deems necessary, who shall have such authority and perform such
duties as the Board may from time to time prescribe.
Section 2. Chairman of the Board.
---------------------
The Chairman of the Board (if elected by the Board of Directors) shall
be a director of the Corporation and the chief executive officer of the
Corporation. He shall preside at all meetings of the stockholders and of the
Board of Directors. He shall supervise, control and direct all of the business
and affairs of the Corporation. He shall have authority to sign and execute in
the name of the Corporation all authorized deeds, contracts and other
instruments.
Section 3. Vice Chairman of the Board.
--------------------------
The Vice Chairman of the Board (if elected by the Board of Directors)
shall be a director of the Corporation. In the event of the absence of the
Chairman of the Board, the Vice Chairman shall perform all of the duties of the
Chairman and when so acting have all of the powers of the Chairman. He shall
have authority to sign and execute in the name of the Corporation all authorized
deeds, contracts and other instruments.
Section 4. President.
---------
If the Board of Directors does not elect a Chairman of the Board, the
President shall be the chief executive officer of the Corporation. In the
absence of the Chairman and Vice Chairman of the Board, the President shall
preside at all meetings of the stockholders and of the Board of Directors. He
shall be responsible for the day-to-day operations of the Corporation subject to
the supervision and control of the Board of Directors and the Chairman of the
Board. He shall have authority to sign and execute in the name of the
Corporation all authorized deeds, contracts and other instruments.
Section 5. Vice President.
--------------
In the absence of the President, the Vice Presidents (in the order
designated at the time of their election, or in the absence of any designation,
in the order of their election) shall perform all the duties of the President
and when so acting, shall have the powers of the President. The Vice Presidents
shall also have such additional powers and duties as may be assigned to each of
them by the Board of Directors.
- ix -
Section 6. Secretary.
---------
The Secretary shall keep the minutes of the meetings of the
stockholders and of the Board of Directors in books provided for the purpose; he
shall see that all notices are duly given in accordance with the provisions of
the By-Laws or as required by law; he shall be the custodian of the records and
of the corporate seal or seals of the Corporation; he shall see that the
corporate seal is affixed to all documents, the execution of which on behalf of
the Corporation under its seal is duly authorized, and when so affixed may
attest the same; he may sign, with the President or Chairman of the Board,
certificates of stock of the Corporation; and, in general, he shall perform all
duties ordinarily incident to the office of a Secretary of a corporation, and
such other duties as, from time to time, may be assigned to him by the Board of
Directors, or by the President.
Section 7. Treasurer.
---------
The Treasurer shall have charge of and be responsible for all funds,
securities, receipts and disbursements of the Corporation, and shall deposit, or
cause to be deposited, in the name of the Corporation all moneys or other
valuable effects in such banks, trust companies, or other depositories as shall,
from time to time, be selected by the Board of Directors; he shall render to the
President and to the Board of Directors, whenever requested, an account of the
financial condition of the Corporation; he may sign, with the President, or
Chairman of the Board, certificates of stock of the Corporation; and, in
general, shall perform all duties ordinarily incident to the office of a
treasurer of a corporation, and such other duties as may be assigned to him by
the Board of Directors or by the President.
Section 8. Assistant Officers.
------------------
The Board of Directors may elect one or more Assistant Secretaries and
one or more Assistant Treasurers. Each such Assistant Secretary and Assistant
Treasurer shall hold office for such period and shall have such authority and
perform such duties as the Board of Directors may prescribe.
Section 9. Compensation.
------------
The Board of Directors shall have power to fix the compensation of all
officers of the Corporation. It may authorize any officer upon whom the power of
appointing subordinate officers may have been conferred to fix the compensation
of such subordinate officers.
Section 10. Reimbursement.
-------------
Any payments made to an officer of the Corporation such as a salary,
commission, bonus, interest or rent, or entertainment expense incurred by him,
which shall be disallowed in whole or in part as a deductible expense by the
Internal Revenue Service, shall be reimbursed by such officer to the Corporation
to the full extent of such disallowance. It shall be the duty of the directors,
as a Board, to enforce payment of each amount disallowed. In lieu of payment by
the officer, subject to the determination of the directors, proportionate
amounts may be withheld from his future compensation payments until the amount
owed to the Corporation has been recovered.
Section 11. Officers Holding More Than One Office.
-------------------------------------
Two or more officers (except that of President and Vice President,
Secretary and Assistant Secretary, and Treasurer and Assistant Treasurer) may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity.
- x -
Section 12. Removal.
-------
The Board of Directors shall have power at any regular or special
meeting to remove any officer with or without cause, and such action shall be
conclusive on the officer so removed. The Board of Directors may authorize any
officer to remove subordinate officers.
Section 13. Vacancies.
---------
The Board of Directors at any regular or special meeting shall have
power to fill a vacancy occurring in any office for the unexpired portion of the
term.
ARTICLE IV
STOCK
Section 1. Certificates.
------------
In the event that the Corporation issues shares of stock represented
by certificates, each stockholder shall be entitled to a certificate or
certificates which shall represent and certify the number of shares of each
class of stock held by him, her or it in the Corporation. Each certificate shall
be signed by the Chairman of the Board, the President or a Vice President and
countersigned by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and may be sealed with the seal, if any, of the Corporation.
The signatures may be either manual or facsimile. Certificates shall be
consecutively numbered; and if the Corporation shall, from time to time, issue
several classes of shares, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. In lieu of such statement or summary, the Corporation may set forth
upon the face or back of the certificate a statement that the Corporation will
furnish to any stockholder, upon request and without charge, a full statement of
such information.
Section 2. Transfer.
--------
Transfer of shares of the Corporation shall be made only on the stock
transfer books of the Corporation by the holder of record thereof or by his
legal representative, or by his attorney thereunto authorized by power of
attorney duly exercised and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares.
Section 3. Rules and Regulations.
---------------------
The Board of Directors shall have authority to make all such rules and
regulations as they may deem expedient concerning the issue, transfer and
registration of stock certificates and may appoint a transfer agent and a
registrar of transfers.
Section 4. Closing of Transfer Books or Fixing of Record Date.
--------------------------------------------------
The Board of Directors may fix, in advance, a date as the record date
for the purpose of determining shareholders entitled to notice of, or to vote
at, any meeting of shareholders, or shareholders entitled to receive payment of
any dividend or the allotment of any rights, or in order to make a determination
of shareholders for any other proper purpose. Such date, in any case, shall not
be more than sixty (60) days, and in case of a meeting of shareholders not less
than ten (10) days, prior to the date on which the meeting or particular action
requiring such determination of shareholders is to be held or taken.
- xi -
ARTICLE V
SUNDRY PROVISIONS
Section 1. Dividends.
---------
Subject to the applicable provisions of law and of the Charter, the
Board of Directors may in its discretion declare what, if any, dividends shall
be paid or upon any class of such stock, the date when such dividends shall be
payable, and the date for the determination of holders of record to whom such
dividends shall be payable.
Section 2. Working Capital.
---------------
The Board of Directors shall, from time to time, and in its
discretion, fix and vary the amount of working capital of the Corporation and
determine what portion of the surplus shall be reserved as working capital or
declared as dividends and distributed to the stockholders.
Section 3. Negotiable Instruments and Other Evidences of Indebtedness.
----------------------------------------------------------
All checks, drafts or orders for the payment of money, notes and other
evidences of indebtedness, issued in the name of the Corporation, shall be
signed by such officer or officers as may be designated from time to time by
resolution of the Board of Directors. No checks shall be signed in blank.
Section 4. Fiscal Year.
-----------
The fiscal year of the Corporation shall be as provided by the Board
of Directors.
Section 5. Seal.
----
The seal of the Corporation shall be circular in form, with the name
of the Corporation inscribed around the outer edge, and in the center shall
inscribed the words "MARYLAND" and the year of incorporation.
Section 6. Amendments.
The Board of Directors shall have the exclusive power to adopt, alter
or repeal any provision of these By-Laws and to make new By-Laws, by vote of a
majority of all the directors then in office.
Section 7. Contracts.
No contract or other transaction between this Corporation and any
other corporation and no act of this Corporation shall in any way be affected or
invalidated by the fact that any of the directors of this Corporation are
pecuniarily or otherwise interested in or are directors or officers of such
other corporation; any director, individually or any firm of which any director
may be a member, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transaction of this Corporation, provided that
the fact that he or such firm is so interested shall be disclosed or shall have
been known to the Board of Directors or a majority thereof; and any director of
this Corporation who is also a director or officer of such other corporation or
who is so interested may be counted in determining the existence of a quorum at
any meeting of the Board of Directors of this Corporation, which shall authorize
any such contract or transaction, and may vote thereat to authorize any such
contract or transaction, with the like force and effect as if he were not such
director or officer of such other corporation or not so interested.
- xii -
Section 8. Voting Upon Stocks or Other Ownership Interests.
-----------------------------------------------
Unless otherwise ordered by the Board of Directors, the President and
the Chairman of the Board, or either of them, shall have full power and
authority on behalf of the Corporation to attend and to vote and to grant
proxies to be used at any meetings, or for written consents, of stockholders or
other equity owners of any corporation or other entity in which the corporation
may own an interest.
ARTICLE VI
INDEMNIFICATION
Section l. Definitions.
-----------
As used in this Article VI, any word or words that are defined in
Section 2-418 of the Corporations and Associations Article of the Annotated Code
of Maryland (the "Indemnification Section"), as amended from time to time, shall
have the same meaning as provided in the Indemnification Section.
Section 2. Indemnification of Directors and Officers.
-----------------------------------------
The Corporation shall indemnify and advance expenses to a director or
officer of the Corporation in connection with a proceeding to the fullest extent
permitted by and in accordance with the Indemnification Section.
Section 3. Indemnification of Other Agents and Employees.
---------------------------------------------
With respect to an employee or agent, other than a director or officer
of the Corporation, the Corporation may, as determined by and in the discretion
of the Board of Directors of the Corporation, indemnify and advance expenses to
such employees or agents in connection with a proceeding to the extent permitted
by and in accordance with the Indemnification Section.
END OF BY-LAWS
- xiii -
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 officers 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 officers 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 16, 2004 /s/ Harvey B. Grossblatt
------------------------------------
Harvey B. Grossblatt
Chief Executive Officer
Chief 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,
2004 as filed with the Securities and Exchange Commission and to which this
Certification is an exhibit (the "Report"), the undersigned hereby certifies,
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 16, 2004 /s/ Harvey B. Grossblatt
------------------------------------
Harvey B. Grossblatt
Chief Executive Officer
Chief Financial Officer
Exhibit 99.1
------------
[GRAPHIC OMITTED] 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 Increased Sales For First Quarter
----------------------------------------------------------------------
OWINGS MILLS, MD, August 13, 2004: Universal Security Instruments, Inc. (AMEX:
UUU) today announced its results for its first quarter ended June 30, 2004,
including a 10% increase in sales.
The Company cited increased sales of its core products across retail and
electrical wholesale channels as the primary driver of top-line growth for the
period. Earnings from U.S. operations increased approximately 54%, which were
partially offset by lower Joint Venture earnings.
The Owings Mills, MD-based designer and marketer of safety and security
equipment posted net earnings of $766,297 or $0.49 per basic share ($0.44 per
diluted share), on net sales of $4,874,782 in the first quarter of fiscal 2004,
compared with net earnings of $852,498, or $0.57 per basic share ($0.51 per
diluted share), on net sales of $4,431,950 in the same period of last year.
Universal also announced that on August 12, 2004, its Board of Directors voted
Harvey Grossblatt as CEO, filling the vacancy left following the recent untimely
passing of the Company's co-founder, CEO and Chairman, Steve Knepper.
"During the first quarter, we were very successful in driving sales activity
across the board. We are continuing to gain market share in both the retail and
electrical wholesale sides of our business. Our new combination smoke and carbon
monoxide alarm has been a major element in this success and has exceeded
expectations to date," said Harvey Grossblatt, the Company's new CEO. "In
addition, we resumed shipping our GFCI units in April to strong customer demand
and are very pleased to have this product back in our product line.
"We are very pleased with our current position in the market as we head into the
fall - typically one of our most active selling seasons. Our people, our product
mix and our quality are where they need to be, and we have good momentum for the
remainder of the year."
UNIVERSAL SECURITY INSTRUMENTS, INC. is a U.S.-based manufacturer (through its
Hong Kong Joint Venture) and distributor of residential smoke, fire and carbon
monoxide alarms. Founded in 1969, the Company has a 35-year heritage of
developing innovative and easy-to-install safety and security devices, including
smoke, fire and carbon monoxide alarms. Universal Security has increased revenue
and earnings while gaining significant new market share since 2001. For more
information on Universal Security Instruments, visit the website at
www.universalsecurity.com.
* more *
7-A GWYNNS MILL COURT o OWINGS MILLS, MARYLAND 21117, USA
(410) 363-3000 o www.universalsecurity.com
Universal/Page 2
UNIVERSAL SECURITY INSTRUMENTS, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended June 30,
2004 2003
---- ----
Sales $ 4,874,782 $4,431,950
Net income 766,297 852,498
Income per share
Basic 0.49 0.57
Diluted 0.44 0.51
Weighted average number of common shares outstanding
Basic 1,564,702 1,497,365
Diluted 1,757,283 1,666,921
CONSOLIDATED BALANCE SHEET
ASSETS June 30,
--------
2004 2003
---- ----
Cash $ 45,610 $ 20,089
Accounts receivable and amount due from factor 2,459,929 1,335,335
Inventory 3,427,754 2,742,200
Prepaid expenses 442,260 112,891
----------- ----------
TOTAL CURRENT ASSETS 6,375,553 4,210,515
INVESTMENT IN HONG KONG JOINT VENTURE 5,374,225 4,538,403
PROPERTY, PLANT AND EQUIPMENT - NET 89,526 275,143
OTHER ASSETS AND DEFERRED TAX ASSET 72,385 11,472
----------- ----------
TOTAL ASSETS $11,911,689 $9,035,533
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 1,143,358 $ 931,585
Accrued liabilities 756,069 726,854
Current obligations under capital lease 4,436 23,250
----------- ----------
TOTAL CURRENT LIABILITIES 1,903,863 1,681,689
----------- ----------
LONG TERM DEBT - 3,431
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per share; authorized 20,000,000 shares; issued
and outstanding ,577,063 and 1,552,896 shares at June 30, 2004 and
June 30, 2003, respectively 15,771 15,529
Additional paid-in capital 11,231,918 11,059,572
Accumulated deficit (1,239,863) (3,724,688)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY 10,007,826 7,350,413
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,911,689 $9,035,533
=========== ==========
All shares have been adjusted to reflect the 4-for-3 stock split payable on
April 5, 2004.
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.