UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended March 31, 2002
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from ____________ to ________________
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, MD 21117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 410-363-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 and 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 the filing requirements for at least the
past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of June 19, 2002:
Common Stock, $.01 Par Value - $2,188,951
The number of shares outstanding of the issuer's classes of common
stock as of June 19, 2002:
Common Stock, $.01 Par Value - 1,009,770 shares
ITEM 1.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of the federal securities laws. These statements
can be identified by the use of forward-looking terminology such as
"believes", "expects", "may", "will", "should", or "anticipates" or
similar terminology, or by discussions of strategy. These statements
reflect the reasonable judgment of our management with respect to
future events and are subject to risks and uncertainties that could
cause actual results to differ materially from those in the forward-
looking statements. We cannot guarantee that our forward-looking
statements will turn out to be correct or that our beliefs or goals
will not change. Our actual results could be very different from, and
worse than, our expectations for various reasons, including factors
that may affect future results discussed in Management's Discussion
and Analysis of Financial Condition and Results of Operations. Under
the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995, an SEC-reporting company that identifies forward-looking
statements and warns investors that actual results could differ
materially from those in the forward-looking statements, will not be
liable for any private action arising under the Securities Act of 1933
based on such forward-looking statements.
BUSINESS
GENERAL
Universal Security Instruments, Inc. (the "Company" or "USI") was
incorporated in the State of Maryland in 1969. Its principal offices
are located at 7-A Gwynns Mill Court, Owings Mills, MD 21117 and its
telephone number is 410-363-3000.
The Company designs and markets a variety of popularly-priced security
and private label products which currently consist primarily of smoke
alarms and related products. Most of the Company's products require
minimal installation, or are designed for easy installation by
the consumer without professional assistance.
Prior to 2000, the Company also designed and marketed a variety of
telecommunication and video products. Due to the low margins realized
on its telecommunications and video products, the Company has since
focused its business primarily on security products. As a result, the
Company (i) changed its marketing of telecommunications and video
products to concentrate virtually exclusively on made-to-order private
label sales, and (ii) entered into the electrical distribution market
with an enhanced and newly packaged line of smoke alarms as well as
its other security products.
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The Company imports virtually all of its products from various
suppliers overseas. For the fiscal year ended March 31, 2002,
approximately 78% of the Company's purchases are bought from a Joint
Venture with a Hong Kong corporation (Hong Kong Joint Venture), in
which the Company owns a 50% interest. The Hong Kong Joint Venture has
manufacturing facilities in the People's Republic of China.
The Company's sales for the year ended March 31, 2002 were $10,480,829
compared to $7,731,501 for the year ended March 31, 2001, an increase
of approximately 36%.
The Company reported net income of $261,625 in fiscal 2002 compared
to a net loss of $758,940 in fiscal 2001. The main reason for the
increase in earnings was higher Hong Kong Joint Venture earnings.
SECURITY PRODUCTS
The Company markets a complete line of smoke alarms under the
trade names "USI ELECTRIC," "UNIVERSAL" and "Smoke Signal(TM)"
all of which are manufactured by the Hong Kong Joint Venture.
The line of smoke alarms consists of battery, electrical and
electrical with battery backup alarms. The Company's products contain
different types of batteries with different battery lives, and some
with alarm silencers. The smoke alarms marketed to the electrical
distribution trade also include hearing impaired and heat alarms with
a variety of additional features. The Company also markets a line of
electronically advanced outdoor floodlights under the name "Lite
Aide (TM)," carbon monoxide alarms, door chimes and ground fault
circuit interrupters.
Sales of the Company's security products aggregated $10,054,979 or
approximately 96% of total sales in the fiscal year ended March 31,
2002 and $6,487,456 or approximately 84% of total sales in the fiscal
year ended March 31, 2001. This increase in sales volume was due
primarily to higher USI ELECTRIC sales.
The Company is focusing its sales and marketing efforts to maximize
security product sales, especially smoke alarms manufactured by its
Hong Kong Joint Venture and marketed to the electrical distribution
trade. The electrical distribution trade covers electrical and
lighting distributors as well as manufactured housing companies.
OTHER PRODUCTS
The Company markets a variety of private label products on a made-to-
order basis, such as telephones and video products. The majority of
these products are produced by the Hong Kong Joint Venture.
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For the fiscal year ended March 31, 2002, sales of the Company's
private label products aggregated $425,850 or 4% of total sales. For
the fiscal year ended March 31, 2001, sales of these products were
$1,244,045 or 16% of total sales. The primary reason for the decrease
in sales was fewer private label customers.
IMPORT MATTERS
The Company imports virtually all of its security and other products.
The Company, as an importer, is subject to numerous tariffs which vary
depending on types of products and country of origin, changes in
economic and political conditions in the country of manufacture,
potential trade restrictions and currency fluctuations. The Company
has attempted to protect itself from fluctuations in currency exchange
rates to the extent possible by negotiating most commitments in U.S.
dollars.
The Company's purchases are subject to delays in delivery due to
problems with shipping and docking facilities, as well as other
problems associated with purchasing products abroad. The Company
imports a majority of its products from the People's Republic of
China.
SALES AND MARKETING
The Company's products are generally marketed to retailers, wholesale
distributors, home centers, catalog and mail order companies and
to other distributors. Sales are made both by the Company and by
approximately 12 independent sales organizations (for Universal
Security Instruments, Inc.) which are compensated by commissions. The
Company has agreements with the sales organizations which are
cancelable by either party upon 30 days notice. The Company does not
believe that the loss of any one of these organizations would have a
material adverse effect upon its business.
The Company also promotes its products through its own sales catalogs
and brochures, which are mailed directly to trade customers. The
Company's customers, in turn, may advertise the Company's products in
their own catalogs and brochures and in their ads in newspapers and
other media. The Company also exhibits and sells its products at
various trade shows, including the annual National Hardware Show in
Chicago, Illinois. The Company's domestic retail marketing strategy is
designed to attract retailing customers outside the consumer
electronics industry, such as variety stores and home centers.
Sales by the Company are also made by officers and full-time employees
of the Company, five of whom are also engaged in sales management and
training. Sales outside the United States, which are made by officers
of the Company and through exporters, were less than 1% of total
sales in fiscal 2002.
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The Company's products have historically been retailed to
"do-it-yourself" consumers by chain, discount, electrical, building
supply, electrical distributors and hardware stores, as well as
through catalogs. The Company also distributes its products through
specialty markets such as premium/incentive and direct mail. The
Company does not currently market any significant portion of its
products directly to end users.
In 1999, the Company formed a new subsidiary, USI ELECTRIC, INC. for
the purpose of selling security products to the electrical
distribution trade and the manufactured home industry manufacturers.
USI ELECTRIC has established a national distribution system with 12
regional stocking warehouses throughout the United States which
enables customers to receive their orders the next day without paying
for overnight freight charges. The subsidiary (USI ELECTRIC) has hired
sales personnel from the electrical distribution trade and has engaged
28 independent sales organizations which represent approximately 200
sales representatives, some of which have warehouses where USI
ELECTRIC products are maintained for sale.
The Company and its subsidiary's backlog of orders believed to be firm
as of March 31, 2002 was approximately $714,085. The Company's backlog
as of March 31, 2001 was approximately $229,350. The increase in
backlog is a function of the timing of orders received from its
customers.
SUPPLIERS - HONG KONG JOINT VENTURE
The Company has a 50% interest in a Hong Kong Joint Venture which has
manufacturing facilities in the People's Republic of China, for the
manufacturing of certain electronic and electrical products sold by
the Company.
The Company believes that this Hong Kong Joint Venture arrangement
will ensure a continuing source of supply for a majority of the
Company's security products at competitive prices. During fiscal year
2002, the Company made 78% of total purchases from the Hong Kong Joint
Venture, with the Company's purchases representing 43% of the Hong
Kong Joint Venture's sales. The products produced by the Hong Kong
Joint Venture include smoke alarms and certain other products. The
Company is currently pursuing the development of additional products
by the Hong Kong Joint Venture such as photoelectric smoke alarms and
carbon monoxide alarms. Changes in economic and political conditions
in China or any other adversity to the Hong Kong Joint Venture will
unfavorably affect the value of the Company's investment in the Hong
Kong Joint Venture and would have a material adverse effect on the
Company. Refer to NOTE C of the Financial Statements for a comparison
of annual sales and earnings of the Hong Kong Joint Venture. In the
past two fiscal years, the Hong Kong Joint Venture has increased its
sales to customers other than the Company.
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SUPPLIERS - OTHERS
Certain private label products, not manufactured for the Company by
the Hong Kong Joint Venture, are manufactured by other foreign
suppliers. The Company believes that its relationships with its
suppliers are good. The Company believes that the loss of its ability
to purchase products from the Hong Kong Joint Venture would have a
material adverse effect on the Company. The loss of any of its other
suppliers could have a short-term adverse effect on its operations,
but the Company believes that replacement sources for these other
suppliers could be developed.
COMPETITION
In fiscal year 2002, sales of security products accounted for
approximately 96% of total sales. In the sale of smoke alarms, the
Company competes in all of its markets with First Alert, Firex and
Walter Kidde. All of these companies have greater financial resources
and financial strength than the Company. The Company believes that its
security products compete favorably with other such products in the
market primarily on the basis of styling, features and pricing.
The security industry in general involves changing technology. The
success of the Company's products may depend on the Company's ability
to improve and update its products in a timely manner and to adapt to
new technological advances.
EMPLOYEES
The Company has 17 employees, 9 of whom are engaged in administration
and sales, and the balance of whom are engaged in product development
and servicing.
The Company's employees are not unionized. The Company believes that
its relations with its employees are satisfactory.
ITEM 2.
PROPERTIES
Effective December 1999, the Company entered into an operating lease
for a 9,000 square foot office and warehouse located in Baltimore
County, Maryland. This lease, which expires in October 2002, is
subject to renewal for an additional six years with increasing rentals
at 3% per year. The monthly rental approximates $4,500 per month
during the initial term. The Company intends to renew for its first
three year option.
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The Hong Kong Joint Venture's manufacturing facility consists of six
buildings totaling 100,000 square feet. Three of the buildings
(totaling 31,000 square feet) are leased pursuant to a long-term lease
which expires in 2010. The other three buildings (69,000 square feet)
are owned by the Hong Kong Joint Venture and were built on property
leased for a 48 year term, which expires in 2041.
On June 16, 1999, the Company sold its headquarters facility, located
in Baltimore County, Maryland for a price of $2.2 million. After
deducting the mortgage and settlement charges, the Company received
cash of approximately $830,000. The Company recorded a gain on the
sale of this property of approximately $805,000.
The Company retained ownership of approximately 1-1/2 acres of
undeveloped land adjacent to the Company's former headquarter's
property which the Company sold. This property is held as collateral
by the Company's factor. The Company is currently negotiating for the
sale of this property and expects the sale to be complete in early
2003.
The Company believes that its current facilities, and those of the
Hong Kong Joint Venture, are suitable and adequate.
ITEM 3.
LEGAL PROCEEDINGS
In December 2001, Leviton Manufacturing Company filed a civil action
in the United States District Court for the District of Maryland (Case
No. 01CV3855), alleging that, subsequent to December 11, 2001, the
Company's ground fault circuit interrupters infringe on the
plaintiff's patents and service marks. The plaintiff is seeking
injunctive relief and damages to be determined at trial. The Company
and its counsel believe that the Company has meritorious defenses to
the claim and is aggressively defending the suit.
From time to time, the Company is involved in various lawsuits and
legal matters. It is the opinion of management and, on the advice of
legal counsel, that these matters will not have a material adverse
effect on the Company's financial statements.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the Over-The-Counter Bulletin
Board (OTCBB). The OTCBB is a regulated quotation service that
displays real-time quotes, last sales prices and volume information on
over-the-counter equity securities.
The following table shows the fiscal 2002 and 2001 quarterly high and
low bid prices for the Company's common stock as reported by the
OTCBB. The bid quotations represent prices between dealers and do not
reflect the retailer markups, markdowns or commissions and may not
represent actual transactions.
Fiscal year ended March 31, 2002
Bid Prices
High Low
First Quarter 1.25 0.90
Second Quarter 1.65 0.95
Third Quarter 3.95 0.90
Fourth Quarter 4.40 2.20
Fiscal year ended March 31, 2001
Bid Prices
High Low
First Quarter 3.63 2.13
Second Quarter 4.13 2.25
Third Quarter 3.88 2.00
Fourth Quarter 2.25 1.25
On June 19, 2002, the closing quotation for our common stock as
reported on the OTC Bulletin Board was $3.52. You should obtain
current market quotations for our common stock because the market
price of our stock may fluctuate greatly. You can obtain these
quotations from various websites or by calling your broker.
As of March 31, 2002, there were approximately 160 holders of record
of the Company's common stock. Approximately 57% of the Company's
1,009,770 outstanding shares of common stock were held in street name
by an unknown number of beneficial owners since it does not reflect
persons or entities that hold our stock in "Street" name or through
various brokerage firms.
The Company has not paid any cash dividends on its common stock in the
last three years. It is the Company's present intention to retain all
earnings for use in its future operations.
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ITEM 6.
SELECTED FINANCIAL DATA
The selected consolidated financial data for each of the five years ended March
31, 2002 have been derived from the audited consolidated financial statements.
The information set forth below in not necessarily indicative of results of
future operations.
Years Ended March 31,
2002 2001 2000 1999 1998
Consolidated Statement of Operations Data:
Net sales $10,480,829 $ 7,731,501 $ 7,667,530 $ 9,071,628 $11,566,317
Loss before
equity
in earnings
(loss) of
Hong Kong
Joint Venture
and income
taxes (976,063) (799,183) (95,925) (1,119,154) (414,351)
Net income
(loss) 261,625 (758,940) 41,056 (806,552) (445,126)
Per common
share:
Loss before
equity in
earnings
(loss) of
Hong Kong
Joint Venture
and income
taxes
- basic and
diluted (1) (1.03) (.88) (.11) (1.30) (.51)
Net income
(loss) -
- basic (1) .28 (.83) .05 (.93) (.55)
- diluted(1) .28 (.83) .04 (.93) (.55)
Weighted average
number of common
shares outstanding
- basic(1) 938,624 912,270 903,495 863,706 811,397
- diluted(1) 945,770 912,270 938,807 863,706 811,397
Consolidated Balance Sheet Data:
Total assets 5,182,462 5,945,690 5,476,545 6,402,120 7,705,310
Long-term debt
(non-current) 29,916 45,088 60,260 -0- 1,246,861
Working capital 409,945 585,032 1,368,513 1,514,425 2,130,408
Current ratio(2) 1.28 to 1 1.23 to 1 2.01 to 1 1.63 to 1 2.25 to 1
Shareholders'
equity 3,681,273 3,303,304 4,062,244 3,987,072 4,747,351
(1) All per share amounts and number of outstanding shares have been restated to
reflect the one-for-four reverse stock split as of February 27, 1998.
(2) The current ratio is calculated by dividing current assets by current
liabilities.
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Quarterly Results of Operations (Unaudited):
The unaudited quarterly results of operations for fiscal years 2002 and
2001 are summarized as follows:
Quarter Ended
2002 June 30, September 30, December 31, March 31,
Net sales $2,255,130 $2,653,482 $2,965,386 $2,606,831
Gross profit 552,282 748,584 790,350 721,436
Net earnings 62,359 23,543 36,433 139,290
Earnings
per share-basic .07 .03 .04 .14
Earnings
per share-diluted .07 .03 .04 .13
Quarter Ended
2001 June 30, September 30, December 31, March 31,
Net sales $2,051,116 $1,740,167 $2,522,377 $1,417,841
Gross profit 560,396 621,451 710,079 186,959
Net earnings (loss) 32,473 5,490 (196,270) (600,633)
Earnings (loss)
per share-basic .04 .01 (.22) (.66)
Earnings (loss)
per share-diluted .03 .01 (.22) (.66)
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
SALES
In fiscal year 2002, sales increased by $2,749,328 (36%) from the prior
year. The Company's focus on marketing to the electrical distribution
trade through USI ELECTRIC generated an increase in sales to this market
of approximately $4,000,000, from approximately $4,300,000 in 2001 to
approximately $8,300,000 in 2002. The Company experienced a decrease of
approximately $1,210,000 in sales from its retail and wholesale
distribution customers. This is consistent with the Company's change in
marketing focus discussed in Item 1.
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In fiscal year 2001, sales increased by $63,971 (1%) from fiscal year
2000. While the Company's sales remained relatively constant with the
prior year, the focus on marketing to the electrical distribution trade
through USI ELECTRIC generated an increase in sales to this market of
approximately $2,500,000, from approximately $1,800,000 in 2000 to
approximately $4,300,000 in 2001. The Company experienced a corresponding
decrease in sales from its retail and wholesale distribution customers.
This is consistent with the Company's change in marketing focus discussed
above.
GROSS PROFIT
The gross profit was 27% for fiscal year 2002 and fiscal year 2001. The
gross profit was 22% for fiscal year 2000. The principal cause of the
lower gross profit in fiscal year 2000 is due to a $495,000 write-off for
abandoned and slow-moving inventory.
EXPENSES
In fiscal year 2002, selling, general and administrative expenses
increased by approximately $924,466 (38%), from $2,453,381 in 2001 to
$3,377,847 in 2002. As a percentage of sales, selling, general and
administrative expenses were 32% for both fiscal years 2002 and 2001. The
increase in the amount of these expenses resulted from higher costs,
including sales commissions and freight, associated with the Company's
subsidiary, USI ELECTRIC, INC. and higher legal costs partly associated
with defending the patent suit described in Part I, ITEM 3.
In fiscal year 2001, selling, general and administrative expenses
increased by approximately $214,013 (10%) from fiscal year 2000. As a
percentage of sales, selling, general and administrative expenses
were 32% for fiscal year 2001 and 29% for fiscal year 2000. The increase
resulted from higher costs, including sales commissions and freight,
associated with the Company's subsidiary, USI ELECTRIC, INC.
Management believes that as sales continue to increase, selling,
general and administrative expenses will continue to increase.
INTEREST EXPENSE
Interest expense for fiscal year 2002 decreased to $188,020 from $248,135
in fiscal year 2001 due primarily to lower levels of borrowings and lower
interest rates.
Interest expense for fiscal year 2001 increased to $248,135 from $140,635
in fiscal year 2000 due primarily to higher levels of borrowings and
higher interest rates.
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INCOME TAX
The Company did not make any provision for federal or state income taxes
in each of the three years in the period ended March 31, 2002 due to the
operating loss carry forward for income tax purposes. A valuation
allowance has been established and, accordingly, no benefit has been
recognized for the tax benefit of our net operating losses or other
deferred tax assets.
NET INCOME
The Company reported net income of $261,625 for fiscal year 2002 compared
to a net loss of $758,940 for fiscal year 2001. The increase in net income
resulted from higher Hong Kong Joint Venture earnings, partially offset by
higher selling, general and administrative expenses for the Company's
subsidiary, USI ELECTRIC, INC. and higher legal costs partly associated
with defending the patent suit described in Part I, ITEM 3.
The Company reported a net loss of $758,940 for fiscal year 2001 compared
to net income of $41,056 for fiscal year 2000. Included in net income for
fiscal year 2000 was a gain on the sale of real estate of approximately
$805,000.
FINANCIAL CONDITION AND LIQUIDITY
Cash needs of the Company are currently met by funds generated from
operations and from the Company's Factoring Agreement, which supplies both
short-term borrowings and letters of credit to finance foreign inventory
purchases. The Company's maximum borrowing under this Agreement is
$7,500,000. However, based on specified percentages of the Company's
accounts receivable and inventory and letter of credit commitments, at
March 31, 2002, the borrowings were limited to $670,959. Of this amount,
$216,959 had been utilized in short-term borrowings, leaving $454,000
available under the Agreement as of March 31, 2002. The outstanding
principal balance of the Agreement is payable upon demand. The interest
rate on the Factoring Agreement on the uncollected factored accounts
receivable and any additional borrowings is equal to 1-1/4% in excess of
the prime rate of interest charged by the Company's lender, which was
6-1/4% at March 31, 2002. The borrowings are collateralized by all the
Company's accounts receivable, inventory and a 1.5 acre parcel of land
which is adjacent to the Company's prior headquarters. During the year
ended March 31, 2002, working capital decreased by $175,087, from $585,032
on March 31, 2001, to $409,945 on March 31, 2002.
Operating activities used cash of $779,740 for the year ended March 31,
2002. For the prior fiscal year, operating activities used cash of
$1,004,749 for the year ended March 31, 2001. An increase of $225,009
from 2001 was primarily due to lower levels of accounts receivable and
inventory, primarily offset by undistributed Joint Venture earnings.
Investing activities provided cash of $663,309 for fiscal 2002. Investing
activities used cash of $11,182 in 2001. The primary reason for the change
was Joint Venture dividends.
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Financing activities in 2002 provided cash of $101,172, primarily due to
the sale of common stock pursuant to the exercise of employee stock
options. Financing activities in 2001 provided cash of $958,556, due to
short-term borrowings used to finance higher levels of accounts receivable
and inventory.
HONG KONG JOINT VENTURE
In fiscal year 2002, sales of the Hong Kong Joint Venture were $11,410,035
compared to $6,053,815 and $5,517,170 in fiscal years 2001 and 2000,
respectively.
Net income was $2,475,376 for fiscal year 2002 compared to net income of
$80,487 and $273,962 in fiscal years 2001 and 2000, respectively. The
increase in income for the year ended March 31, 2002 was due primarily to
higher sales to customers other than the Company.
Selling, general and administrative expenses were $1,530,579, $1,448,320
and $1,176,392 for fiscal years 2002, 2001 and 2000, respectively. As a
percentage of sales, expenses were 13%, 24% and 21% for fiscal years 2002,
2001 and 2000, respectively. The decrease in expenses as a percentage of
sales, in fiscal 2002 was primarily due to higher sales volume.
Interest income net of interest expense was $54,164 for fiscal year 2002,
compared to $158,098 and $140,425 in fiscal years 2001 and 2000,
respectively. The decrease in interest income is due to the decrease in
the loan receivable balance from the Company.
Cash needs of the Hong Kong Joint Venture are currently met by funds
generated from operations. During fiscal year 2002, working capital
increased by $1,223,521 from $2,621,133 on March 31, 2001 to $3,844,654 on
March 31, 2002.
RECENTLY ISSUED ACCOUNTING STANDARDS
During fiscal year 2002, the Financial Accounting Standards Board issued
Statement of Financial Account Standards (SFAS) No. 141, "Business
Combinations," and SFAS No. 142 "Goodwill and Other Intangible Assets,"
SFAS No. 143, "Accounting for Asset Retirement Obligations" and SFAS No.
144, "Accounting for Impairment or Disposal of Long-Lived Assets." The
Company does not expect these new pronouncements to impact the preparation
of the financial statements.
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ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal financial instrument is its Factoring Agreement
which provides for interest at the prime rate plus 1-1/4%. The Company is
affected by market risk exposure primarily through the effect of changes
in interest rates on amounts payable by the Company under its credit
facility. A significant rise in the prime rate could materially adversely
affect the Company's business, financial condition and results of
operations. At March 31, 2002, an aggregate principal amount of $216,959
was outstanding under the facility bearing interest at an annual rate of
6-1/4%. If principal amounts outstanding under the Company's Factoring
Agreement remained at this year-end level for an entire year and the prime
rate increased or decreased, respectively, by 0.5%, the Company would pay
or save, respectively, an additional $8,500.00 in interest in that year.
The Company does not utilize derivative financial instruments to hedge
against changes in interest rates or for any other purpose.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Description
Page
Report of Independent Certified Public Accountants 15
Consolidated balance sheets, March 31, 2002 and 2001 16
Consolidated statements of operations for the years ended 18
March 31, 2002, 2001 and 2000
Consolidated statements of shareholders' equity for the 19
years ended March 31, 2002, 2001 and 2000
Consolidated statements of cash flows for the years ended 20
March 31, 2002, 2001 and 2000
Notes to consolidated financial statements 21
Schedule II - Valuation and Qualifying Accounts 40
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors of
Universal Security Instruments, Inc.
We have audited the accompanying consolidated balance sheets of
Universal Security Instruments, Inc. and subsidiaries (the Company) as
of March 31, 2002 and 2001, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three
years in the period ended March 31, 2002. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We did not audit the financial statements of the Hong Kong Joint Venture,
the Company's investment, which is accounted for using the equity method.
The Company's investment of $2,990,067 and $2,418,010 in the Hong Kong
Joint Venture's net assets at March 31, 2002 and 2001, and equity in
earnings of $1,237,688, $40,243 and $136,981 for each of the three years
in the period ended March 31, 2002 are included in the accompanying
consolidated financial statements. The financial statements of the Hong
Kong Joint Venture were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts
included for the Hong Kong Joint Venture, is based solely on the report of
the other auditors.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
and the report of the other auditors provide a reasonable basis for
our opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Universal
Security Instruments, Inc. and subsidiaries as of March 31, 2002 and
2001, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended March 31, 2002,
in conformity with accounting principles generally accepted in the United
States of America.
We have also audited the financial statement schedule of Universal
Security Instruments, Inc. and subsidiaries for each of the three years in
the period ended March 31, 2002 as listed in the index at Item 14. In our
opinion, this schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects,
the information required to be set forth therein.
GRANT THORNTON LLP
Baltimore, Maryland
May 31, 2002 - 15 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31,
2002 2001
CURRENT ASSETS
Cash $ 19,383 $ 34,642
Accounts receivable:
Trade, less allowance for doubtful
accounts of $68,358 and $100,000
in 2002 and 2001, respectively 193,488 939,176
Officers and employees 1,115 7,048
194,603 946,224
Inventory 1,557,994 2,143,793
Prepaid expenses 109,238 57,671
TOTAL CURRENT ASSETS 1,881,218 3,182,330
INVESTMENT IN HONG KONG JOINT VENTURE 2,990,067 2,418,010
PROPERTY AND EQUIPMENT, NET 301,082 329,243
OTHER ASSETS 10,095 16,107
TOTAL ASSETS $5,182,462 $5,945,690
See notes to consolidated financial statements.
- 16 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31,
2002 2001
CURRENT LIABILITIES
Amount due factor $ 216,959 $ 1,791,442
Accounts payable 787,492 652,615
Accrued liabilities 451,092 137,511
Current obligations under capital lease 15,730 15,730
TOTAL CURRENT LIABILITIES 1,471,273 2,597,298
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASE 29,916 45,088
COMMITMENTS - -
SHAREHOLDERS' EQUITY
Common stock, $.01 par value per
share; authorized 20,000,000
shares; issued and outstanding
1,009,770 shares and 912,270
shares at March 31, 2002
and 2001, respectively 10,098 9,123
Additional paid-in capital 10,648,679 10,533,310
Accumulated deficit (6,977,504) (7,239,129)
TOTAL SHAREHOLDERS' EQUITY 3,681,273 3,303,304
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,182,462 $ 5,945,690
See notes to consolidated financial statements.
- 17 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended March 31,
2002 2001 2000
Net sales $10,480,829 $7,731,501 $7,667,530
Cost of goods sold 7,668,177 5,652,616 5,982,314
GROSS PROFIT 2,812,652 2,078,885 1,685,216
Research and development expense 222,817 176,767 191,651
Selling, general and
administrative expense 3,377,847 2,453,381 2,239,368
Operating loss (788,012) (551,263) (745,803)
Other income (expense):
Interest income - 233 301
Interest expense (188,020) (248,135) (140,635)
Gain from sale of building - - 804,861
Other (31) (18) (14,649)
(188,051) (247,920) 649,878
LOSS BEFORE EQUITY IN EARNINGS
OF HONG KONG JOINT VENTURE (976,063) (799,183) (95,925)
Equity in earnings of Hong Kong
joint venture 1,237,688 40,243 136,981
NET INCOME (LOSS) $ 261,625 $ (758,940) $ 41,056
Net income (loss) per share
Basic $ .28 $ (.83) $ .05
Diluted $ .28 $ (.83) $ .04
Shares used in computing net
income (loss) per share:
Basic 938,624 912,270 903,495
Diluted 945,770 912,270 938,807
See notes to consolidated financial statements.
- 18 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
Balance at
March 31, 1999 887,270 $8,873 $10,499,444 $(6,521,245) $3,987,072
Common stock issued
to employees 25,000 250 33,866 34,116
Net income 41,056 41,056
Balance at
March 31, 2000 912,270 9,123 10,533,310 (6,480,189) 4,062,244
Net loss (758,940) (758,940)
Balance at
March 31, 2001 912,270 9,123 10,533,310 (7,239,129) 3,303,304
Issuance of common
stock from
exercise of
employee stock
options 97,500 975 115,369 116,344
Net income 261,625 261,625
Balance at
March 31, 2002 1,009,770 $10,098 $10,648,679 $(6,977,504) $3,681,273
See notes to consolidated financial statements.
- 19 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31,
CASH FLOWS FROM 2002 2001 2000
OPERATING ACTIVITIES
Net income (loss) $ 261,625 $ (758,940) $ 41,056
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Depreciation and amortization 30,483 45,858 31,736
Change in allowance for
doubtful accounts (31,642) - -
Undistributed earnings of Hong
Kong Joint Venture (1,237,688) (40,243) (136,981)
Gain on sale of building - - (804,861)
Issuance of common stock to
employee for services - - 34,116
Inventory reserve write-down 61,741 - 495,000
Changes in operating assets and
liabilities:
Increase in accounts receivable (106,494) (345,499) (51,255)
Decrease (increase) in inventories
and prepaid expenses 472,491 (171,652) (612,840)
Increase in accounts payable
and accrued liabilities 448,458 269,529 139,006
Decrease (increase) in other assets 6,012 (3,802) (6,305)
Decrease in amount due factor (684,726) - -
NET CASH USED IN OPERATING ACTIVITIES (779,740) (1,004,749) (871,328)
INVESTING ACTIVITIES
Distribution by Hong Kong Joint Venture 665,631 - -
Proceeds from sale of building - - 2,079,785
Purchases of property and equipment (2,322) (11,182) (88,844)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 663,309 (11,182) 1,990,941
FINANCING ACTIVITIES
Net borrowings of short-term debt - 973,728 31,230
Principal payments of capital lease
obligations (15,172) (15,172) (4,960)
Payment of debt related to the sale of
the building - - (1,246,973)
Issue of common stock from exercise of
employee stock options 116,344 - -
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 101,172 958,556 (1,220,703)
NET (DECREASE) INCREASE IN CASH (15,259) (57,375) (101,090)
CASH AT BEGINNING OF YEAR 34,642 92,017 193,107
CASH AT END OF YEAR $ 19,383 $ 34,642 $ 92,017
Supplemental information:
Interest paid $ 188,020 $ 248,135 $ 140,635
Income taxes paid - - -
Non-cash investing and financing activity:
The Company acquired equipment under capital lease obligations totaling
$80,950 during the year ended March 31, 2000.
See notes to consolidated financial statements.
- 20 -
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: The Company's primary business is the sale of smoke
alarms and other security products to retailers, wholesale distributors
and to the electrical distribution trade which includes electrical and
lighting distributors as well as manufactured housing companies. The
Company imports virtually all of its security and other products. The
Company, as an importer, is subject to numerous tariffs which vary
depending on types of products and country of origin, changes in
economic and political conditions in the country of manufacture,
potential trade restrictions and currency fluctuations.
Principles of Consolidation: 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.
Use of Estimates: In preparing financial statements in conformity with
accounting principles generally accepted in the United States of
America (US GAAP), management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition: The Company recognizes sales upon the shipment of
its products net of applicable provisions for discounts and allowances.
Stock-Based Compensation: The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of
Accounting Principles Bases Board Opinion No. 25 (APB 25), Accounting
for Stock Issued to Employees, and complies with the disclosure
provisions of Statement of Financial Accounting Standard No. 123 (SFAS
No. 123), Accounting for Stock-Based Compensation. Under APB 25,
compensation expense is based on the difference, if any, on the date of
grant, between the market value of the Company's stock and the exercise
value of the option granted.
Research and Development: Research and development costs are charged
to operations as incurred.
Accounts Receivable: In September, 2000, the Financial Accounting
Standard Board issued Statement of Financial Accounting Standards No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS No. 140), which is effective for
transfers of financial assets occurring after March 31, 2001.
- 21 -
In fiscal year 2002, the Company achieved the sales criteria of
Statement of Financial Accounting Standards ("SFAS") No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" and, as such, amounts transferred under
the Company's Factoring Agreement are treated as a sale of the asset.
The Company sells trade receivables on a pre-approved non-recourse
basis to the Factor under the Factoring Agreement on an ongoing basis.
Net discounts recognized on sales of receivables are included in
selling, general and administrative expenses in the consolidated
statements of income and amounted to $103,490 for the year ended March
31, 2002. The Agreement for the sale of accounts receivable provides
for continuation of the program on a revolving basis until terminated
by one of the parties to the Agreement.
Beginning in fiscal year 2002, with the achievement of SFAS 140 sales
criteria, the Company nets the factored accounts receivable with the
corresponding advance from the Factor, showing the amount net in its
consolidated balance sheet. Prior to the achievement of SFAS 140, the
amounts were not netted, but rather shown gross.
Shipping and Handling Fees and Costs: The Company includes shipping and
handling fees billed to customers in net sales. Shipping and handling
costs associated with inbound freight are included in cost of goods
sold. Shipping and handling costs associated with outbound freight are
included in selling, general and administrative expenses and totaled
$376,359, $244,149 and $90,457 in fiscal years 2002, 2001 and 2000.
Inventories: Inventories (consisting primarily of finished goods) are
stated at the lower of cost (first-in, first-out method) or market.
Included as a component of finished goods inventory are additional
non-material costs. These costs include freight, import duty and
inspection fees of $186,470 and $289,121 at March 31, 2002 and 2001,
respectively.
The Company reviews inventory periodically to identify slow moving
products.
Property and Equipment: Property and equipment are recorded at cost,
less accumulated depreciation and amortization. Depreciation and
amortization is provided by using the straight-line method for
financial reporting purposes and accelerated methods for income tax
purposes. The estimated useful lives for financial reporting purposes
are as follows:
Leasehold improvements - Term of lease
Machinery and equipment - 5 to 10 years
Furniture and fixtures - 5 to 15 years
Computer equipment - 5 years
Accounting for Hong Kong Joint Venture: The Company has a 50%
investment in a Hong Kong manufacturing facility. The Hong Kong Joint
Venture investment is accounted for using the equity method.
- 22 -
Income Taxes: The Company recognizes a liability or asset for the
deferred tax consequences of temporary differences between the tax
basis of assets or liabilities and their reported amounts in the
financial statements. These temporary differences will result in
taxable or deductible amounts in future years when the reported amounts
of the assets or liabilities are recovered or settled. The deferred tax
assets are reviewed periodically for recoverability and valuation
allowances are provided, as necessary.
Net Income (Loss) per Share: The Company reports basic and diluted
earnings per share. Basic earnings per share exclude dilution and are
computed by dividing net income (loss) by the weighted-average number
of common shares outstanding for the period. Diluted earnings per
share is computed by dividing net income (loss), adjusted by the
assumed conversion of any potential common share equivalents, including
stock options, by the weighted number of common shares and common share
equivalents outstanding (unless their effect is anti-dilutive). Common
stock equivalents totaling 912,270 at March 31, 2001 were not included
in the computation of diluted loss per share, because to do so would
have been anti-dilutive.
Recently Issued Accounting Standards: During fiscal year 2002, the
Financial Accounting Standards Board issued Statement of Financial
Account Standards (SFAS) No. 141, "Business Combinations," and SFAS No.
142 "Goodwill and Other Intangible Assets," SFAS No. 143, "Accounting
for Asset Retirement Obligations" and SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets." The Company does not
expect these new pronouncements to impact the preparation of the
financial statements.
Reclassifications: Certain prior year amounts have been reclassified in
order to conform with current year presentation.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 31,
2002 2001
Land and improvements $174,034 $174,034
Leasehold improvements 71,885 71,885
Machinery and equipment 157,626 157,626
Furniture and fixtures 155,154 154,533
Computer equipment 65,955 64,254
Equipment held under capital lease 80,950 80,950
705,604 703,282
Less accumulated depreciation
and amortization 404,522 374,039
$301,082 $329,243
- 23 -
NOTE C - INVESTMENT IN HONG KONG JOINT VENTURE
The Company holds a 50% interest in a Joint Venture with a Hong Kong
Corporation, which has manufacturing facilities in the People's
Republic of China, for the manufacturing of consumer electronic
products. As of March 31, 2002, the Company has an investment balance
of $2,990,067 for its 50% interest in the Hong Kong Joint Venture.
The following represents summarized financial information is derived
from the audited financial statements of the Hong Kong Joint Venture as
of March 31, 2002 and 2001 and for the years ended March 31, 2002, 2001
and 2000. This information was audited by other accountants and their
report is included at March 31, 2002 and 2001.
March 31,
2002 2001
Current assets $ 5,897,705 $3,683,048
Property and other assets 2,117,443 2,205,082
Total $ 8,015,148 $5,888,130
Current liabilities $ 2,053,051 $1,061,915
Non-current liabilities 43,047 43,047
Equity 5,919,050 4,783,168
Total $ 8,015,148 $5,888,130
For the Year Ended March 31,
2002 2001 2000
Net sales $11,410,035 $6,053,815 $5,517,170
Gross profit 3,717,474 1,305,164 1,248,979
Net income 2,475,376 80,487 273,962
During the years ended March 31, 2002, 2001 and 2000, the Company
purchased $4,895,903, $3,841,325 and $4,567,052, respectively, of
finished product from the Hong Kong Joint Venture, which represents
78%, 66% and 79%, respectively, of the Company's total finished product
purchases for the years ended at March 31, 2002, 2001 and 2000. Amounts
due the Hong Kong Joint Venture included in Accounts Payable totaled
$199,917 and $368,511 at March 31, 2002 and 2001, respectively. Amounts
due from the Hong Kong Joint Venture included in Accounts Receivable
totaled $53,676 and $37,871 at March 31, 2002 and 2001, respectively.
The Company incurred interest costs charged by the Hong Kong Joint
Venture of $27,659, $26,762 and $7,301 during the years ended March 31,
2002, 2001 and 2000, respectively related to its purchases.
- 24 -
NOTE D - AMOUNTS DUE TO FACTOR
The Company sells certain of its trade receivables on a pre-approved,
non-recourse basis to a Factor. Since these are sold on a non-recourse
basis, the factored trade receivables and related repayment obligations
are not recorded in the Company's consolidated balance sheet at March
31, 2002. The financing from the factoring of the Company's trade
receivables totaled $1,426,751 at March 31, 2002. Prior to the
achievement of SFAS 140 sales criteria, on April 1, 2001, the Company
recorded the full amount of the factored receivables and related
repayment obligation as an asset and liability.
The Company's Factoring Agreement provides for financing of up to a
maximum of $7,500,000 with the amount available at any one time based
on 85% of uncollected non-recourse receivables sold to the factor and
45% of qualifying inventory.
At March 31, 2002 and 2001 the Company owed $216,959 and $1,791,442 to
its factor under the Agreement. The amounts due to its factor at March
31, 2002 relates to amounts advanced to the Company under the Agreement
in excess of amount allowed to be advanced related to the Company's
factored accounts receivable. In addition to the factored accounts
receivable, this excess amount is secured by the Company's inventory
and real property owned by the Company. The balance due at March 31,
2001 was secured by the Company's factored accounts receivable and
inventory and real property owned by the Company.
Under this Factoring Agreement, the Company sold receivables
approximately $10,300,000 during fiscal year 2002. Gains and losses
recognized on the sale of factored receivables include the fair value
of the limited recourse obligation. The uncollected balance of
factored receivables held by the factor amounted to $1,426,751 at March
31, 2002.
The outstanding amount due to the factor is payable upon demand. The
interest rate on this amount, plus the balance of the uncollected
factored trade receivables is equal to 1-1/4% in excess of the prime
rate of interest charged by the Company's lender (6-1/4% at March 31,
2002).
NOTE E - LEASES
The Company entered into capital lease agreements for various
equipment, with an outstanding balance of $45,646 as of March 31, 2002.
The leases have imputed interest rates ranging from 7.6% to 10%, with
monthly payments aggregating $1,810 per month.
- 25 -
Year Ended March 31,
2002 2001
Obligations under capital lease $45,646 $60,818
Less current maturities 15,730 15,730
$29,916 $45,088
Maturities of long term capital lease obligations for the three years
following March 31, 2002 are as follows:
Year
2003 $21,719
2004 18,193
2005 7,435
Total 47,347
Less amounts representing interest 1,701
Obligations under capital lease $45,646
During December 1999, the Company entered into an operating lease for
its office and warehouse expiring in October 2002, subject to renewal.
The Company intends to renew for its first three year option.
Rental expenses recognized under the lease totaled $57,164 and $51,369
for the years ended March 31, 2002 and 2001. Future obligations for the
years ended March 31, under this lease are as follows:
Year Amount
2003 $31,970
NOTE F - INCOME TAXES
No provision for US federal or state income taxes have been recorded in
any period presented, as the Company has incurred domestic operating
losses in all such periods.
Realization of deferred tax assets is dependent upon future earnings,
if any. The Company has recorded a full valuation allowance against its
deferred tax assets since management believes it is more likely than
not that these assets may not be realized. No income tax benefit has
been recorded for all periods presented because of the valuation
allowance.
At March 31, 2002, the Company has net operating loss (NOL)
carryforwards in the United States of America of approximately
$6,970,000 for income tax purposes that expire in years 2009 through
2020.
- 26 -
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets are as follows:
March 31,
2002 2001 2000
Deferred tax liabilities:
Unremitted Hong Kong
Joint Venture earnings
not considered
permanently reinvested $ 1,054,553 $ 836,800 $ 818,920
Gross deferred tax
liabilities 1,054,553 836,800 818,920
Deferred tax assets:
Financial statement
accruals and allowances 170,990 75,070 102,313
Inventory uniform
capitalization 72,200 72,200 72,200
Other 47,367 39,650 34,361
NOL carryforwards and
tax credits 2,612,451 2,611,908 2,295,812
Gross deferred tax assets 2,903,008 2,798,828 2,504,686
Valuation allowance (1,848,455) (1,962,028) (1,685,766)
Net deferred tax assets $ -0- $ -0- $ -0-
The reconciliation of the income tax computed at the U.S. federal
statutory tax rates to income tax expense is as follows:
Years ended March 31,
2002 2001 2000
Federal tax expense (benefit)
at statutory rate on domestic
income (loss) (34%) $(331,981) $(271,722) $(32,615)
State Tax Expense (Benefit) 10,451 (30,357) 1,642
Equity in (earnings) loss from
Hong Kong Joint Venture 420,814 13,683 46,894
Change in valuation allowance (113,573) 276,262 (22,831)
Other 14,289 12,134 6,910
$ -0- $ -0- $ -0-
- 27 -
NOTE G - SHAREHOLDERS' EQUITY
Common Stock - During the year ended March 31, 2000, the Company issued
25,000 shares of its common stock to a new employee. As part of the
issuance, the Company recognized $34,116 of compensation expense.
During the year ended March 31, 2002, the Company issued 97,500 shares
of its common stock on the exercise by employees of employee stock
options and received proceeds of $116,344.
Employee Stock Purchase Plan - Under the terms of the Company's 1988
Employee Stock Purchase Plan, eligible employees can purchase shares of
the Company's common stock through payroll deductions at a price equal
to 90% of the price of the shares. The Company has reserved 25,000
shares of common stock for issuance under the Plan. No member of the
Board of Directors who is not an employee of the Company, and no member
of the committee administering the Plan, can participate in the Plan.
At March 31, 2002, approximately 16,250 shares remain reserved for
issuance under this Plan.
Stock Options - Under terms of the Company's 1978 Non-Qualified Stock
Option Plan, as amended, 493,750 shares of common stock are reserved
for the granting of stock options, of which 109,019 shares have been
issued as of March 31, 2002, leaving 384,731 available for issuance
upon exercise of options granted, or available for future grants to
employees and directors. Under provisions of the Plan, a committee of
the Board of Directors determines the option price and the dates
exercisable. All options expire five years from the date of grant and
have an exercise price at least equal to the market price at the date
of grant. The options usually vest at 25% a year over four years.
The following tables summarize the status of options under the
Non-Qualified Stock Option Plan at March 31, 2002 and option
transactions for the three years then ended:
Status as of March 31, 2002 Number of Shares
Presently exercisable 180,500
Exercisable in future years 48,750
Total outstanding 229,250
Available for future grants 155,481
Shares of common stock reserved 384,731
Outstanding options:
Number of holders 17
Average price per share $2.58
Expiration dates June 2002 to February 2007
- 28 -
Transactions for the Three Years Ended March 31, 2002:
Number of Weighted Average
Shares Exercise Price
Outstanding at March 31, 1999 224,500
Granted 73,500 1.79
Canceled (60,125) 7.55
Outstanding at March 31, 2000 237,875
Granted 5,000 4.50
Canceled (4,500) 2.56
Outstanding at March 31, 2001 238,375
Granted 149,000 2.23
Canceled (60,625) 4.11
Exercised (97,500) 1.19
Outstanding at March 31, 2002 229,250
The following table summarizes information about stock options
outstanding at March 31, 2002:
Options Outstanding Options Exercisable
Weighted
Weighted Weighted Average
Average Average Exercise
Range of Exercise Number of Exercise Contract Number of Price
Price Shares Price Life (Yrs) Shares Exercise
$0.66 to $1.29 6,250 0.66 1.61 6,250 0.66
$1.30 to $2.99 117,500 2.09 4.52 107,000 2.09
$3.00 to $3.99 100,500 3.06 1.14 66,000 3.01
$4.00 to $5.99 5,000 4.50 3.17 1,500 4.50
Totals 229,250 180,750
The Company accounts for stock options granted to employees in
accordance with APB 25. Under APB 25, when the exercise price of the
Company's stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized. The
Company has provided additional pro forma disclosures as required by
SFAS No. 123, "Accounting for Stock-Based Compensation."
For disclosure purposes, the fair value of each stock option is
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for stock
options and rights to receive stock in 2002, 2001 and 2000; no annual
dividends, expected volatility of 80%, 80% and 85%, respectively,
risk-free interest rate ranging from 4.0% to 6.5% and expected life of
five years. The weighted-average fair values of the stock options
granted in 2002, 2001 and 2000 were $1.16, $1.44 and $1.01,
respectively.
- 29 -
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
normal publicly traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
Had compensation cost been based upon the fair value of the option on
the date of grant, as prescribed by SFAS No. 123, the Company's pro
forma net income/(loss) and net income/(loss) per share for the years
ended March 31, 2002, 2001 and 2000 using the Black-Scholes option
pricing model would have been $212,896 and $0.23, $(782,574) and
$(.86) and $18,527 and $0.02, respectively.
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company entered into a three year employment agreement with the
President of its USI ELECTRIC, INC. subsidiary with fixed annual
remuneration amounts for three years which was extended in April, 2001.
In addition, the agreement provides incentive compensation based on the
Company achieving certain levels of sales. The agreement expires in
December, 2003. Subsequent to March 31, 2002, the Company entered into
a three-year employment agreement with its President with annual
remuneration amounts and incentive compensation based on the Company
achieving certain levels of profitability. The agreement expires March
2005.
In December 2001, Leviton Manufacturing Company filed a civil action
in the United States District Court for the District of Maryland (Case
No. 01CV3855), alleging that, subsequent to December 11, 2001, the
Company's ground fault circuit interrupters infringe on the plaintiff's
patents and service marks. The plaintiff is seeking injunctive relief
and damages to be determined at trial. The Company and its legal
counsel believe that the Company has meritorious defenses to the claim
and is aggressively defending the suit.
From time to time, the Company is involved in various lawsuits and
legal matters. It is the opinion of management and, on the advice of
its legal counsel, that these matters will not have a material adverse
effect on the Company's financial statements.
NOTE I - MAJOR CUSTOMERS
The Company is primarily a distributor of security products for use in
home and business under both its tradenames and private labels for
other companies. The Company's 50% owned Hong Kong Joint Venture
manufactures the majority of the Company's products.
- 30 -
Customers that represented in excess of 10% of the Company's product
sales are as follows:
March 31, 2002 March 31 2001 March 31, 2000
Customer A - - 17%
Customer B - - 15%
Customer C - - -
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
- 31 -
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors consists of three directors. The
following is a list of individuals currently serving as directors of
the Company until the Company's next annual stockholders meeting and
individuals currently serving as executive officers of the Company:
Principal Occupation Director
for past five years since
Stephen Knepper....58 Director; Chairman of the Board 1970
of the Company since October 2001;
Vice Chairman of the Board of the
Company since September 1996;
Chairman of the Board of the Company
from 1970 to September 1996.
Michael Kovens.....59 Director; Chairman of the Board 1970
of the Company from September
1996 to October 2001; President
of the Company from 1970 to
September 1996.
Harvey Grossblatt..55 Director since September 1996; 1996
President since June 1996;
Chief Financial Officer since
April 1997; Vice President
of the Company from December
1986 to June 1996; Secretary and
Treasurer of the Company since
September, 1988; Vice President
and Chief Financial Officer of
the Company from October 1983
through May 1995.
- 32 -
ITEM 11.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table reflects the aggregate amount paid or accrued by the Company
in its three most recent fiscal years, for each executive officer whose
compensation exceeded $100,000 in that year.
Long-Term Compensation
Name and Awards Payouts
Principal Annual Compensation Stock LTIP All Other
Position Year Salary Bonus Other Awards Options Payouts Compensation
Stephen
Knepper 2002 $ 87,676 - - - 42,500 - $16,153
Chairman
of the
Board
and
Chief
Executive
Officer(1)
Michael
Kovens 2002 $125,740 - - - 17,500 - $16,819
Former
Chairman
of the 2001 179,701 - - - 23,750 - 20,663
Board
and
Chief 2000 179,701 75,000 - - 12,500 - 16,338
Executive
Officer(1)
Harvey
Grossblatt 2002 $143,202 - - - 47,750 - $ 5,519
President,
Secretary 2001 124,780 - - - 5,000 - -0-
and
Treasurer 2000 130,258 10,000 - - - - -0-
(1) On October 23, 2001, Mr. Knepper was elected Chairman and Chief Executive
Officer
Option Grants in Last Fiscal Year
The following table sets forth information with respect to the grant of stock
options during the Company's fiscal year ended March 31, 2002 to the executive
officers named in the Summary Compensation Table:
Potential
Realizable Value
% of Total at Assumed Annual
Options Exercise Rates of Stock
No. of Granted to or Base Expi- Price Appreciation
Options Employees in Price ration for Option Term(1)
Name Granted Fiscal Year ($/Share) Date 0%(2) 5% 10%
Stephen
Knepper 17,500(3) 11.75% $2.35 02/07/07 - $2,056 $4,112
Stephen
Knepper(4) 25,000(3) 16.78% $1.50 11/02/06 - $1,875 $3,750
Michael
Kovens 17,500(3) 11.75% $2.35 02/07/07 - $2,056 $4,112
Harvey
Grossblatt 13,250(5) 8.89% $3.00 07/01/06 - $1,988 $3,975
Harvey
Grossblatt 15,000(3) 10.07% $1.30 11/02/06 - $ 975 $1,950
Harvey
Grossblatt 15,000(3) 10.07% $1.70 11/02/06 - $1,275 $2,550
Harvey
Grossblatt 4,500(3) 3.02% $2.35 02/07/07 - $ 529 $1,058
- 33 -
(1) The 5% and 10% assumed rates of compensation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
(2) Denotes realizable value at the date of grant which reflected a market value
or higher valuation per share.
(3) Five year option fully exercisable and vested.
(4) Exercised January 2002.
(5) Five year option exercisable 25% per year beginning July 2002.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number Value
of Unexercised of Unexercised
Shares Options at FY-End Options at FY-End
Acquired Value Exerci-/Unexerci- Exerci-/Unexerci-
Name In Exercise Realized sable/sable sable/sable
Stephen Knepper 61,250 $76,203 32,500/ -0- $32,500/ -0-
Michael Kovens 36,250 $ 7,375 32,500/ -0- -0- / -0-
Harvey Grossblatt - - 42,000/17,000 $42,000/$13,250
Employment Agreements
Harvey Grossblatt entered into an employment agreement with the Company
effective April 1, 2002. The employment agreement provides that Mr. Grossblatt
is employed for a term ending March 31, 2005 at an initial base annual salary of
$122,500, subject to automatic annual cost of living increases and further
subject to increases in the Board's discretion. Additionally, Mr. Grossblatt is
entitled to bonus compensation for each fiscal year of the Company in which the
Company earned pre-tax net income of at least $100,000, in an amount equal to 5%
of pre-tax net income up to $1,000,000, 4% of pre-tax net income over $1,000,000
up to $2,000,000, 3% of pre-tax net income over $2,000,000 up to $3,000,000, and
1% of pre-tax net income over $3,000,000.
Under the Employment Agreement, Mr. Grossblatt has been granted an option to
purchase 20,000 shares of common stock at an exercise price of $4.50 per share
pursuant to the Company's Non-Qualified Stock Option Plan, and is also entitled
to life, health and disability insurance benefits, medical reimbursement,
automobile allowance, and Company paid retirement plan contributions.
If the employment agreement is terminated by the Company other than for cause or
Mr. Grossblatt's death or disability, Mr. Grossblatt is entitled to receive a
lump sum payment equal to Mr. Grossblatt's base salary for the balance of the
employment agreement's term plus the amount of Mr. Grossblatt's last bonus and
an additional lump sum payment payable on the date the term of the employment
agreement would have expired equal to two times Mr. Grossblatt's base salary for
the last 12 months plus the amount of Mr. Grossblatt's last bonus. In addition,
Mr. Grossblatt would be entitled to receive the health insurance and medical
reimbursement benefits for the balance of the term and a period of three years
thereafter.
- 34 -
If Mr. Grossblatt's employment is terminated following or in anticipation of a
"change of control" of the Company, Mr. Grossblatt will be entitled to receive a
lump sum payment equal to Mr. Grossblatt's base salary for the balance of the
employment agreement's term and the amount of Mr. Grossblatt's last bonus, plus
an amount equal to three times Mr. Grossblatt's base salary for the last 12
months and the amount of Mr. Grossblatt's last bonus, limited to 2.99 times Mr.
Grossblatt's average annual taxable compensation from the Company which is
included in his gross income for the five taxable years of the Company ending
before the date on which the change of control occurs.
If the employment agreement is terminated by the Company due to Mr. Grossblatt's
death or disability, Mr. Grossblatt (or his estate) is entitled to the
continuation of the payment of his base salary for the balance of the term,
reduced, in the event of death, by any individual life insurance benefits the
premiums for which are paid for by the Company, and in the event of disability,
by any group or individual disability income insurance benefits the premiums for
which are paid for by the Company. In addition, Mr. Grossblatt (or his estate)
is entitled to the health insurance and medical reimbursement benefits for the
longer of balance of the term or three years following the date of death or
disability.
The employment agreement generally prohibits Mr. Grossblatt from competing with
the Company during the term and during any subsequent period during which he
receives compensation from the Company.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of May 28, 2002, the following persons were "beneficial owners" (as that term
is defined under Rule 13d-3 promulgated by the Securities and Exchange
Commission) of more than five percent of the Company's common stock.
Name and address of Shares Percent
beneficial owner Beneficially Owned(1) of class
Michael Kovens 317,764(2) 30.5%
6 Regency Court
Baltimore, MD 21208
Stephen Knepper 127,873(3) 12.3%
7-A Gwynns Mill Court
Owings Mills, MD 21117
Bruce Paul 104,500 9.5%
One Hampton Road
Purchase, NY 10577
(1) For the purpose of determining the percentages of stock beneficially owned,
shares of stock subject to options exercisable within 60 days of May 28,
2002 are deemed to be outstanding.
- 35 -
(2) Includes 32,500 shares which Mr. Kovens presently has the right to acquire
through the exercise of stock options.
(3) Includes 32,500 shares which Mr. Knepper presently has the right to acquire
through the exercise of stock options and 2,000 shares held by a trust in
which Mr. Knepper has voting control.
As of May 28, 2002, the shares of the Company's common stock owned beneficially
by each director, by each executive officer and by all directors and officers as
a group were as follows:
Shares Percent
Name of beneficial owner Beneficially Owned(1) of class
Michael Kovens 317,764(2) 30.5%
Stephen Knepper 127,873(3) 12.3%
Harvey Grossblatt 49,272(4) 4.7%
All directors and officers as 590,659 50.0%
a group (4 persons included)
(1) See footnote 1 under previous table.
(2) See footnote 2 under previous table.
(3) See footnote 3 under previous table.
(4) Includes 42,000 shares which Mr. Grossblatt presently has the
right to acquire through the exercise of stock options.
Equity Compensation Plan Information
Number of
Number of securities remaining
Securities to available for future
be issued issuance under
upon Weighted-average equity compensation
exercise of exercise price of plans (excluding
outstanding outstanding securities reflected
options options in column(a)]
Plan Category (a) (b) (c)
Equity compensation 229,250 $2.58 155,481
plans approved by
security holders
Equity compensation - - -
plans not approved
by security holders
Total 229,250 $2.58 155,481
- 36 -
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had several related party transactions with its Hong Kong
Joint Venture in its normal course of business. See NOTE C to the
Consolidated Financial Statements for a description of these
transactions.
- 37 -
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements are included in
Part II, Item 8.
Consolidated balance sheets, March 31, 2002 and 2001
Consolidated statements of operations for the years ended
March 31, 2002, 2001 and 2000.
Consolidated statements of shareholders' equity for the
years ended March 31, 2002, 2001 and 2000.
Consolidated statements of cash flows for the years
ended March 31, 2002, 2001 and 2000.
Notes to consolidated financial statements.
(a) 2. Financial Statement Schedules
Schedule II - Schedule of Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, are
not required, or because the required information is included in the
consolidated financial statements or notes thereto.
(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K
Exhibit No.
3.1 Articles of Incorporation, as amended (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 Bylaws, as amended
10.1 Non-Qualified Stock Option Plan, 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, 1999, File No. 0-7885)
10.2 Hong Kong Joint Venture Agreement, as amended (confidential
treatment of Name requested and filed separately with the
Commission) (incorporated by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended March
31, 1994, and Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 2001, File No.
0-7885)
- 38 -
10.3 Amended Factoring Agreement with CIT Group (successor to Congress
Talcott, Inc.) dated November 14, 1999
10.4 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)
10.5 Employment Agreement dated April 1, 2002 between the Company and
Harvey B. Grossblatt
21 Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 to the Company's Annual Report on Form 10-K for the Fiscal
Year Ended March 31, 2001, File No. 0-7885)
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ernst & Young (Hong Kong)
(b) Reports on Form 8-K
On February 14, 2002, the Company filed a Form 8-K containing a
press release issued on February 13, 2002
(d) Financial Statements Required by Regulation S-X
Separate financial statements of the Hong Kong Joint Venture
(confidential treatment of name requested and filed separately
with the Commission.
Page
Independent auditor's report 88
Consolidated profit and loss account, 89
March 31, 2002 and 2001
Consolidated balance sheets, March 31, 2002 and 2001 90
Consolidated cash flow statements, March 31, 2002 91
and 2001
Notes to consolidated financial statements 94
- 39 -
SCHEDULE II
UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED March 31, 2002, 2001 and 2000
Charged
Balance at to cost Charged Balance
beginning and to other at end
of year expenses accounts Deductions of year
Year ended
March 31, 2002
Allowance for
doubtful accounts $100,000 $ -0- $-0- $ 31,642 $ 68,358
Year ended
March 31, 2001
Allowance for
doubtful accounts $100,000 $ -0- $-0- $ -0- $100,000
Year ended
March 31, 2000
Allowance for
doubtful accounts $100,000 $ -0- $-0- $ -0- $100,000
Year ended
March 31, 2002
Allowance for
inventory reserve $ 50,000 $ 61,741 $-0- $ -0- $111,741
Year ended
March 31, 2001
Allowance for
inventory reserve $ 92,000 $ -0- $-0- $ 42,000 $ 50,000
Year ended
March 31, 2000
Allowance for
inventory reserve $100,000 $495,000 $-0- $503,000 $ 92,000
- 40 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: Harvey Grossblatt
Harvey Grossblatt, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Date: June , 2002 By: Stephen Knepper
Stephen Knepper
Chairman of the Board, Director
Date: June , 2002 By: Harvey Grossblatt
Harvey Grossblatt, President,
Director, Chief Accounting Officer
Date: June , 2002 By: Michael Kovens
Michael Kovens
Director
- 41 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:
Harvey Grossblatt, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Date: By:
Stephen Knepper
Chairman of the Board, Director
Date: By:
Harvey Grossblatt, President,
Director, Chief Accounting Officer
Date: By:
Michael Kovens
Director
- 41 -
Exhibit 3.2
BY-LAWS
UNIVERSAL SECURITY INSTRUMENTS, INC.
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 September 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.
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.
Such request shall state the purpose of the meeting and notice
thereof shall be given as provided in Section 3 of this Article
I. No business other than that stated in the notice of the
meeting shall be transacted at any special meeting of the
stockholders, however called. Special meetings of the
stockholders shall be held at the principal office of the
Corporation, or at such other place designated in the notice to
stockholders.
- 42 -
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 by mailing it postage prepaid and
addressed to him at his address as it appears upon the records of
the Corporation. 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.
- 43 -
The Chairman of the Board shall call meetings of the
Stockholders to order and shall act as Chairman of such meetings
The Board of Directors or Stockholders may appoint any
stockholder to act as Chairman of any meeting in the absence of
the Chairman of the Board and President. The Secretary of the
Corporation shall act as Secretary at all meetings of
Stockholders, but, in the absence of the Secretary, the presiding
officer may appoint any person to act as Secretary of the
meeting.
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 in writing subscribed by a
stockholder, or by his duly authorized attorney, and shall be
dated; but need not be sealed, witnessed or acknowledged.
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. List of Stockholders.
Prior to each meeting of the stockholders, the Secretary
shall prepare a full, true and complete list in alphabetical
order of all stockholders entitled to vote at such meeting,
indicating the number of shares held by each, and shall be
responsible for the production of such list at the meeting.
Section 9. Stockholder Proposals.
- 44 -
Nominations by stockholders of persons for election to the
Board of Directors of the Corporation and the proposal by
stockholders of business to be considered by the stockholders at
an annual meeting of stockholders may be made by any stockholder
of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this By-Law, who is entitled to
vote at the meeting and who complies with the notice procedures
set forth in this By-Law.
For nominations or other business to be properly brought
before an annual meeting by a stockholder, 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 stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the
close of business on the 120th day prior to the first anniversary
of the mailing of the proxy statement with respect to preceding
year's annual meeting; provided, however that in the event that
the date of the annual meeting is more than 30 days before or
after the first anniversary date of the preceding year's annual
meeting, notice by the stockholder to be timely must be so
delivered not later than the close of business on the 90th day
prior to such annual meeting. In no event shall be public
announcement of an 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 (a)
as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder
proposed to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons
for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as
to the stockholder giving the notice and the beneficial owner, if
any, on whose behalf the nomination or proposal is made; (i) the
name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the
class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such
beneficial owner.
- 45 -
Notwithstanding anything in the second sentence of the
previous paragraph of this By-Law to the contrary, in the event
that the number of directors to be elected to the Board of
Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of
Directors at least 100 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required
by this By-Law 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 offices of the Corporation not later than the
close of business on the 10th day following the day on which such
public announcement is first made by the Corporation.
Only such persons who are nominated in accordance with the
procedures set forth in these By-Laws shall be eligible to serve
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 the procedures set forth in these
By-Laws. Except as otherwise provided by law, the Charter or
these By-Laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth
in these By-Laws and, if any proposed nomination or business is
not in compliance with these By-Laws, to declare that such
defective proposal or nomination shall be disregarded.
Notwithstanding the foregoing provisions of these By-Laws, a
stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in these By-Laws. Nothing in
these By-Laws shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.
For purposes of these By-Laws, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Services, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or
15(d) of the Exchange Act.
- 46 -
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.
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.
- 47 -
Section 6. Notice of Meeting.
Notice of the place, day and time of every regular and
special meeting shall be given to each director, either:
1. By notice in writing mailed to him postage prepaid not
later than the second day before the day set for the
meeting and addressed to him at his last known post
office address according to the records of the
Corporation; or
2. By notice in writing delivered personally or at his
usual place of business not later than the day before
the day fixed for the meeting; or
3. By oral personal or telephone communication or by fax
not later than the day before the day set for the
meeting.
provided, however, that no notice need be given to any director
with respect to the first regular Board of Directors meeting
following the meeting of the stockholders at which a Board of
Directors shall be elected. 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.
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Section 10. Removal.
At any meeting of the stockholders called for the purpose,
any director may, by the vote of a majority of all the shares of
stock outstanding and entitled to vote, be removed from office,
with or without cause, and another may be appointed in the place
of the person so removed, to serve for the remainder of his term.
Section 11. Vacancies.
In case of any vacancy in the Board of Directors through
death, resignation, or any cause other than removal by the
stockholders, the remaining directors may elect a successor to
hold office for the unexpired portion of the term of the person
whose place shall be vacant and until his successor shall have
been duly chosen and qualified.
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.
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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.
ARTICLE III
OFFICERS
Section 1. Officers.
The officers of the Corporation shall be a Chairman of the
Board, 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.
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Section 2. Chairman of the Board.
The Chairman of the Board 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 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.
In the absence of the Chairman and Vice Chairman of the
Board, he 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.
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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
comp