-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JlTzrg93giwOCj5RTo7yBjvBfZPH0+5EfJALycifi59+1nP5zDAJWs8abzX2bb9b fnti3KhdLVoRnxoqx7gsHg== 0000102109-02-000006.txt : 20021114 0000102109-02-000006.hdr.sgml : 20021114 20021114160005 ACCESSION NUMBER: 0000102109-02-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL SECURITY INSTRUMENTS INC CENTRAL INDEX KEY: 0000102109 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 520898545 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07885 FILM NUMBER: 02825148 BUSINESS ADDRESS: STREET 1: 7-A GWYNNS MILL COURT CITY: OWINGS MILLS STATE: MD ZIP: 21117-3586 BUSINESS PHONE: 4103633000 MAIL ADDRESS: STREET 1: 7-A GWYNNS MILL COURT CITY: OWINGS MILLS STATE: MD ZIP: 21117-3586 10-Q 1 d10q-093002.txt SEPTEMBER 30, 2002 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter ended September 30, 2002 ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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 of Incorporation I.R.S. Employer Identification Number 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 Indicate by check mark whether the registrant (l) 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 and (2) has been subject to the filing requirements for at least the past 90 days. YES X NO _______ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Date Class Shares Outstanding November 13, 2002 Common Stock, $.01 par value 1,119,232 UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES INDEX Part I - FINANCIAL INFORMATION Item l. FINANCIAL STATEMENTS (unaudited) Consolidated balance sheets at September 30, 2002 and March 31, 2002 Consolidated statements of operations for the six months ended September 30, 2002 and 2001 and three months ended September 30, 2002 and 2001 Consolidated statements of cash flows for the six months ended September 30, 2002 and 2001 Notes to consolidated financial statements Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Item 4. CONTROLS AND PROCEDURES Part II - OTHER INFORMATION Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Item 6. EXHIBITS AND REPORTS ON FORM 8-K SIGNATURE CERTIFICATIONS - 2 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES PART I Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (unaudited) ASSETS Sept 30, 2002 March 31, 2002 CURRENT ASSETS Cash $ 145,586 $ 19,383 Accounts receivable: Trade (less allowance for doubtful accounts of $0 and $68,358 at September 30 and March 31, 2002, respectively) 787,252 193,488 Employees 19,687 1,115 806,939 194,603 Inventory 2,173,509 1,557,994 Prepaid expenses 107,093 109,238 TOTAL CURRENT ASSETS 3,233,127 1,881,218 INVESTMENT IN JOINT VENTURE 3,333,632 2,990,067 PROPERTY, PLANT AND EQUIPMENT - NET 285,784 301,082 OTHER ASSETS 8,294 10,095 TOTAL ASSETS $6,860,837 $5,182,462 See notes to consolidated financial statements. - 3 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Sept 30, 2002 March 31, 2002 CURRENT LIABILITIES Amount due factor $ - $ 216,959 Accounts payable 1,075,165 787,492 Accrued liabilities 533,071 451,092 Current maturities of capital lease obligations 15,730 15,730 TOTAL CURRENT LIABILITIES 1,623,966 1,471,273 LONG-TERM CAPITAL LEASE OBLIGATIONS 22,330 29,916 SHAREHOLDERS' EQUITY Common stock, $.01 par value per share; authorized 20,000,000 shares; issued 1,088,732 shares at September 30, 2002 and 1,009,770 shares at March 31, 2002 10,887 10,098 Additional paid-in capital 10,974,089 10,648,679 Accumulated deficit (5,770,435) (6,977,504) TOTAL SHAREHOLDERS' EQUITY 5,214,541 3,681,273 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,860,837 $ 5,182,462 See notes to consolidated financial statements. - 4 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Six Months Ended Sept 30, 2002 Sept 30, 2001 Net sales $7,842,198 $4,908,612 Cost of goods sold 5,472,826 3,607,746 GROSS PROFIT 2,369,372 1,300,866 Research and development expense 132,981 104,913 Selling, general and administrative expense 1,903,720 1,364,067 Operating income (loss) 332,671 (168,114) Other income (expense): Interest expense (73,269) (120,270) Other 750 - (72,519) (120,270) INCOME (LOSS) BEFORE EARNINGS OF JOINT VENTURE 260,152 (288,384) Earnings from joint venture: Equity in earnings of joint venture 1,052,130 374,286 Cost allocatable to joint venture (105,213) - NET INCOME $1,207,069 $ 85,902 Per common share amounts: Basic 1.17 .09 Diluted 1.09 .09 Weighted average number of common shares outstanding Basic 1,034,488 912,270 Diluted 1,105,055 925,187 See notes to consolidated financial statements. - 5 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the Three Months Ended Sept 30, 2002 Sept 30, 2001 Net sales $4,091,272 $2,653,482 Cost of goods sold 2,805,125 1,904,898 GROSS PROFIT 1,286,147 748,584 Research and development expense 72,581 55,814 Selling, general and administrative expense 954,505 732,341 Operating income (loss) 259,061 (39,571) Other income (expense): Interest expense (36,332) (60,886) Other 750 (35,582) (60,886) INCOME (LOSS) BEFORE EQUITY IN EARNINGS OF JOINT VENTURE 223,479 (100,457) Equity in earnings of joint venture 406,650 124,000 NET INCOME $ 630,129 $ 23,543 Per common share amounts: Basic .60 .03 Diluted .55 .03 Weighted average number of common shares outstanding Basic 1,054,205 912,270 Diluted 1,152,001 926,041 See notes to consolidated financial statements. - 6 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the Six Months Ended Sept 30, 2002 Sept 30, 2001 OPERATING ACTIVITIES Net income $1,207,069 $ 85,902 Adjustments to reconcile net income to net cash (used in) operating activities: Depreciation and amortization 19,463 20,390 Stock issued to directors in lieu of fees 30,000 0 Earnings of joint venture (946,917) (374,286) Changes in operating assets and liabilities: (Increase) in accounts receivable (612,336) (1,238,015) (Increase) decrease in inventories and prepaid expenses (613,373) 749,151 Decrease in other assets 1,801 Increase (decrease) in accounts payable and accrued expenses 303,640 (183,606) Decrease in amount due factor (216,959) 15 NET CASH (USED IN) OPERATING ACTIVITIES (827,612) (940,449) INVESTING ACTIVITIES Distribution by joint venture 708,566 600,000 Purchase of property, plant and equipment (4,165) NET CASH PROVIDED BY INVESTING ACTIVITIES 704,401 600,000 FINANCING ACTIVITIES Issuance of common stock from exercise of employee stock options 7,000 Issuance of common stock 250,000 Net borrowings of short-term debt - 331,986 Payments on long-term obligations (7,586) (7,586) NET CASH PROVIDED BY FINANCING ACTIVITIES 249,414 324,400 INCREASE (DECREASE) IN CASH 126,203 (16,049) Cash at beginning of period 19,383 34,642 CASH AT END OF PERIOD $ 145,586 $ 18,593 Supplemental information: Interest paid $ 73,269 $ 120,270 Income taxes paid - - Non-cash financing activities: Issuance of 13,488 shares of common stock in satisfaction of amounts payable 39,200 - Issuance of 6,974 shares of common stock as directors' fees $ 30,000 $ - See notes to consolidated financial statements. - 7 - UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Statement of Management - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of the Company's management, the interim consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted. The interim consolidated financial statements should be read in conjunction with the Company's March 31, 2002 audited financials statements filed with the Securities and Exchange Commission on Form 10-K. The interim operating results are not necessarily indicative of the operating results for the full fiscal year. Income Taxes - No income tax expense has been provided for the three and six month periods ended September 30, 2002 as a result of the carryforward of prior years' operating losses. Joint Venture - The Company maintains a 50% interest in a joint venture with a Hong Kong corporation (Hong Kong Joint Venture) which has manufacturing facilities in the People's Republic of China, for the manufacturing of smoke and carbon monoxide alarms. The following represents unaudited summarized income statement information of the Hong Kong Joint Venture for the six months ended September 30, 2002 and 2001: 2002 2001 Net sales $11,728,014 $5,010,988 Gross profit 3,951,259 1,505,815 Net income 2,692,827 748,572 Total current assets 7,544,756 3,872,322 Total assets 9,949,935 6,029,363 Total liabilities 2,751,807 1,599,858 - 8 - During the six month periods ended September 30, 2002 and 2001, the Company purchased products for resale from the Hong Kong Joint Venture of approximately $3,615,994 and $2,390,000, respectively. At September 30, 2002 and 2001, the Company had amounts payable to the Hong Kong Joint Venture of $458,575 and $322,734, respectively. On August 21, 2001, the Company agreed to amend the Joint Venture Agreement. As part of this amendment, the Hong Kong Joint Venture agreed to declare a dividend of $1,200,000, of which the $600,000 due to the Company was applied to settle amounts due by the Company to the Hong Kong Joint Venture. The Company has reduced its equity in earnings of the Joint Venture to reflect primarily the elimination of intercompany profits. In 2002, the Company has amended its employment agreements so that bonus payments shall be allocated between domestic operations and Joint Venture operations. The Company recorded $105,213 of costs allocatable to the joint venture in the accompanying statement of operations for the six months ended September 30, 2002. Net Income Per Common Share - Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the periods presented. Diluted earnings per common share is computed based on the weighted average number of common shares outstanding plus the effect of stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on the Company's average stock price. A reconciliation of the weighted average shares of common stock utilized in the computation of basic and diluted earnings per share for the three and six month periods ended September 30, 2002 and 2001 is as follows: Three months ended September 30, 2002 2001 Weighted average number of common shares outstanding for basic EPS 1,054,205 912,270 Shares issued upon the assumed exercise of outstanding stock options 97,796 13,771 Weighted average number of common and common equivalent shares outstanding for diluted EPS 1,152,001 926,041 - 9 - Six months ended September 30, 2002 2001 Weighted average number of common shares outstanding for basic EPS 1,034,488 912,270 Shares issued upon the assumed exercise of outstanding stock options 70,567 12,917 Weighted average number of common and common equivalent shares outstanding for diluted EPS 1,105,055 925,187 Contingencies - The Company has outstanding letters of credit in the amount of $441,871 as of September 30, 2002. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Six Months Ended September 30, 2002 Compared to Six Months Ended September 30, 2001 Sales - Net sales for the six months ended September 30, 2002 rose 60% to $7,841,198 compared to $4,908,612 for the comparable six months in the prior fiscal year, an increase of $2,933,586. Net sales of security products increased by $2,924,376 and net sales of certain other products increased by $9,210. Security sales increased primarily as a result of higher demand for security products sold by the Company's subsidiary, USI ELECTRIC, Inc. The increase in sales of certain other products resulted primarily from increased demand. Net Income - The Company reported net income of $1,207,069 for the six months ended September 30, 2002 compared to net income of $85,902 for the corresponding six months of the prior fiscal year. The increase in net income resulted from both higher Joint Venture earnings and operating income. Expenses - Research, selling, general and administrative expenses increased by $567,721 from the comparable six months in the prior year. As a percentage of sales, research, selling, general and administrative expenses were 26% for the six months ended September 30, 2002 and 30% for the same period in the prior fiscal year. The decrease in research, selling and administrative expense as a percent of sales was due to higher sales volume and variable costs which did not increase at the same rate as sales. - 10 - Interest Expense - The Company's interest expense, was $73,269 for the six months ended September 30, 2002 compared to $120,270 for the same period in 2001. The decrease in interest expense resulted from the lower levels of debt and lower interest rates. Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001 Sales - Net sales for the three months ended September 30, 2002 were $4,091,272 compared to $2,653,482 for the comparable three months in the prior fiscal year, an increase of $1,437,790. Net sales of security products increased by $1,539,112 and sales of other products decreased by $101,322. The increase in security sales resulted primarily from increased demand for smoke alarms sold by the Company's subsidiary, USI ELECTRIC, INC. The decrease in other sales resulted from lower demand for certain of the Company's other products. Net Income - The Company reported net income of $630,129 for the quarter ended September 30, 2002 compared to net income of $23,543 for the corresponding quarter of the prior fiscal year. The increase in net income resulted from both higher Joint Venture earnings and operating income. Expenses - Research, selling, general and administrative expenses increased by $238,931 from the comparable three months in the prior year. As a percentage of sales, research, selling, general and administrative expenses were 25% for the three months ended September 30, 2002 and 30% for the same period in the last fiscal year. The decrease in research, selling and administrative expense as a percent of sales was due to higher sales volume and variable costs which did not increase at the same rate as sales. Interest Expense - The Company's interest expense was $36,332 for the quarter ended September 30, 2002 compared to $60,866 for the comparable period in 2001. The decrease in interest expense resulted from lower interest rates and lower levels of debt. Financial Condition and Liquidity - Cash needs of the Company are currently met by funds generated from operations and the Company's Factoring Agreement which supplies both short-term borrowings and letters of credit to finance foreign inventory purchases. The Company's maximum amount available under the - 11 - Factoring Agreement is currently $7,500,000. However, based on specified percentages of the Company's accounts receivable and inventory and letter of credit commitments, at September 30, 2002, the Company had $1,452,781 available under the Factoring Agreement, of which $441,781 had been utilized in letter of credit borrowings as of September 30, 2002. Any outstanding principal balance due under the Factoring Agreement is payable upon demand. The interest rate under the Factoring Agreement on the uncollected factored accounts receivable and any additional borrowings is equal to 1% in excess of the prime rate of interest charged by the Company's lender, which was 5.75% at September 30, 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. Operating activities used cash of $827,612 for the quarter ended September 30, 2002. This was primarily due to an increase in accounts receivable of $612,336 and inventory of $583,373 that was partially offset by an increase in accounts payable and accrued expenses of $303,640. For the same period last year, operating activities used cash of $940,449. Investing activities provided cash of $704,401 in the current quarter and provided cash of $600,000 in the same period last year. The primary source in both periods was distributions from the Company's Joint Venture. Financing activities provided cash of $249,414. The primary reason was the issuance of common stock for $250,000. For the same period last year, financing activities provided cash of $324,400. The Company believes that funds available under the Factoring Agreement, Joint Venture distributions and its working capital provide it with sufficient resources to meet its requirements for liquidity and working capital in the ordinary course of its business over the next twelve months. Hong Kong Joint Venture - Net sales of the Hong Kong Joint Venture for the six months and three months ended September 30, 2002 were $11,728,014 and $6,717,026, respectively, compared to $5,010,988 and $2,377,623, respectively, for the comparable six months and three months in the prior fiscal year. The increase in sales was primarily due to increased sales of smoke alarms to non-related customers. - 12 - Net income for the six months and three months ended September 30, 2002 was $2,692,827 and $1,312,301, respectively, compared to $748,572 and $247,999, respectively, in the comparable six months and three months last year. Cash needs of the Hong Kong Joint Venture are currently met by funds generated from operations. During the six months ended September 30, 2002, working capital increased by $991,342 from $3,844,654 on March 31, 2002 to $4,835,996 on September 30, 2002. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No material changes have occurred in the quantitative and qualitative market risk disclosures of the Company as presented in the Company's Annual Report Form 10-K for the year ended March 31, 2002. Item 4. CONTROLS AND PROCEDURES Based on the evaluation of the Company's disclosure controls and procedures by Stephen C. Knepper, the Company's Chief Executive Officer, and Harvey B. Grossblatt, the Company's Chief Financial Officer, as of a date within 90 days of the filing date of this quarterly report, such officers have concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time period specified by the Securities and Exchange Commission's rules and forms. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. - 13 - PART II Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the six months ended September 30, 2002, the Company issued an aggregate of 71,462 shares of its Common Stock for cash, in exchange for directors' services and in the satisfaction of amounts payable at March 31, 2002 as follows. These shares were issued pursuant to an exemption from registration from the Securities Act of 1933 pursuant to Section 4(2) and/or Regulation D. Date of Number of Class of Cash Other Issuance of Shares Persons Proceeds Consideration 05/07/02 10,000 Employee $ - 27,200(2) 06/28/02 31,334 Director $ 97,500 20,000(1) 06/28/02 3,488 Director $ - 12,000(2) 09/24/02 26,640 Director $152,500 10,000(1) (1) Issued in lieu of annual Director's fees during the six months ended September 30, 2002. (2) Issued in satisfaction of amounts accrued at March 31, 2002. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. 3.1 Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1998, File No. 0-7885) 3.2 Articles Supplementary, filed October 14, 2002 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed October 31, 2002, File No. 0-7885) 3.3 Bylaws, as amended* 10.1. Non-Qualified Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended March 31, 1999, File No. 0-7885) - 14 - 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) 10.3 Amended Factoring Agreement with CIT Group (successor to Congress Talcott, Inc.) dated November 14, 1999 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended March 31, 2002, File No. 0-7885) 10.4 Amendment to Factoring Agreement with CIT Group* 10.5 Lease between Universal Security Instruments, Inc. and National Instruments Company dated October 21, 1999 for its office and warehouse located at 7-A Gwynns Mill Court, Owings Mills, Maryland 21117 (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 2000, File No. 0-7885) 10.6 Employment Agreement dated April 1, 2002 between the Company and Harvey B. Grossblatt (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended March 31, 2002, File No. 0-7885) 10.7 Amendment to Employment Agreement dated as of April 1, 2002 between the Company and Harvey B. Grossblatt* 99.1 Certification Required Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* 99.2 November 13, 2002 Letter to Stockholders and Press Release* (b) Reports on Form 8-K None *Filed herewith - 15 - UNIVERSAL SECURITY INSTRUMENTS, INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNIVERSAL SECURITY INSTRUMENTS, INC. Dated: November 14, 2002 Harvey Grossblatt HARVEY GROSSBLATT President, Chief Financial Officer smb 10-Q.SEPT - 16 - CERTIFICATION I, Stephen C. Knepper, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Universal Security Instruments. Inc.; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and c) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; - 17 - 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officers and I have indicated in this Quarterly Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Stephen C. Knepper Stephen C. Knepper Chief Executive Officer - 18 - CERTIFICATION I, Harvey Grossblatt, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Universal Security Instruments. Inc.; 2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Quarterly Report (the "Evaluation Date"); and c) presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; - 19 - 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officers and I have indicated in this Quarterly Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Harvey Grossblatt Harvey Grossblatt Chief Financial Officer - 20 - Exhibit 3.3 BY-LAWS UNIVERSAL SECURITY INSTRUMENTS, INC. (As amended through October 14, 2002) 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. 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. 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. 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. 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. 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. 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. 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. Section 14. Other Committees. The Board of Directors may designate, by resolution, one or more directors to constitute a committee, other than an executive committee, such other committee to serve at the pleasure of the Board of Directors. Section 15. Nomination of Directors. Nominations for directors to be elected at the Corporation's annual meeting of stockholders shall be made by the Board of Directors of the Corporation. Nominations for directors to be elected at the Corporation's annual meeting of stockholders may be made by stockholders in accordance with the procedures set forth in Article I Section 9 of these By-Laws. Only such persons who are nominated in accordance with the procedures set forth in these By-Laws shall be eligible to serve as directors. Section 16. Qualification of Directors. Unless waived by the affirmative vote a majority of directors then in office, no individual may be nominated or serve as a director unless: (i) such individual has continuously been the record and beneficial owner (as defined in Rule 13d-3 promulgated under the Exchange Act) of at least one percent of the issued and outstanding shares of voting stock of the Corporation for a period of at least one year immediately preceding the nomination of such individual as a director; and (ii) such individual's principal residence was in the State of Maryland during the entire year immediately preceding the nomination of such individual as a director. The Board of Directors may require such evidence of any proposed nominee's satisfaction of each of the foregoing qualifications as it deems necessary. ARTICLE III OFFICERS Section 1. Officers. The officers of the Corporation shall be a Chairman of the Board, a Vice Chairman of the Board (if elected by the Board of Directors), a President, one or more Vice Presidents (if elected by the Board of Directors), a Secretary and a Treasurer, all of whom shall be elected by, and be subject to the control of, the Board of Directors. The officers shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders, subject to changes or additions at other regular or special meetings of the Board of Directors. Each of such officers shall hold office for a term of one year, and thereafter until his successor is elected and qualified or until his death, resignation or removal. The Board of Directors may appoint such other officers and assistant officers as it deems necessary, who shall have such authority and perform such duties as the Board may from time to time prescribe. Section 2. Chairman of the Board. The Chairman of the Board 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. Section 6. Secretary. The Secretary shall keep the minutes of the meetings of the stockholders and of the Board of Directors in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of the By-Laws or as required by law; he shall be the custodian of the records and of the corporate seal or seals of the Corporation; he shall see that the corporate seal is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized, and when so affixed may attest the same; he may sign, with the President or Chairman of the Board, certificates of stock of the Corporation; and, in general, he shall perform all duties ordinarily incident to the office of a Secretary of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors, or by the President. Section 7. Treasurer. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation all moneys or other valuable effects in such banks, trust companies, or other depositories as shall, from time to time, be selected by the Board of Directors; he shall render to the President and to the Board of Directors, whenever requested, an account of the financial condition of the Corporation; he may sign, with the President, or Chairman of the Board, certificates of stock of the Corporation; and, in general, shall perform all duties ordinarily incident to the office of a treasurer of a corporation, and such other duties as may be assigned to him by the Board of Directors or by the President. Section 8. Assistant Officers. The Board of Directors may elect one or more Assistant Secretaries and one or more Assistant Treasurers. Each such Assistant Secretary and Assistant Treasurer shall hold office for such period and shall have such authority and perform such duties as the Board of Directors may prescribe. Section 9. Compensation. The Board of Directors shall have power to fix the compensation of all officers of the Corporation. It may authorize any officer upon whom the power of appointing subordinate officers may have been conferred to fix the compensation of such subordinate officers. Section 10. Reimbursement. Any payments made to an officer of the Corporation such as a salary, commission, bonus, interest or rent, or entertainment expense incurred by him, which shall be disallowed in whole or in part as a deductible expense by the Internal Revenue Service, shall be reimbursed by such officer to the Corporation to the full extent of such disallowance. It shall be the duty of the directors, as a Board, to enforce payment of each amount disallowed. In lieu of payment by the officer, subject to the determination of the directors, proportionate amounts may be withheld from his future compensation payments until the amount owed to the Corporation has been recovered. Section 11. Officers Holding More Than One Office. Two or more officers (except that of President and Vice President, Secretary and Assistant Secretary, and Treasurer and Assistant Treasurer) may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Section 12. Removal. The Board of Directors shall have power at any regular or special meeting to remove any officer with or without cause, and such action shall be conclusive on the officer so removed. The Board of Directors may authorize any officer to remove subordinate officers. Section 13. Vacancies. The Board of Directors at any regular or special meeting shall have power to fill a vacancy occurring in any office for the unexpired portion of the term. ARTICLE IV STOCK Section 1. Certificates. Each stockholder shall be entitled to a stock certificate or certificates certifying the number and kind of shares owned. The certificates shall be signed by the President or Chairman of the Board and by the Secretary or Treasurer and shall be sealed with the seal of the Corporation. The Corporation may treat the holder of record of any share or shares of stock as the holder in fact thereof and shall not be bound to recognize any equitable or other claim to or interest in any such share or shares on the part of any other person, save as expressly provided by the laws of Maryland. The name and address of the person to whom the shares represented thereby are issued with the number of shares and date of issue shall be entered on the records of the Corporation. All certificates surrendered to the Corporation shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in the case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as may be prescribed by the Board of Directors. Section 2. Transfer. Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his legal representative, or by his attorney thereunto authorized by power of attorney duly exercised and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Section 3. Rules and Regulations. The Board of Directors shall have authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of stock certificates and may appoint a transfer agent and a registrar of transfers. Section 4. Closing of Transfer Books or Fixing of Record Date. The Board of Directors may fix, in advance, a date as the record date for the purpose of determining shareholders entitled to notice of, or to vote at, any meeting of shareholders, or shareholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of shareholders for any other proper purpose. Such date, in any case, shall not be more than sixty (60) days, and in case of a meeting of shareholders not less than ten (10) days, prior to the date on which the meeting or particular action requiring such determination of shareholders is to be held or taken. ARTICLE V SUNDRY PROVISIONS Section 1. Dividends. Subject to the applicable provisions of law and of the Charter, the Board of Directors may in its discretion declare what, if any, dividends shall be paid or upon any class of such stock, the date when such dividends shall be payable, and the date for the determination of holders of record to whom such dividends shall be payable. Section 2. Working Capital. The Board of Directors shall, from time to time, and in its discretion, fix and vary the amount of working capital of the Corporation and determine what portion of the surplus shall be reserved as working capital or declared as dividends and distributed to the stockholders. Section 3. Negotiable Instruments and Other Evidences of Indebtedness. All checks, drafts or orders for the payment of money, notes and other evidences of indebtedness, issued in the name of the Corporation, shall be signed by such officer or officers as may be designated from time to time by resolution of the Board of Directors. No checks shall be signed in blank. Section 4. Fiscal Year. The fiscal year of the Corporation shall be as provided by the Board of Directors. Section 5. Seal. The seal of the Corporation shall be circular in form, with the name of the Corporation inscribed around the outer edge, and in the center shall inscribed the words "MARYLAND" and the year of incorporation. Section 6. Amendments. The Board of Directors shall have the exclusive power to adopt, alter or repeal any provision of these By-Laws and to make new By-Laws, by vote of a majority of all the directors then in office. Section 7. Contracts. No contract or other transaction between this Corporation and any other corporation and no act of this Corporation shall in any way be affected or invalidated by the fact that any of the directors of this Corporation are pecuniarily or otherwise interested in or are directors or officers of such other corporation; any director, individually or any firm of which any director may be a member, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of this Corporation, provided that the fact that he or such firm is so interested shall be disclosed or shall have been known to the Board of Directors or a majority thereof; and any director of this Corporation who is also a director or officer of such other corporation or who is so interested may be counted in determining the existence of a quorum at any meeting of the Board of Directors of this Corporation, which shall authorize any such contract or transaction, and may vote thereat to authorize any such contract or transaction, with the like force and effect as if he were not such director or officer of such other corporation or not so interested. Section 8. Voting Upon Stocks or Other Ownership Interests. Unless otherwise ordered by the Board of Directors, the President and the Chairman of the Board, or either of them, shall have full power and authority on behalf of the Corporation to attend and to vote and to grant proxies to be used at any meetings, or for written consents, of stockholders or other equity owners of any corporation or other entity in which the corporation may own an interest. ARTICLE VI INDEMNIFICATION Section l. Definitions. As used in this Article VI, any word or words that are defined in Section 2-418 of the Corporations and Associations Article of the Annotated Code of Maryland (the "Indemnification Section"), as amended from time to time, shall have the same meaning as provided in the Indemnification Section. Section 2. Indemnification of Directors and Officers. The Corporation shall indemnify and advance expenses to a director or officer of the Corporation in connection with a proceeding to the fullest extent permitted by and in accordance with the Indemnification Section. Section 3. Indemnification of Other Agents and Employees. With respect to an employee or agent, other than a director or officer of the Corporation, the Corporation may, as determined by and in the discretion of the Board of Directors of the Corporation, indemnify and advance expenses to such employees or agents in connection with a proceeding to the extent permitted by and in accordance with the Indemnification Section. END OF BY-LAWS Exhibit 10.4 The CIT Group/ Commercial Services, Inc. 1211 Avenue of the Americas New York, NY 10036 September 30, 2002 UNIVERSAL SECURITY INSTRUMENTS, INC. 7 Gwynns Mill Court Owings Mills, Maryland 21117-3586 Ladies and Gentlemen: We refer to the Factoring Agreement between us dated February 28, 1995, as supplemented and amended (the "Agreement"). Capitalized terms used and not otherwise defined herein shall have the same meanings given them in the Agreement. This shall confirm that pursuant to mutual consent and understanding, effective as of September 30, 2002, the interest as referred to in Paragraph 6(a) of the Agreement shall be, and hereby is, amended from one and one-quarter percent (1-1/4%) above the Chase Rate to one percent (1%) above the Chase Rate. To compensate us for the use of our in-house legal department and facilities in documenting this agreement, you agree to pay us a Documentation Fee equal to $125.00. Said amount shall be due and payable upon the date hereof and may at our option be charged to your account under the Agreement on the due date thereof. Except as herein specifically provided, the Agreement remains in full force and effect in accordance with its terms. If you are in agreement with the foregoing, please so indicate by signing and returning to us the enclosed copy of this letter. Very truly yours, THE CIT GROUP/COMMERCIAL SERVICES, INC. By: /s/ Charles M. Carbone Name: Charles M. Carbone Title: Vice President Read and Agreed to: UNIVERSAL SECURITY INSTRUMENTS, INC. By: /s/ Harvey Grossblatt Name: Harvey Grossblatt Title: President Exhibit 10.7 ADDENDUM TO EMPLOYMENT AGREEMENT THIS ADDENDUM TO EMPLOYMENT AGREEMENT (the "Addendum") is made this 21st day of October, 2002, to be effective as of April 1, 2002, by and between UNIVERSAL SECURITY INSTRUMENTS, INC., a Maryland corporation (the "Company") and HARVEY B. GROSSBLATT (the "Executive"). INTRODUCTORY STATEMENT The Company and Executive entered into an Employment Agreement dated as of April 1, 2002 (the "Original Agreement"). The parties desire to extend the term of the Original Agreement, and amend certain other provisions of the Original Agreement to be effective from and after April 1, 2002. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: A. All capitalized terms not otherwise defined in this Addendum shall have the meanings set forth in the Original Agreement. B. Section 1(b) of the Original Agreement is hereby amended in it entirety to read as follows: (b) Term of Employment. Subject to Section 7, the Company shall employ the Executive pursuant to the terms hereof for the period commencing as of the date hereof and ending on June 30, 2005 (the "Term"). The period during which the Executive is employed pursuant to this Agreement, including any renewal thereof shall be referred to as the "Employment Period.". C. Section 3(b) of the Original Agreement is hereby amended by adding the following at the end thereof: To the extent the Company reports income from both its domestic operations (currently shown on the Company's annual consolidated statements of operations as "Operating income") and Hong Kong Joint Venture (currently shown on the Company's annual consolidated statements of operations as "Equity in earnings of Hong Kong joint venture"), the Bonus expense shall be allocated between such two components in the respective proportions as such components bear to the consolidated Net Income (currently shown on the Company's annual consolidated statements of operations). D. In all other respects, the Original Agreement, as amended hereby, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Addendum as of the day and year first above written. UNIVERSAL SECURITY INSTRUMENTS, INC. By: /s/ Stephen C. Knepper /s/ Harvey B. Grossblatt Stephen C. Knepper, Chairman Harvey B. Grossblatt Exhibit 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Universal Security Instruments, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission and to which this Certification is an exhibit (the "Report"), the undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in this Form 10-Q fairly presents, in all material respects, the financial condition and result of the Company as of, and for, the periods reflected therein. Date: November 14, 2002 /s/ Stephen C. Knepper Stephen C. Knepper Chairman, Chief Executive Officer /s/ Harvey B. Grossblatt Harvey B. Grossblatt President, Chief Financial Officer Exhibit 99.2 November 13, 2002 Dear Partners/Shareholders: We are very pleased to share with you results for our second quarter ended September 30, 2002. The Universal Security team executed its plan soundly and with near precision across all operational areas for the quarter. As a result, we have achieved one of the finest quarters in the Company's history. Perhaps more significantly, we have now delivered four consecutive quarters of outstanding results in a highly challenging overall economic environment. This sustained performance should send a strong signal about our current momentum and direction in the marketplace. For the second quarter, sales rose 54% to $4,091,272 versus $2,653,482 a year ago. Earnings continue to dramatically increase to $630,129, or $0.60 per basic share ($0.55 per diluted share), versus last year's $23,543, or $0.03 per basic and diluted share. Management believes these results indicate that the Company is very well on track -- as I wrote in my last letter to you. For the six months ended September 30, 2002, sales rose 60% to $7,842,198 versus $4,908,612 for the same period last year. The Company reported net earnings of $1,207,069, or $1.17 per basic share ($1.09 per diluted share), compared to earnings of $85,902, or $0.09 per basic and diluted share, for the same period last year. Our performance reflects the success of the business model we implemented late last year, focusing on: * Aggressively building market share * Increasing operational efficiency * Fully leveraging the opportunities offered by our Hong Kong joint venture Our 50%-owned Hong Kong joint venture has given us key competitive advantages in product quality, reliability and pricing. In implementing the new Universal business model, we have been able to realize significant additional financial benefits from our Hong Kong operations. As Universal and our joint venture both continue to increase sales in all the markets we serve, revenue has increased at our production facility in southern China which in turn has contributed to higher overall profitability. Successful expansion by Universal and our joint venture into new markets, including Europe, Australia and elsewhere, has also led to lower component costs and increased margins. Universal Security increased its gross margins by 11% versus the same quarter a year ago. We have also reduced our percentage of sales, general and administrative expense to 23% from 28% for the same quarter last year. We continue to exceed our expectations and anticipate strong performance. In addition, as previously announced, we are currently exploring the possibility of an initial public offering of the joint venture company on the Hong Kong Stock Exchange (GEM Section). More information on that process will be released as available. Universal's recent success has not gone unnoticed by the business press. In recent months, we have received coverage from the television program Business Now, as well as significant stories in The Washington Post and Baltimore Business Journal. Our best story is our performance and operating results. Looking ahead, we are very pleased to let you know that USI has been chosen by Rexel, Inc. (one of the largest distributors to the electrical trade in the United States) and have been featured, along with a very limited number of other well respected brands, for a promotion with Rexel from October 1st through December 31st. Customers of Rexel will receive free the USI ELECTRIC red fire engine, which we all feel will make an ideal Holiday gift. This is part of the truck series that Rexel is giving away, combined with the purchase of USI ELECTRIC products. We were quite thrilled to be selected as this continues to raise our visibility in the electrical industry. Everyone at Universal Security is highly focused on building on our success during the second half of our fiscal year. I can assure you that your management team is committed, enthusiastic and productive. We very much look forward to reporting our third quarter results for the period ending December 31st . As always, should you have any questions, please don't hesitate to contact me at any time. Respectfully, Stephen C. Knepper, Chairman __________________________________________________________ Statements contained in this document that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Although UNIVERSAL SECURITY INSTRUMENTS, INC. believes that the expectations reflected in such forward-looking statements are reasonable, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projections. Exhibit 99.2 For Immediate Release Contact: Harvey Grossblatt, President Universal Security Instruments, Inc. 410-363-3000 or Don Hunt, Brian Edwards Lambert, Edwards & Associates, Inc. 616-233-0500 Universal Security Instruments Posts Sharply Higher Second-Quarter Sales & Earnings Sales Grow 54%; Earnings Per Share Rise to $0.60 Vs. $0.03 OWINGS MILLS, MD, November 13, 2002 - Universal Security Instruments, Inc. (OTC-BB: USEC) today announced significantly higher sales and earnings for its second quarter ended September 30, 2002, citing strong overall sales, increased market share and continued growth at its Hong Kong joint venture. The Owings Mills, MD-based designer and marketer of safety and security equipment posted net earnings of $630,129, or $0.60 per basic share ($0.55 per diluted share), on net sales which rose 54% to $4,091,272, compared with net earnings of $23,543, or $0.03 per basic and diluted share, on net sales of $2,653,482 for last year's second quarter. For the six months ended September 30, 2002, sales rose 60% to $7,842,198, versus $4,908,612 for the same period last year. The Company reported net earnings of $1,207,069 or $1.17 per basic ($1.09 per diluted share), compared to earnings of $85,902, or $0.09 per basic and diluted share, for the same period last year. "Our second-quarter and six-month results directly reflect the fundamental improvements our executive team made to Universal's business model last year. At that time, we pledged to refocus on building market share, increasing operational efficiency and leveraging our 50%-owned Hong Kong joint venture. We have executed well in each of these areas and the bottom-line results have followed, despite a highly challenging economic environment," said Steve Knepper, chairman of the board and chief executive officer of Universal Security Instruments. "Our efforts to increase Universal's domestic market share have resulted in increased revenues for our Hong Kong joint venture. As both Universal and our joint venture company have increased total sales and market penetration in North America, Europe, Australia and elsewhere, revenue has increased at our production facility in southern China. Growth in these markets has also lowered costs and increased margins. "In addition, as previously announced, we are currently exploring the possibility of an initial public offering of the joint venture company on the Hong Kong Stock Exchange (GEM Section). We will make additional future announcements on this process as appropriate." Knepper added that Universal increased its gross margins by 11% during the second quarter while reducing sales, general and administrative expense to approximately 23% of total revenue, compared to 28% for the same quarter last year. "Looking ahead, we continue to see significant opportunity in all our markets. Our new carbon monoxide alarm has received good initial response. Production is being increased and the Company believes this will be an important new product category going forward into 2003." UNIVERSAL SECURITY INSTRUMENTS, INC., founded in 1969, is a Maryland-based manufacturer and worldwide marketer of safety and security products directly and through its 50%-owned Hong Kong joint venture. UNIVERSAL SECURITY INSTRUMENTS, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) Three Months Ended September 30, 2002 2001 Sales $ 4,091,272 $2,653,482 Net income* 630,129 23,543 Income per share Basic .60 .03 Diluted .55 .03 Weighted average number of common shares outstanding Basic 1,054,205 912,270 Diluted 1,152,001 926,041 Six Months Ended September 30, 2002 2001 Sales $ 7,842,198 $4,908,612 Net income* 1,207,069 85,902 Income per share Basic 1.17 .09 Diluted 1.09 .09 Weighted average number of common shares outstanding Basic 1,034,488 912,270 Diluted 1,105,055 925,187 * Due to the tax benefit carryforward of prior years' operating losses, no tax liability was incurred. _______________________________________________________ Statements contained in this press release that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Although UNIVERSAL SECURITY INSTRUMENTS, INC. believes that the expectations reflected in such forward-looking statements are reasonable; the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projections. -----END PRIVACY-ENHANCED MESSAGE-----