UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended ~~December 31, 2008~~June 30, 2009

o¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-31747

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.)

	11407 Cronhill Drive, ~~Suites A-D~~Suite A
	Owings Mills, Maryland		21117
	(Address of principal executive offices)		(Zip Code)

	~~Registrant’s telephone number, including area code:~~ ~~(410) 363-3000~~

~~7-A Gwynns Mill Court, Owings Mills, Maryland 21117~~Registrant’s telephone number, including area code: (410) 363-3000

Inapplicable

(Former name, former address and former fiscal year if changed from last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer o¨ Accelerated filer o¨ Non-Accelerated Filer o¨ Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o¨ No x

At ~~February 6, 2008,~~August 8, 2009, the number of shares outstanding of the registrant’s common stock was ~~2,425,142.~~

2,387,887.

TABLE OF CONTENTS

			Page
		~~Page~~
Part I - Financial Information

	Item 1.1.	Consolidated Financial Statements (unaudited):	3

		Consolidated Balance Sheets at June 30, 2009
		and March 31, 2009	3

		Consolidated ~~Balance Sheets at December 31, 2008 and March 31, 2008~~Statements of Earnings for the Three	34
		Months Ended June 30, 2009 and 2008


	Consolidated Statements of ~~Earnings~~Cash Flows for the Three	5
		Months Ended ~~December 31,~~June 30, 2009 and 2008 ~~and 2007~~	4

		Notes to Consolidated Financial Statements ~~of Earnings for the Nine Months Ended December 31, 2008 and 2007~~	5		6

	~~Consolidated Statements~~ Item 2.	Management’s Discussion and Analysis of ~~Cash Flows for the Nine Months Ended December 31, 2008 and 2007~~	6	Financial Condition
		and Results of Operations	9

	~~Notes to Consolidated Financial Statements~~	7

Item 2.	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	12

~~Item 3.~~3.	Quantitative and Qualitative Disclosure About Market Risk	17		12


Item 4.4.	Controls and Procedures	17		12

Part II - Other Information

	Item 1.	Legal Proceedings	13

~~Item 1.~~	~~Legal Proceedings~~	18

Item 2.2.	Unregistered Sales of Equity Securities and Use of Proceeds	19		13

~~Item 4.~~	~~Submission of Matters to a Vote of Security Holders~~	19

~~Item 5.~~	~~Other Information~~	19

~~Item 6.~~	~~Exhibits~~	20

	~~Signatures~~ Item 5.	21Other Information	14

	Item 6.	Exhibits	14

		Signatures	15

PART I - FINANCIAL INFORMATION

~~ITEM 1.~~

~~FINANCIAL STATEMENTS~~

ITEM 1.FINANCIAL STATEMENTS

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31, 2008		March 31, 2008		June 30, 2009		March 31, 2009
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	180,755	$	3,863,784	$	934,820	$	284,030
Accounts receivable:
Trade less allowance for doubtful accounts of $95,927 and $15,000 at December 31, 2008 and March 31, 2008		1,044,168		146,022
Recoverable taxes and other receivables		353,187		282,083
Trade less allowance for doubtful accounts of $87,851 and
$95,927 at June 30, 2009 and March 31, 2009						285,782		55,779
Other receivables						139,781		97,780
Receivable from Hong Kong Joint Venture		116,938		115,656		163,773		312,257
		1,514,293		543,761		589,336		465,816

Amount due from factor		3,591,315		5,600,408		4,114,963		4,610,401
Inventories, net of allowance for obsolete inventory of $204,309 and $40,000 at December 31, 2008 and March 31, 2008, respectively		9,378,114		5,357,488
Inventories, net of allowance for obsolete inventory of $100,000 and
$204,309 at June 30, 2009 and March 31, 2009, respectively						7,407,697		8,997.231
Prepaid expenses		156,947		206,197		252,059		255,745
Assets held in receivership		219,402		2,850,731
Assets held for sale						69,988		202,565
TOTAL CURRENT ASSETS		15,040,826		18,422,369		13,368,863		14,815,788
DEFERRED TAX ASSET		2,200,690		1,914,136		2,188,256		2,141,702
INVESTMENT IN HONG KONG JOINT VENTURE		10,688,904		9,986,579		11,271,479		10,550,373
PROPERTY AND EQUIPMENT – NET		130,530		130,347		240,148		251,366
OTHER ASSETS		16,252		15,486		20,136		18,449
TOTAL ASSETS	$	28,077,202	$	30,468,917	$	27,088,882	$	27,777,678

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Amount due to factor	$	101,911	$	0
Accounts payable		823,968		777,342	$	463,294	$	794,365
Hong Kong Joint Venture accounts payable		1,924,668		1,687,950		1,437,440		1,967,073
Accrued liabilities:
Litigation reserve		401,592		401,592		401,592		401,592
Payroll and employee benefits		324,830		158,057		101,777		148,071
Commissions and other		166,998		105,431		32,756		202,789
Liabilities held in receivership		219,402		7,823,450
Liabilities held for sale						69,988		202,565
TOTAL CURRENT LIABILITIES		3,963,369		10,953,822		2,506,847		3,716,455

Long-term liability – other		95,324		91,160		96,034		95,324

COMMITMENTS AND CONTINGENCIES		-		-		-		-
SHAREHOLDERS’ EQUITY
Common stock, $.01 par value per share; authorized 20,000,000 shares; issued and outstanding 2,443,292 shares at December 31, 2008 and 2,487,867 shares at March 31, 2008		24,448		24,879
Common stock, $.01 par value per share; authorized 20,000,000 shares;
issued and outstanding 2,387,887 shares at June 30, 2009 and
2,408,220 shares at March 31, 2009						23,879		24,083
Additional paid-in capital		13,316,830		13,453,378		13,096,862		13,186,436
Retained earnings		10,677,231		5,890,023		11,365,260		10,755,380
Other comprehensive income		-		55,655
TOTAL SHAREHOLDERS’ EQUITY		24,018,509		19,423,935		24,486,001		23,965,899
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	28,077,202	$	30,468,917	$	27,088,882	$	27,777,678

The accompanying notes are an integral part of these consolidated financial statements

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

	Three Months Ended December 31,						Three Months Ended June 30,
	2008			2007			2009			2008

Net sales	$	5,595,049		$	7,776,986		$	5,914,905		$	6,192,801
Cost of goods sold – acquired from Joint Venture		4,222,264			4,762,666			4,344,489			4,615,735
Cost of goods sold – other		35,000			803,224			400,582			-

GROSS PROFIT		1,337,785			2,211,096			1,169,834			1,577,066

Research and development expense		107,632			94,144			119,151			86,234
Selling, general and administrative expense		1,177,776			1,569,765			1,203,078			1,243,934

Operating income		52,377			547,187
Operating (loss) income								(152,395	)		246,898

Other income (expense):
Interest income		-			18,370			4,151			18,835
Interest expense		(6,967	)		-			(5,642	)		-
								(1,491	)		18,835
INCOME BEFORE EQUITY IN EARNINGS OF JOINT VENTURE		45,410			565.557

(LOSS) INCOME BEFORE EQUITY IN EARNINGS OF JOINT VENTURE								(153,886	)		265,733

Equity in earnings of Joint Venture		458,745			688,017			721,107			292,772

Income from continuing operations before income taxes		504,155			1,253,574			567,221			558,505
Provision for income tax expense		211,642			87,757
Provision for income tax (benefit) expense								(44,244	)		101,366

INCOME FROM CONTINUING OPERATIONS		292,513			1,165,817			611,465			457,139

Discontinued operations:
Loss from operations of the discontinued Canadian subsidiary		-			(2,744,256	)		-			(53,659	)
Income tax expense – discontinued operations		-			57,350			-			-
Loss from discontinued operations		-			(2,801,606	)		-			(53,659	)

NET INCOME (LOSS)	$	292,513		$	(1,635,789	)
NET INCOME							$	611,465		$	403,480

Income (loss) per share:
Basic – from continuing operations	$	0.12		$	.47		$	0.25		$	0.18
Basic – from discontinued operations	$	0.00		$	(1.13	)	$	0.00		$	(0.02	)
Basic – net income (loss)	$	0.12		$	(0.66	)
Basic – net income							$	0.25		$	0.16
Diluted – from continuing operations	$	0.12		$	0.47		$	0.25		$	0.18
Diluted – from discontinued operations	$	0.00		$	(1.13	)	$	0.00		$	(0.02	)
Diluted – net income (loss)	$	0.12		$	(0.66	)
Diluted – net income							$	0.25		$	0.16
Shares used in computing net income per share:
Basic		2,467,028			2,489,132			2,417,338			2,487,867
Diluted		2,467,028			2,489,132			2,422,379			2,487,867

The accompanying notes are an integral part of these consolidated financial statements.

~~UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF EARNINGS~~

~~(Unaudited)~~

Nine Months Ended December 31
2008 2007

Net sales $ 20,169,229 $ 27,152,181
Cost of goods sold - acquired from Joint Venture 15,322,425 15,209,299
Cost of goods – other 40,680 5,067,583

GROSS PROFIT 4,806,124 6,875,299

Research and development expense 279,050 254,811
Selling, general and administrative expense 4,071,000 4,645,371

Operating income 456,074 1,975,117

Other income (expense):
Interest income 41,876 18,370
Interest expense (33,267 ) (70,861 )

INCOME BEFORE EQUITY IN EARNINGS OF JOINT VENTURE 464,683 1,922,626

Equity in earnings of Joint Venture 1,351,707 1,878,733

Income from continuing operations before income taxes 1,816,390 3,801,359
Provision for income tax expense 410,437 625,633

INCOME FROM CONTINUING OPERATIONS 1,405,953 3,175,726

Discontinued operations:
Income (loss) from operations of the discontinued Canadian subsidiary 2,415,382 (3,645,023 )
Income tax expense (benefit) expense – discontinued operations (965,872 ) 57,350
Income (loss) from discontinued operations 3,381,254 (3,702,373 )

NET INCOME (LOSS) $ 4,787,207 $ (526,647 )

Income (loss) per share:
Basic – from continuing operations $ 0.57 $ 1.28
Basic – from discontinued operations $ 1.36 $ (1.49 )
Basic – net income (loss) $ 1.93 $ (0.21 )
Diluted – from continuing operations $ 0.57 $ 1.26
Diluted – from discontinued operations $ 1.36 $ (1.47 )
Diluted – net income (loss) $ 1.93 $ (0.21 )
Shares used in computing net income per share:
Basic 2,480,330 2,481,802
Diluted 2,480,330 2,523,316

~~The accompanying notes are an integral part of these consolidated financial statements.~~

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended December,						Three Months Ended June 30,
	2008			2007			2009			2008
OPERATING ACTIVITIES
Net income (loss)	$	4,787,208		$	(526,647	)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Net income							$	611,465		$	403,480
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Operations of discontinued subsidiary		(3,428,897	)		1,219,658			-			289
Depreciation and amortization		33,936			31,239			14,147			11,312
Earnings of the Joint Venture		(1,351,707	)		(1,878,733	)		(721,107	)		(292,772	)
Stock-based compensation								5,703			3,494
Changes in operating assets and liabilities:
Decrease in accounts receivable and amounts due from factor		1,038,561			2,184,654
(Increase) decrease in inventories and prepaid expenses		(3,971,376	)		3,433,900
Increase (decrease) in accounts payable and accrued expenses		511,684			(1,463,529	)
Decrease (increase) in accounts receivable and amounts due from factor								371,918			(352,171	)
Decrease (increase) in inventories and prepaid expenses								1,593,220			(1,595,894	)
(Increase) decrease in accounts payable and accrued expenses								(1,078,615	)		1,146,986
(Increase) decrease in deferred taxes and other assets		(290,076	)		122,004			(48,241	)		100,001

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(2,670,667	)		3,122,546
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES								748,490			(575,275	)

INVESTING ACTIVITIES:
Purchase of property and equipment		(34,119	)		(23,801	)		(2,929	)		-
Activity of discontinued operation		2,590,722			(1,906,796	)
Dividends received from Joint Venture		649,383			323,716

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		3,205,986			(1,606,881	)
NET CASH USED IN INVESTING ACTIVITIES								(2,929	)		-

FINANCING ACTIVITIES:
Purchase and retirement of common stock		(136,979	)		-			(95,481	)		-
Tax benefit from exercise of stock options		-			92,926
Borrowing from (payments to) bank		101,911			(2,254,966	)
Activities of discontinued subsidiary		(4,187,444	)		4,786,885
Proceeds from issuance of common stock from exercise of employee stock options		-			140,729
Other long-term obligations		4,164			86,000			710			-

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(4,218,348	)		2,851,574
NET CASH USED IN FINANCING ACTIVITIES								(94,771	)		-

Impact of foreign currency on cash		-			(329,300	)

(DECREASE) INCREASE IN CASH		(3,683,029	)		4,037,939
INCREASE (DECREASE) IN CASH								650,790			(575,275	)

Cash at beginning of period		3,863,784			240,545			284,030			3,863,784

CASH AT END OF PERIOD	$	180,755		$	4,278,484		$	934,820		$	3,288,509

Supplemental information:
Interest paid	$	33,267		$	298,226		$	5,642		$	-
Income taxes	$	-		$	200,000		$	-		$	-

The accompanying notes are an integral part of these consolidated financial statements.

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Statement of Management

The consolidated financial statements include the accounts of Universal Security Instruments, Inc. (USI or the Company) and its majority owned subsidiaries. Significant inter-company 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, ~~2008~~2009 audited financial 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.

Discontinued Operations

~~In October 2006, the Company formed 2113824 Ontario, Inc., an Ontario corporation, as a wholly-owned subsidiary of the Company for the purpose of acquiring a two-thirds interest~~As discussed in two Canadian corporations, International Conduits, Ltd. (Icon) and Intube, Inc. (Intube). Icon and Intube are based in Toronto, Canada and manufacture and distribute electrical mechanical tubing (EMT) steel conduit. Icon also sold home safety products, primarily purchased from the Company, in the Canadian market. The primary purpose of the Icon and Intube acquisition was to expand our product offerings to include EMT steel conduit, and to provide this product and service to the commercial construction market. On April 2, 2007, Icon and Intube were merged under the laws of Ontario to form one corporation.

In September 2007, Icon entered into a credit agreement with CIT Financial, Ltd. to provide a term loan and a line of credit facility. These loans were secured by all of the assets of Icon and by the corporate guarantees of the Company and our USI Electric subsidiary, as further explained below.

As a result of continuing losses at Icon, management undertook an evaluation of the goodwill from our acquisition of Icon to determine whether the value of the goodwill has been impaired in accordance with FAS No. 142, “~~Goodwill and Other Intangible Assets”. Based~~prior periods, on that evaluation, management determined that the value of the goodwill from our acquisition of Icon was impaired, and recognized an impairment charge of US$1,926,696 for the goodwill as of December 31, 2007. The impairment was recorded in discontinued operations in the consolidated statements of operations for the year ended March 31, 2008.

At the time of the investment in Icon, management projected that the established U.S. sales network would allow us to increase sales of EMT to U.S. customers. Despite the Company’s efforts, Icon suffered continuing losses, and the Company was not successful in increasing Icon’s sales in the face of competition and a weakening U.S. dollar. On January 29, 2008, Icon received notice from CIT Financial, Ltd. (CIT Canada), Icon’s principal and secured lender, that Icon was in default under the terms of the Credit Agreement dated September 22, 2007 between Icon and CIT Canada and demanding immediate payment of all of Icon’s obligations to CIT Canada under the Credit Agreement. On February 11, 2008, the assets of ~~Icon~~International Conduits, Ltd. (Icon), a Canadian corporation in which we own a two-thirds interest, were placed under the direction of a court appointed receiver, and the operations of Icon were suspended. ~~As a result of~~Accordingly, the ~~February 11, 2008 court appointed receivership of Icon’s~~ assets ~~we no longer controlled Icon as of that date. In accordance with Statement of Financial Accounting Standards No. 94, the financial statements~~and liabilities of Icon are not consolidated ~~with~~in the financial statements of the ~~Company. Accordingly,~~Company and are classified as assets held in receivership. Our consolidated financial statements and the ~~accounts and~~related note disclosures reflect the operations of Icon ~~in our consolidated financial statements are presented~~ as ~~assets and liabilities held in receivership and as the results of discontinued operations.~~

The production machinery and equipment of Icon were recorded at their appraised net realizable value of US$831,555 as of March 31, 2008. During the quarter ended June 30, 2008, the Company revised its estimate based on communications with the auctioneer and appraisers and adjusted the carrying value to approximately $1,020,000, resulting in a write-up of approximately US$190,000 during the quarter ended June 30, 2008. On July 16, 2008, the receiver in possession of Icon’s assets held a public auction to liquidate production machinery and equipment held for sale. Auction proceeds, net of auction fees, amounted to US$1,033,652.

On September 22, 2008, Icon’s obligations were settled in the receivership action by order of the Ontario Superior Court. After complete liquidation of the assets of Icon, the receiver held CAD$2,419,831 (US$2,314,326). Of this amount, CAD$2,150,000 (US$2,056,260) was distributed to CIT Canada in partial settlement of Icon’s secured obligations to CIT Canada. The remaining cash as of September 22, 2008 of CAD$260,009 (US$258,066) is held by the receiver for other obligations. As a result of the settlement of Icon’s obligations, a gain of CAD$5,101,674 (US$4,910,718) was realized by Icon in the quarter ended September 30, 2008. Approximately US$3,000,000 of the gain related to extinguishment of liabilities due to unsecured creditors. The company applied guidance in FAS 140, ~~Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,~~ and determined that a legal release of the liabilities had been achieved to allow recognition of the gain on extinguishment of liabilities. This gain was partially offset in consolidation by the US$1,481,003 after-tax effect loss recognized by the Company in settlement of its guarantee of Icon’s secured debt and other losses attributable to the Icon discontinued operations ~~to arrive at the gain from discontinued operations of $3,381,254 reported~~ for ~~the nine months ended December 31, 2008.~~all periods presented.

At ~~December 31, 2008,~~June 30, 2009, the ~~assets~~remaining asset of Icon held by the receiver ~~consisted~~consists of cash of ~~US$219,402,~~approximately US $70,000, and ~~its liabilities include post-receivership accounts payable~~the remaining liability of US$72,806 and a pre-receivership trade account payable of approximately US$146,596. The pre-receivership trade account payable is subject to settlement in accordance with a “claim process” administratedIcon held by the ~~receiver. To~~receiver is the ~~extent any portion of the pre-receivership account payable~~final disbursement that is ~~ultimately disallowed, that portion will increase the gain from discontinued operations.~~due to Universal Security Instruments, Inc. as a secured party.

The major classes of assets and liabilities held in receivership reported as discontinued operations included in the accompanying consolidated balance sheets are shown ~~below.~~below:

December 31, 2008 March 31, 2008

Assets
Cash $ 219,402 $ 823,550
Trade receivables, net 0 371,793
Inventories 0 817,022
Property, plant and equipment – net 0 831,555
Other assets 0 6,811
Assets of discontinued operations $ 219,402 $ 2,850,731

Liabilities

Accounts payable, trade and other $ 219,402 $ 3,344,624
Notes payable – bank 0 4,478,826
Liabilities of discontinued operations $ 219,402 $ 7,823,450

In the accompanying consolidated financial statements, the results of Icon for the three and nine months ended December 31, 2008 have been restated and are presented as the results of discontinued operations, and certain other prior year amounts have been reclassified in order to conform with the current year’s presentation.

	June 30, 2009		March 31, 2009
Asset
Cash	$	69,988	$	202,565
Assets held for sale	$	69,988	$	202,565

Liability
Accounts payable, secured party	$	69,988	$	202,565
Liabilities held for sale	$	69,988	$	202,565

Income Taxes

A provision for federal and state income ~~taxes~~tax (benefit) expense on continuing operations of ~~$410,437~~$(44,244) and ~~$625,633~~$101,366 has been provided for the ~~nine~~three month periods ended ~~December 31,~~June 30, 2009 and 2008, ~~and 2007,~~ respectively. For income tax purposes, this provision is reduced by a $0 and $44,076 benefit derived from deductions associated with the exercise of employee stock options for the ~~nine~~three month periods ended ~~December 31,~~June 30, 2009 and 2008, ~~and 2007,~~ respectively. Under FAS ~~123,~~123R, the tax benefit of this deduction for the three month period ended June 30, 2008 has been treated as a credit to additional paid in capital and ~~will~~does not require a cash payment for income taxes. As discussed above, the Company guaranteed certain indebtedness of its Canadian subsidiary which has since been placed in receivership. The Company settled its guarantee of the indebtedness for approximately $2,150,000 and recognized a $965,872 income tax benefit on the portion of the guaranteed indebtedness which related to U.S. operations. The benefit is presented in the discontinued operations section of the accompanying consolidated statements of earnings and as a deferred tax asset on the accompanying consolidated balance sheet. For the three month periods ended December 31, 2008 and 2007, federal and state income taxes from continuing operations are $211,642 and $87,757, respectively. The Company has net operating loss carryover and foreign tax credits sufficient to offset current tax expenses.

On April 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribes a recognition threshold that a tax position is required to meet before recognition in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.

In connection with the adoption of FIN 48, the Company recorded an initial liability of approximately $86,000 for income taxes, interest and penalties related to unrecognized tax benefits. ~~Simultaneously, the Company recorded a reduction to retained earnings.~~ With the adoption of FIN 48, the Company has chosen to treat interest and penalties related to uncertain tax liabilities as income tax expense. As of ~~December 31, 2008,~~June 30, 2009, this liability with imputed interest is ~~$95,324.~~$96,034.

Joint Venture

The Company and its co-venturer, a Hong Kong corporation, each owns a 50% interest in a Hong Kong joint venture, Eyston Company Limited (the “Joint Venture”), that has manufacturing facilities in the People’s Republic of China, for the manufacturing of security products. The following represents summarized balance sheet and income statement information of the Joint Venture as of and for the ~~nine~~three months ended ~~December 31, 2008~~June 30, 2009 and ~~2007:~~2008:

	2008		2007		2009		2008
Net sales	$	29,270,914	$	23,722,803	$	5,867,623	$	7,797,035
Gross profit		7,925,541		6,078,838		1,568,646		1,822,409
Net income		3,592,801		2,991,477		938,812		587,885
Total current assets		17,594,219		15,962,261		14,640,539		16,206,245
Total assets		28,312,610		25,793,201		28,932,600		25,758,228
Total current liabilities		5,900,157		5,803,207		6,051,978		5,780,722

During the ~~nine~~three months ended ~~December 31,~~June 30, 2009 and 2008, ~~and 2007,~~ respectively, the Company purchased ~~$18,787,069~~$3,064,419 and ~~$15,157,285~~$5,196,060 of products from the Joint Venture. For the quarters ended ~~December 31,~~June 30, 2009 and 2008, ~~and 2007,~~ the Company has adjusted its equity in earnings of the Joint Venture to ~~respectively~~ reflect a reduction of ~~$471,840~~$246,180 and ~~an increase of $127,900~~$1,171 for inter-company profit in inventory as required by US GAAP.

Net Income ~~Per~~per Common Share

Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the periods presented. Diluted earnings per common share is computed based on the weighted average number of common shares outstanding plus the effect of stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on the Company’s average stock price.

A reconciliation of the weighted average shares of common stock utilized in the computation of basic and diluted earnings per share for the three month period ended ~~December 31,~~June 30, 2009 and 2008 ~~and 2007~~ is as follows:

	Three Months Ended December 31,				Nine Months Ended December 31,				Three Months Ended June 30,
	2008		2007		2008		2007		2009		2008
Weighted average number of common shares outstanding for basic EPS		2,467,028		2,489,132		2,480,330		2,481,802		2,417,338		2,487,867
Shares issued upon the assumed exercise of outstanding stock options		0		0		0		41,514		5,041		0
Weighted average number of common and common equivalent shares outstanding for diluted EPS		2,467,028		2,489,132		2,480,330		2,523,316		2,422,379		2,487,867

~~Total outstanding~~Outstanding options to purchase ~~72,422~~71,089 shares of common stock as of ~~December 31, 2008~~June 30, 2009 are not included in the above calculations as the effect would be anti-dilutive.

Stock Based Compensation

As of December 31, 2008, under the terms of the Company’s Non-Qualified Stock Option Plan, as amended, 877,777 shares of our common stock are reserved for the granting of stock options, of which 857,546 have been issued, leaving 20,231 available for issuance.

~~Adoption of SFAS No. 123R.~~ ~~In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004),~~ ~~Share-Based Payment~~, which requires compensation costs related to share-based payment transactions to be recognized in financial statements. SFAS No. 123R eliminates the intrinsic value method of accounting available under Accounting Principles Board (APB) Opinion No. 25, ~~Accounting for Stock Issued to Employees, which generally resulted in no compensation expense being recorded in the financial statements related to the grant of stock options to employees if certain conditions were met.~~

Effective April 1, 2006, we adopted SFAS No. 123R using the modified prospective method. Under this method, compensation costs for all awards granted after the date of adoption and the unvested portion of previously granted awards will be measured at an estimated fair value and included in operating expenses or capitalized as appropriate over the vesting period during which an employee provides service in exchange for the award. Accordingly, prior period amounts presented have not been restated to reflect the adoption of SFAS No. 123R.

As a result of adopting SFAS No. 123R, net income for the ~~nine~~three months ended ~~December 31,~~June 30, 2009 and 2008 was reduced by ~~$7,736.~~$5,703 and $3,494, respectively. No portion of employees’ compensation, including stock compensation expense, was capitalized during the period.

~~During the nine month period ended December 31, 2008, no shares of our common stock have been issued as a result of the exercise of the options granted under the plan.~~

Fair Value Determination. Under SFAS No. 123R, we have elected to continue using the Black-Scholes option pricing model to determine fair value of our awards on date of grant. We will reconsider the use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated under this model.

Stock Option Activity. During the ~~nine~~three month ~~period~~periods ended ~~December 31, 2008 and 2007,~~June 30, 2009, no stock options were granted. During the three month period ended June 30, 2009, no shares of our common stock have been issued as a result of the exercise of the options granted under the plan.

Stock Compensation Expense. ~~We have elected~~Compensation expense related to ~~continue~~share-based awards is recognized on a straight-line ~~amortization~~basis based on the value of ~~stock-based compensation expense over~~share awards that are expected to vest during the requisite service period. Prior to the adoption of SFAS No. 123R, we recognized the effect of forfeitures in our pro forma disclosures as they occurred. In accordance with the new standard, we have estimated forfeitures and are only recording expense on shares we expect to vest. For the ~~nine~~three months ended ~~December 31,~~June 2009 and 2008, ~~and 2007,~~ we recorded ~~$7,736~~$5,703 and ~~$16,369~~$3,494, respectively, of stock-based compensation cost as general and administrative expense in our statement of operations. No forfeitures have been estimated. No portion of employees’ compensation including stock compensation expense was capitalized during the period.

As of ~~December 31, 2008,~~June 30, 2009, there was no$39,922 of unrecognized compensation cost related to share-based compensation arrangements that we expect to vest. The aggregate intrinsic value of currently exercisable options was $0$81,310 at ~~December 31, 2008.~~

~~Stock Purchase Program~~

In July 2008, the Company announced a stock buyback program and authorized the purchase of up to 100,000 shares of common stock. Shares may be purchased from time to time under this program in the open market, through block trades and/or in negotiated transactions. Unless extended by the Company’s Board of Directors, the program will terminate when 100,000 shares of common stock have been repurchased by the Company pursuant to the program (unless increased or decreased by the Board of Directors). See Part II, Item 2 of this form 10-Q.June 30, 2009.

Recently Issued Accounting Pronouncements

Business Combinations: In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R), “Business Combinations,” (“SFAS No. 141(R)”),which replaces SFAS No. 141 and issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” (“SFAS No. 160”), an amendment of Accounting Research Bulletin No. 51. These two new standards will change the accounting for and the reporting for business combination transactions and noncontrolling (minority) interests in the consolidated financial statements, respectively. SFAS No. 141(R) will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS No. 160 will change the accounting and reporting for minority interests, which will be re-characterized as noncontrolling interests and classified as a component of equity. These two standards will be effective for the Company for ~~acquisitions undertaken and~~ financial statements issued for fiscal years beginning after December 31, 2008. SFAS 141(R) applies prospectively to business combinations on or after April 1, 2009. SFAS 141R will have an impact on our accounting for business combinations once adopted, but the effect on our consolidated results of operations and financial position will be dependent upon future acquisitions, if any.

Fair Value Measurements: In September ~~2007,~~2006, the ~~Financial Accounting Standards Board (FASB)~~FASB issued ~~Statement of Financial Accounting Standards~~SFAS No. 157, Fair Value ~~Measurement (SFAS 157)~~Measurements, (“SFAS No. 157”). ~~This standard clarifies the principle that~~SFAS No. 157 establishes a formal framework for measuring fair value ~~should be based on~~under generally accepted accounting principles. Although SFAS No. 157 applies (amends) the ~~assumptions that market participants would use when pricing an asset or liability. Additionally,~~provisions of existing FASB and other accounting pronouncements, it ~~establishes a~~does not require any new fair value ~~hierarchy that prioritizes the information used to develop those assumptions.~~measurements nor does it establish valuation standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, ~~2008. The Company has not yet determined the impact that the implementation of SFAS 157 will have on its results of operations or financial condition.~~

~~The Fair Value Option for Financial Assets and Financial Liabilities~~:2007. In February 2008, the FASB issued FASB Staff Position No. 157-1 (“FSP 157-1”) which excludes SFAS No. ~~159,~~13, ~~The Fair Value Option~~Accounting for ~~Financial Assets and Financial Liabilities~~Leases, ~~including an amendment~~and its related pronouncements that address leasing transactions from the scope of ~~FASB Statements No. 115 (SFAS No. 159).~~ SFAS No. ~~159 permits entities to choose, at specified election dates, to measure eligible~~157. Also in February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP 157-2”) which delays the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those items recognized or disclosed at fair value ~~(the “fair value option”)~~on a recurring basis (at least annually). ~~A business entity shall report unrealized gains~~FSP 157-2 defers the effective date of SFAS No. 157 for non-financial assets and ~~losses on items~~non-financial liabilities for ~~which the fair value option has been elected in earnings at each subsequent reporting period. This accounting standard is effective as of the~~financial statements issued for fiscal years beginning ~~of an entity’s first fiscal year that begins~~ after November 15, 2008. The ~~effect, if any, of adopting~~FASB has issued a proposed FASB Staff Position No. 157-c, (“FSP 157-c)”, that would provide guidance on measuring liabilities under SFAS No. ~~159 on the Company’s financial position and results of operations has not been finalized.~~

~~In May 2008, the FASB issued~~157. SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”), SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to Interim Auditing Standards Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The implementation of this standard is157 does not ~~expected to~~ have a material impact on ~~our~~the Company’s consolidated financial position ~~and~~or results of ~~operation.~~operations.

~~Reclassifications~~Subsequent Events: In May 2009, the Financial Accounting Standards Board issued Statement 165, Subsequent Events, to incorporate the accounting and disclosure requirements for subsequent events into U.S. generally accepted accounting principles. Statement 165 introduces new terminology, defines a date through which management must evaluate subsequent events, and lists the circumstances under which an entity must recognize and disclose events or transactions occurring after the balance-sheet date. The Company adopted Statement 165 as of June 30, 2009, which was the required effective date.

~~Certain prior year amounts have been reclassified~~The Company evaluated its June 30, 2009 financial statements for subsequent events through the date the financial statements were available to be issued which was August 12, 2009. Other than the published warning of our factor regarding a possible bankruptcy filing noted below, the Company is not aware of any other subsequent events that would require recognition or disclosure in ~~order to conform with current year presentation.~~the financial statements.

118

In July 2009, CIT Group, Inc. (CIT), the Company’s factor and principal lender, warned in a press release of the possibility that CIT may file for bankruptcy protection. At June 30, 2009, the Company had no borrowings under its factoring agreement with CIT, had cash on deposit with CIT, and had availability to borrow based on its factoring agreement with CIT. Since July 13, 2009 the Company has borrowed substantially all of its availability from CIT and transferred this amount and the cash on deposit with CIT to an account with the Company’s commercial bank. The Company will continue to monitor its borrowing policy with respect to CIT and is reviewing its options to establish an alternate source of commercial financing, if needed.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used throughout this Report, “we,” “our,” “the Company” “USI” and similar words refers to Universal Security Instruments, Inc.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements reflecting our current expectations with respect to our operations, performance, financial condition, and other developments. These forward-looking statements may generally be identified by the use of the words “may”, “will”, “believes”, “should”, “expects”, “anticipates”, “estimates”, and similar expressions. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve a number of risks and uncertainties. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, those risks identified in our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.

overview

We are in the business of marketing and distributing safety and security products which are primarily manufactured through our 50%-owned Hong Kong Joint Venture. Our financial statements detail our sales and other operational results only, and report the financial results of the Hong Kong Joint Venture using the equity method. Accordingly, the following discussion and analysis of the three ~~and nine~~ months ended ~~December 31,~~June 30, 2009 and 2008 ~~and 2007~~ relate to the operational results of the ~~Company only.~~Company. A discussion and analysis of the Hong Kong Joint Venture’s operational results for these periods is presented below under the heading “Joint Venture.”

Discontinued Canadian Operations

~~In October 2006, we formed 2113824 Ontario, Inc., an Ontario corporation, as a wholly-owned subsidiary of the Company for the purpose of acquiring a two-thirds interest~~As discussed in two Canadian corporations, International Conduits, Ltd. (Icon) and Intube, Inc. (Intube). Icon and Intube are based in Toronto, Canada and manufacture and distribute electrical mechanical tubing (EMT) steel conduit. Icon also sold home safety products, primarily purchased from the Company, in the Canadian market. The primary purpose of the Icon and Intube acquisition was to expand our product offerings to include EMT steel conduit, and to provide this product and service to the commercial construction market. On April 2, 2007, Icon and Intube were merged under the laws of Ontario to form one corporation.

In September 2007, Icon entered into a credit agreement with CIT Financial, Ltd. to provide a term loan and a line of credit facility. These loans are secured by all of the assets of Icon and by the corporate guarantees of the Company and our USI Electric subsidiary, as further explained below.

On September 22, 2008, Icon’s obligations were settled in the receivership action by order of the Ontario Superior Court. After complete liquidation of the assets of Icon, the receiver held CAD$2,419,831 (US$2,314,326). Of this amount, CAD$2,150,000 (US$2,056,260) was distributed to CIT Canada in partial settlement of Icon’s secured obligations to CIT Canada. The remaining cash of CAD$260,009 (US$258,066) is currently held by the receiver for other obligations. As a result of the settlement of Icon’s obligations, a gain of CAD$5,101,674 (US$4,910,718) was realized by Icon in the quarter ended December 31, 2008. Approximately US$3,000,000 of the gain related to extinguishment of liabilities due to unsecured creditors. The company applied guidance in FAS 140, ~~Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,~~ and determined that a legal release of the liabilities had been achieved to allow recognition of the gain on extinguishment of liabilities. This gain was partially offset in consolidation by the US$1,481,003 after-tax effect loss recognized by the Company in settlement of its guarantee of Icon’s secured debt and other losses attributable to the Icon discontinued operations ~~to arrive at the gain from discontinued operations of $3,381,254 reported~~ for ~~the nine months ended December 31, 2008.~~all periods presented.

The major classes of assets and liabilities held in receivership reported as discontinued operations included in the accompanying consolidated balance sheets are shown ~~below.~~below:

	June 30, 2009		March 31, 2009
Asset
Cash	$	69,988	$	202,565
Assets held for sale	$	69,988	$	202,565

Liability
Accounts payable, secured party	$	69,988	$	202,565
Liabilities held for sale	$	69,988	$	202,565

Results of Operations

Three Months Ended ~~December 31,~~June 30, 2009 and 2008 ~~and 2007~~

Sales. Net sales for the three months ended ~~December 31, 2008~~June 30, 2009 were ~~$5,595,049~~$5,914,905 compared to ~~$7,776,986~~$6,192,801 for the comparable three months in the prior fiscal year, a decrease of ~~$2,181,937 (28.1%~~$277,896 (4.5%). The primary reason for the decrease in net sales volumes was ~~lower~~ sales ~~volumes~~ of our core product lines to the electrical distribution trade, including smoke alarms and carbon monoxide alarms, ~~to the electrical distribution trade~~decreased due to a decrease in new home construction during the quarter.

Gross Profit Margin. Gross profit margin is calculated as net sales less cost of goods sold expressed as a percentage of net sales. Our gross profit margin was ~~23.9%~~19.8% and ~~28.4%~~25.5% of sales for the quarters ended ~~December 31,~~June 30, 2009 and 2008, ~~and 2007,~~ respectively. Typically, our sales to retail customers have lower gross profit margins than our sales to the electrical distribution trade, and the product mix we sell to retail customers are generally lower margin items. OurThe decrease in gross profit margin ~~for the 2008 period~~ was primarily due to ~~the~~a lower ~~electrical distribution trade sales.~~gross profit margin realized on sales to a national home improvement retailer.

Expenses. Research and development, and selling, general and administrative expenses ~~decreased~~increased by ~~$378,501~~$7,939 from the comparable three months in the prior year. As a percentage of net sales, these expenses increased to ~~23.0%~~22.4% for the three month period ended ~~December 31, 2008,~~June 30, 2009, from ~~21.4%~~21.5% for the ~~2007~~2008 period. The increase in costs as a percentage of net sales was primarily due to fixed costs that did not decrease at the same rate as sales.

Interest Expense and Income. Our interest expense on cash deposits, net of interest ~~charges,~~income, was ~~$6,967~~$1,491 for the quarter ended ~~December 31, 2008,~~June 30, 2009, compared to net interest income of ~~$18,370~~$18,835 for the quarter ended ~~December 31, 2007.~~June 30, 2008. Net interest ~~expense~~income in the ~~current~~prior year’s quarterly period resulted from ~~higher borrowings by us in support of increased inventory balances.~~net cash deposits with our factor.

Income Taxes. During the quarter ended ~~December 31, 2008,~~June 30, 2009, the Company had a net income tax ~~expense~~benefit of ~~$211,642.~~$44,244 as a result of a $153,886 loss before equity in earnings of the Joint Venture. For the corresponding ~~2007~~2008 period, the Company ~~has~~had a provision for income taxes of ~~$87,757. The effective rate of tax is 42.0% and 7.0% for the quarters ended December 31, 2008 and 2007, respectively. The reduced effective rate~~$101,366, based on income before equity in ~~the prior year’s quarter is due to the recognition~~earnings of the ~~U.S. portion~~Joint Venture of ~~the loss on the discontinued Canadian subsidiary.~~$265,733.

Net Income. We reported net income of ~~$292,513~~$611,465 for the quarter ended ~~December 31, 2008,~~June 30, 2009, compared to a net ~~loss~~income of ~~$1,635,789~~$403,480 for the corresponding quarter of the prior fiscal year. As discussed above under the section titled “Discontinued Canadian Operations”, the net loss in the quarter ended December 31, 2007 was principally a result of the impairment of goodwill related to our discontinued Canadian subsidiary.

~~Nine Months Ended December 31, 2008 and 2007~~

~~Sales.~~ ~~Net sales for the nine months ended December 31, 2008 were $20,169,229 compared to $27,152,181 for the comparable nine months in the prior fiscal~~ year, a ~~decrease of $6,982,952 (25.7%~~$207,985 (51.5%). increase. The ~~primary~~ reason for the ~~decrease~~increase in net ~~sales was lower sales volumes~~income is an increase of ~~our core product lines, including smoke alarms and carbon monoxide alarms, to~~$428,335 in the ~~electrical distribution trade~~Company’s equity in the earnings of the Joint Venture from the same period of the prior year, partially offset by the Company’s $153,896 operating loss due to a decrease in new home construction during the ~~period.~~

~~Gross Profit Margin.~~ ~~The gross profit margin is calculated as net sales less cost~~quarter. Included in our equity in the earnings of ~~goods sold expressed as a percentage of net sales. The Company’s gross profit margin decreased from 25.3% for~~ the ~~period ended December 31, 2007 to 23.8%~~Joint Venture for the current period ~~ended December 31, 2008. Typically, our~~is $246,180 recognized by the Company on inter-company sales of inventory from prior periods which, in accordance with GAAP, may only be recognized by us as income upon sales by us to ~~retail~~ customers, ~~have lower gross profit margins than our sales~~and an adjustment of $117,050 to the electrical distribution trade, and the product mix we sell to retail customers are generally lower margin items. Our decrease in gross profit margin for the 2008 period was primarily due to the lower electrical distribution trade sales.reflect gains on foreign currency held.

~~Expenses.~~ Research and development, and selling, general and administrative expenses decreased by $550,132 from the comparable nine months in the prior year. As a percentage of sales, these expenses were 21.6% for the nine month period ended December 31, 2008 and 18.0% for the comparable 2007 period. The primary reason for the increase in expenses as a percentage of sales is that these expenses did not decrease at the same rate as sales.

~~Interest Expense and Income.~~ Our interest income net of interest expense was $8,609 for the nine months ended December 31, 2008, compared to net interest expense of $52,491 for the nine months ended December 31, 2007. Interest expense in the comparable period of the last year resulted primarily from borrowings to support the Canadian subsidiary.

~~Income Taxes.~~ During the nine months ended December 31, 2008, the Company recorded an income tax expense from continuing operations of $410,437. For the corresponding 2007 period, the Company had a tax expense of $625,633. The effective rate of tax is 22.6% and 16.5% for the nine month periods ended December 31, 2008 and 2007, respectively. The reduced effective rate in the prior year’s nine month period is due to the recognition of the U.S. portion of the loss on the discontinued Canadian subsidiary.

~~Net Income.~~ We reported net income of $4,787,207 for the nine months ended December 31, 2008 compared to a net loss of $526,647 for the corresponding period of the prior fiscal year. As discussed above under the section titled “Discontinued Canadian Operations”, the primary reason for the increase is the gain of $3,381,254 recognized as a result of the settlement of the obligations or our Canadian subsidiary.

Financial Condition and Liquidity

The Company has a Factoring Agreement with CIT Group, Inc. (CIT) which supplies both short-term borrowings and letters of credit to finance foreign inventory purchases. The maximum amount available under the Factoring Agreement is currently ~~$7,950,000.~~$7,500,000. Based on specified percentages of our accounts receivable and inventory and letter of credit commitments, we had ~~$6,883,000~~$3,925,000 available under the Factoring Agreement at ~~December 31, 2008.~~June 30, 2009. There ~~is $101,911~~were no amounts borrowed under this agreement as of ~~December 31, 2008.~~June 30, 2009. The interest rate under the Factoring Agreement on the uncollected factored accounts receivable and any additional borrowings is equal to the prime rate of interest charged by our lender. At ~~December 31, 2008,~~June 30, 2009, the prime rate was ~~4.0%~~3.25%. Borrowings are collateralized by all of our accounts receivable and inventory.

Our factored accounts receivable as of the end of our last fiscal year (net of allowances for doubtful accounts) were ~~$5,600,408,~~$4,610,401, and were ~~$3,591,315~~$4,114,963 as of ~~December 31, 2008.~~June 30, 2009. Our prepaid expenses as of the end of our last fiscal year were ~~$206,197,~~$255,745, and were ~~$156,947~~$252,059 as of ~~December 31, 2008. The decrease in prepaid expenses is due to the timing of premium payments to various insurance carriers.~~June 30, 2009.

Operating activities ~~used~~provided cash of ~~$2,670,667~~$748,490 for the ~~nine~~three months ended ~~December 31, 2008.~~June 30, 2009. This was primarily due to ~~the operations~~a decrease in accounts receivable of ~~the discontinued subsidiary~~$371,918, and ~~an increase of $3,971,376~~decreases in inventories and prepaid expenses of $1,593,220, offset by a decrease in accounts payable and accrued expenses of $1,077,028 and earnings of the Joint Venture of ~~$1,351,707.~~$721,107. For the same period last year, operating activities ~~provided~~used cash of ~~$3,122,546,~~$575,275, primarily as a result of unremitted earnings of the Hong Kong Joint Venture and increases in ~~receivables,~~ inventory and prepaid expenses offset by a decrease in accounts payable and accrued expenses, which was due to a build in the ~~operations of the discontinued subsidiary.~~Company’s inventory balances during that period to meet forecasted sales orders.

Investing activities ~~provided~~used cash of ~~$3,205,986~~$2,929 during the ~~nine~~three months ended December 31, 2008, principally as a result of the liquidation of remaining assets of the discontinued operations. Investing activities used $1,606,881 in the prior period., primarily related to acquisition of property and equipment related to the discontinued operations.June 30, 2009.

Financing activities used cash of ~~$4,218,348~~$94,771 during the ~~nine~~three months ended ~~December 31, 2008, principally as a result~~June 30, 2009, primarily from the acquisition and retirement of ~~the payment of guaranteed debt and other activities of discontinued operations. In the comparable nine months~~Company stock in ~~the prior year, financing activities provided cash of $2,851,574, primarily related to borrowings to fund the activities of the discontinued operations.~~accordance with our stock repurchase plan.

We believe that funds available under the Factoring Agreement, distributions from the Joint Venture, and our line of credit facilities provide us with sufficient resources to meet our requirements for liquidity and working ~~capital~~capital. In July 2009, CIT warned in a press release of the ~~ordinary course~~possibility that it may file for bankruptcy protection. At June 30, 2009, we had no borrowings under our factoring agreement with CIT, had cash on deposit with CIT, and had availability to borrow based on our Factoring Agreement. Since July 13, 2009 we borrowed substantially all of our ~~business over~~availability from CIT and transferred this amount and the ~~next twelve months~~cash on deposit with CIT to a certificate of deposit account with our commercial bank. We will continue to monitor our borrowing policy with respect to CIT, and ~~over the long term.~~we are reviewing our options to establish an alternate source of commercial financing, if needed.

Joint Venture

Net Sales. Net sales of the Joint Venture for the three ~~and nine~~ months ended ~~December 31, 2008~~June 30, 2009 were ~~$9,603,152 and $29,270,914, respectively,~~$5,867,623, compared to ~~$7,949,391 and $23,722,803, respectively,~~$7,797,035, for the comparable period in the prior fiscal year. The ~~20.8% and 23.4% respective increases~~decrease in net sales ~~by the Joint Venture~~ for the three ~~and nine~~ month ~~periods were~~period was due to ~~higher sales to the Company, primarily for products purchased by the Company for sale to a national home improvement retailer customer of the Company, and higher volumes of~~decreased sales of smoke alarm products byto the ~~Joint Venture~~Company.

Net Income. Net income for the three months ended June 30, 2009 was $938,812, compared to ~~non-related customers~~$587,885 in the ~~Australian and European market.~~comparable period last year. The ~~Joint Venture’s management believes that the increases~~59.7% increase in net ~~sales~~income for the three month period was due primarily to the ~~European market were due~~recognition of currency gain and to ~~increased market share in those markets.~~reduced selling, general and administrative expenses over the prior year’s quarter.

Gross Margins. Gross margins of the Joint Venture for the three month period ended ~~December 31, 2008~~June 30, 2009 increased to ~~28.9%~~26.7% from ~~24.8%~~23.4% for the ~~2007 corresponding period. For the nine month period ended December 31,~~ 2008 ~~gross margins increased to 27.1% from the 25.6% gross margin of the prior year’s corresponding~~ period. Since gross margins depend on sales volume of various products, with varying margins, increased sales of higher margin products and decreased sales of lower margin products affect the overall gross margins. The increase in the Joint Venture’s gross margins for the three and nine month periods were due to the increasechanges in the sales mix of ~~products~~items sold to ~~customers~~a large U.S. national retailer caused these changes in ~~the Australian and European markets.~~gross margins.

Expenses. Selling, general and administrative expenses were ~~$1,372,705 and $3,980,375, respectively,~~$878,201 for the three ~~and nine~~ month ~~periods~~period ended ~~December 31, 2008,~~June 30, 2009, compared to ~~$982,291 and $3,279,276~~$1,218,586 in the prior year’s ~~respective periods.~~period. As a percentage of sales, expenses were ~~14.3% and 13.6%~~15.0% for the three ~~and nine~~ month ~~periods~~period ended ~~December 31, 2008,~~June 30, 2009, compared to ~~12.4% and 13.8%~~15.6% for the three ~~and six~~ month ~~periods~~period ended ~~December 31, 2007.~~June 30, 2008. The ~~increase~~decrease in selling, general and administrative expense in dollars and as a percent of sales ~~for the three and nine month periods~~ was primarily due to ~~increased advertising and marketing~~decreases in selling expenses ~~and increased insurance expenses.~~due to lower sales volumes.

Interest Income and Expense. Interest expense, net of interest income, was ~~$7,163 and $12,924 respectively,~~$2,093 for the three ~~and nine~~ month ~~periods~~period ended ~~December 31, 2008,~~June 30, 2009, compared to net interest expense of ~~$4,519 and $20,088, respectively,~~$1,494 for the prior year’s ~~periods. The reduction in net~~period. Net interest expense resulted from ~~a decrease~~an increase in the Joint Venture’s borrowings.

~~Net Income~~. Net income for the three and nine months ended December 31, 2008 were $1,273,660 and $3,592,801, respectively, compared to $1,120,235 and $2,991,477, respectively, in the comparable periods last year. The 13.7% and 20.1% respective increases in net income for the three and nine month periods were due primarily to changes in the mix of products sold and gross margins as noted above

Liquidity. Cash needs of the Joint Venture are currently met by funds generated from operations. During the ~~nine~~three months ended ~~December 31, 2008,~~June 30, 2009, working capital ~~increased~~decreased by ~~$2,740,191~~$562,638 from ~~$8,953,871~~$9,151,199 on March 31, ~~2008~~2009 to ~~$11,694,062~~$8,588,561 on ~~December 31, 2008.~~June 30, 2009.

Critical Accounting Policies

Management’s discussion and analysis of our consolidated financial statements and results of operations are based on our Consolidated Financial Statements included as part of this document. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to bad debts, inventories, income taxes, and contingencies and litigation. We base these estimates on historical experiences and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect management’s more significant judgments and estimates used in the preparation of its consolidated financial statements. For a detailed discussion on the application on these and other accounting policies, see Note A to the consolidated financial statements included in Item 8 of the Form 10-K for the year ended March 31, ~~2008.~~2009. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates. These judgments are based on our historical experience, terms of existing contracts, current economic trends in the industry, information provided by our customers, and information available from outside sources, as appropriate. Our critical accounting policies include:

Revenue Recognition.Our revenue recognition policies are in compliance with Staff Accounting Bulletin No. ~~10,~~101, “Revenue Recognition in Financial Statements” issued by the Securities and Exchange Commission. We recognize sales upon shipment of products net of applicable provisions for any discounts or allowances. The shipping date from our warehouse is the appropriate point of revenue recognition since upon shipment we have substantially completed our obligations which entitle us to receive the benefits represented by the revenues, and the shipping date provides a consistent point within our control to measure revenue. Customers may not return, exchange or refuse acceptance of goods without our approval. We have established allowances to cover anticipated doubtful accounts based upon historical experience.

Inventories are valued at the lower of market or cost. Cost is determined on the first-in first-out method. We have recorded a reserve for obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Management reviews the reserve quarterly. Shipping and handling costs incurred by the Company to deliver goods to its customers are not included in costs of goods sold but are presented as an element of selling, general and administrative expense within the condensed consolidated statements of earnings. The Company incurred $84,987 and $186,163 of shipping and handling costs in the quarters ended December 31, 2008 and 2007, respectively and $424,899 and $556,658 for the nine month period ended December 31, 2008 and 2007, respectively.

Impairment of Long-Lived ~~Assets:~~Assets. The Company’s policy is to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with Statement of Financial Accounting Standards (“SFAS”), SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”, (“SFAS No. 144”). The Company recognizes an impairment loss when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. The measurement of the impairment losses to be recognized is based upon the difference between the fair value and the carrying amount of the assets.

We are subject to lawsuits and other claims, related to patents and other matters. Management is required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is based on a careful analysis of each individual issue with the assistance of outside legal counsel. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.

We generally provide warranties from one to ten years to the non-commercial end user on all products sold. The manufacturers of our products provide us with a one-year warranty on all products we purchase for resale. Claims for warranty replacement of products beyond the one-year warranty period covered by the manufacturers are immaterial and we do not record estimated warranty expense or a contingent liability for warranty claims.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

No material changes have occurred in our quantitative and qualitative market risk disclosures as presented in our Annual Report Form 10-K for the year ended March 31, ~~2008.~~2009.

ITEM 4.

CONTROLS AND PROCEDURES

We maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed by us in the reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to management in a timely manner. Our Chief Executive Officer and Chief Financial Officer have evaluated this system of disclosure controls and procedures as of the end of the period covered by this quarterly report, and have concluded that the system is effective. There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

1712

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

OnAs reported in the Company’s Annual Report of Form 10-K for the fiscal year ended March 31, 2009, on June 11, 2003, Walter Kidde Portable Equipment, Inc. (“Kidde”) filed a civil suit against the Company in the United States District Court for the Middle District of North Carolina (Case No. 03cv00537), alleging that certain of the Company’s AC powered/battery backup smoke detectors infringe on a patent acquired by ~~Kidde.~~ Kidde is(US 4,972,181). Kidde was seeking injunctive relief and damages to be determined at trial. On March 31, 2006, following numerous procedural and substantive rulings which the Company believes were favorable to the Company, Kidde obtained dismissal, without prejudice, of its suit. On November 28, 2005, prior to the March 31, 2006 dismissal of the original suit, Kidde filed a second lawsuit in the same court (Case No. 05cv1031) based on virtually identical infringement allegations as the earlier case. Discovery is now closed in this second case. Although the asserted patent is now expired, prior to its expiration, the Company sought and has now successfully obtained re-examination of the asserted patent in the United States Patent and Trademark Office (USPTO) largely based on the references cited and analysis presented by the Company which correspond to defenses raised in the litigation. In ~~September,~~July, the USPTO ~~rejected~~issued a final rejection of all of the claims asserted against the Company based on the references. Kidde has not responded to the rejection but is entitled to ~~which further action by~~take an appeal to the ~~USPTO~~Board of Patent Appeals and Interferences. The litigation is ~~pending. Kidde also filed for and the Court granted a stay of the litigation~~stayed pending the conclusion of the ~~reexamination.~~reexamination proceedings. The USPTO action fully supports the Company’s substantive position and its defenses to Kidde. The Company and its counsel believe that regardless of the outcome of the reexamination, the Company has significant defenses relating to the patent in suit. In the event of an unfavorable outcome, the amount of any potential loss to the Company is not yet determinable.

OnAs further reported in the Company’s Annual Report of Form 10-K for the fiscal year ended March 31, 2009, on June 25, 2008, Maple Chase Company which was acquired in January 2008 by United Technologies Corporation (“UTC”) (which also owns Walter Kidde Portable Equipment, Inc.), filed a civil suit against the Company in the United States District Court for the Northern District of Illinois (Case No. 08cv3641) for patent infringement of Re 33920, a patent that expired in March of 2007. On January 13, 2009, the Court granted permission to substitute Kidde for Maple Chase as the party plaintiff. This action involves the same patent that formed the basis of the suit filed by Maple Chase against the Company in February 2004 (Case No. 03cv07205). In that case, the Company successfully sought and obtained reexamination of the asserted patent in the USPTO based on the references cited and analysis presented by the Company. In April 2005, the Court dismissed the earlier case subject to the outcome of the reexamination. After pending for more than three years and after the expiration of the patent, a Reexamination Certificate was granted confirming patentability of many of the claims and ~~canceling~~cancelling the remaining claims. The 2008 case asserts infringement of the claims emerging out of ~~reexamination~~reexamination. On June 10, 2009, the Court granted the Company’s motion to amend its answer and counterclaims seeking injunctive and antitrust damages against Kidde, and the Company filed a third-party complaint against UTC, Kidde’s parent company. Kidde and UTC filed a motion to dismiss the antitrust claims which is ~~in its preliminary stages where discovery~~being opposed by the Company. Discovery is ~~about to commence.~~now underway. The Company believes that it has meritorious and substantial technical defenses to the action and that it is entitled to a number of legal/equitable defenses due to the long period of inaction and acquiescence by Kidde/Maple Chase and its ~~predecessors, the~~predecessors. The amount, if any, of potential loss to the Company is not yet determinable. The Company intends to vigorously defend the suit and press its pending counterclaims.

On August 21, 2008, Kidde again filed a civil suit against the Company for patent infringement (Case No. 08cv2202) but this time in the United States District Court for the District of Maryland. Kidde accuses the Company of infringement of U.S. patent 6,791,453 by communication protocols for interconnected hazardous condition (smoke, heat and Carbon monoxide) detectors sold by the Company. The Company believes that it has meritorious and substantial technical defenses to the action. The amount, if any, of potential loss to the Company is not yet determinable. The Company intends to vigorously defend the suit and press its pending counter and third party claims.

On September 25, 2008, the Company with its Answer and Counterclaims to Kidde filed a third-party Complaint against United Technologies Corporation in the United States District Court for the District of Maryland in Case No. 08cv2202 for the predatory litigation campaign by the defendant and its subsidiary, Kidde. On December 17, the Company filed a motion to amend its Answer and Counterclaims which has been opposed by both Kidde and United Technologies Corporation. That motion is pending and case remains in a preliminary, pre-discovery stage. In both the original and the Amended Counterclaim, the Company is seeking injunctive and antitrust damages. The Company intends to vigorously prosecute its claims.

From time to time, the Company is involved in various lawsuits and legal matters. It is the opinion of management, based on the advice of legal counsel, that these matters will not have a material adverse effect on the Company’s financial ~~statements, beyond what has been recognized in the financial~~ statements.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information with respect to purchases of common stock by the Company or any affiliated purchasers during the three months ended ~~December 31, 2008:~~June 30, 2009:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs		Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Quarter ended September 20, 2008		4,000	$	5.36		4,000		96,000
Quarter ended December 31, 2008		40,575	$	3.06		40,575		55,425
April 2009										12,733	$	4.19		12,733		8,420
May 2009										8,400	$	5.01		8,400		20
June 2009										-	$	0.00		-		-
Total		44,575	$	3.27		44,575		55,425		21,133	$	4.52		21,133		20

ITEM 4.5.

~~SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~.

OTHER INFORMATION

On ~~September 8, 2008,~~August 11, 2009, the ~~Company held~~Company’s Board of Directors amended Article I, Section 1 of its ~~Annual Meeting~~Bylaws to provide that the Company’s annual meeting of ~~Stockholders. The only matter submitted to~~ the stockholders ~~for a vote was~~shall be held on such date as may be selected by the ~~election~~Board of ~~one director~~Directors. Prior to this amendment, the Bylaws provided that the Company’s annual meeting of the stockholders shall be held on such date in the ~~Class~~month of ~~2011. The nominee was Harvey B. Grossblatt. At~~September as may be selected by the ~~Meeting, at least 1,908,379 shares were voted in favor~~Board of ~~the nominee, no more than~~ ~~289~~ ~~shares abstained, were voted against, or were voted to withhold approval of the nominee’s election (any of which has the same effect as a “no” vote). As a result, the nominee was elected.~~

~~Directors not up for re-election and continuing in office after the Meeting are: Ira Bormel, Cary Luskin, and Ronald A. Seff, M.D.~~Directors.

ITEM 5.6.

~~OTHER INFORMATION~~.

On November 4, 2008, we entered into an operating lease for new headquarters space located in Baltimore County, Maryland. The lease is for 12,000 square feet of office and warehouse space for a term of 10 years through February 28, 2019. The current rental, with common area maintenance, is approximately $8,250 per month during the current fiscal year, with increasing rentals at 3% per year through the term of the lease.

~~ITEM 6.~~

EXHIBITS

Exhibit No.

~~Exhibit No.~~
3.1		Articles of Incorporation (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 1988, File No. 1-31747)
3.2		Articles Supplementary, filed October 14, 2003 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed October 31, 2002, ~~File~~file No. 1-31747)
3.3		Bylaws, as ~~amended (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed July 25, 2008, File No. 1-31747)~~amended*
10.1		Non-Qualified Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended ~~December 31,~~September 30, 2003, File No. 1-31747)
10.2		Hong Kong Joint Venture Agreement, as amended (incorporated by reference to Exhibit ~~10.2 to Amendment No. 1 on Form 10-K/A~~10.1 to the Company’s Annual Report on Form 10-K for the year ended March 31, ~~2006,~~2003, File No. 1-31747)
10.3		Amended and Restated Factoring Agreement between the Registrant and The CIT ~~Group~~ Group/Commercial Services, Inc. (“CIT”), dated ~~September~~June 22, 2007 (substantially identical agreement entered into by the Registrant’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed ~~September~~June 26, 2007, ~~File~~file No. 1-31747)
10.4		Amended and Restated Inventory Security Agreement between the Registrant and CIT, dated ~~September~~June 22, ~~2007~~2008 (substantially identical agreement entered into by the Registrant’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed ~~September~~June 26, ~~2007, File~~2008, file No. 1-31747)
10.5		Credit Agreement between International Conduits Ltd. (“Icon”) and CIT Financial Ltd. (“CIT Canada”), dated September 22, 2007 (“CIT Canada Credit Agreement”) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed September 26, 2007, File No. 1-31747)
~~10.6~~		General Security Agreement between CIT Canada and Icon, dated September 22, 2007, with respect to the obligations of Icon under the CIT Canada Credit Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed September 26, 2007, File No. 1-31747)
~~10.7~~		Guaranty made by the Registrant and USI Electric Inc., in favor of CIT Canada, dated September 22, 2007, with respect to the obligations of Icon under the CIT Canada Credit Agreement (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed September 26, 2007, File No. 1-31747)
~~10.8~~		Lease between Universal Security Instruments, Inc. and St. John Properties, Inc. dated November 4, 2008 for its office and warehouse located at 11407 Cronhill Drive, Suites A-D, Owings Mills, Maryland 21117*21117 (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2008, File No. 1-31747)
~~10.9~~10.6	Amendment to Lease between Universal Security Instruments, Inc. and St. John Properties, Inc. dated June 23, 2009 (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2009, File No. 1-31747)
10.7	~~Second~~ Amended and Restated Employment Agreement dated July 18, ~~2006~~2007 between the Company and Harvey B. Grossblatt (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the period ended ~~December 31, 2006,~~September 30, 2007, File No. 1-31747)
~~10.10~~		Addendum to Second Amended and Restated Employment Agreement dated September 8, 2008 between the Company and Harvey B. Grossblatt (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 8, 2008, File No. 1-31747)
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
32.1		Section 1350 Certifications*
99.1		Press Release dated ~~February~~August 12, 2009*

*Filed herewith

2014

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UNIVERSAL SECURITY INSTRUMENTS, INC.
	(Registrant)

Date: ~~February~~August 12, 2009	By:	/s/ Harvey B. Grossblatt
		Harvey B. Grossblatt
		President, Chief Executive Officer

	By:	/s/ James B. Huff
		James B. Huff
		Vice President, Chief Financial Officer

2115

	Nine Months Ended December 31
	2008			2007

Net sales	$	20,169,229		$	27,152,181
Cost of goods sold - acquired from Joint Venture		15,322,425			15,209,299
Cost of goods – other		40,680			5,067,583

GROSS PROFIT		4,806,124			6,875,299

Research and development expense		279,050			254,811
Selling, general and administrative expense		4,071,000			4,645,371

Operating income		456,074			1,975,117

Other income (expense):
Interest income		41,876			18,370
Interest expense		(33,267	)		(70,861	)

INCOME BEFORE EQUITY IN EARNINGS OF JOINT VENTURE		464,683			1,922,626

Equity in earnings of Joint Venture		1,351,707			1,878,733

Income from continuing operations before income taxes		1,816,390			3,801,359
Provision for income tax expense		410,437			625,633

INCOME FROM CONTINUING OPERATIONS		1,405,953			3,175,726

Discontinued operations:
Income (loss) from operations of the discontinued Canadian subsidiary		2,415,382			(3,645,023	)
Income tax expense (benefit) expense – discontinued operations		(965,872	)		57,350
Income (loss) from discontinued operations		3,381,254			(3,702,373	)

NET INCOME (LOSS)	$	4,787,207		$	(526,647	)

Income (loss) per share:
Basic – from continuing operations	$	0.57		$	1.28
Basic – from discontinued operations	$	1.36		$	(1.49	)
Basic – net income (loss)	$	1.93		$	(0.21	)
Diluted – from continuing operations	$	0.57		$	1.26
Diluted – from discontinued operations	$	1.36		$	(1.47	)
Diluted – net income (loss)	$	1.93		$	(0.21	)
Shares used in computing net income per share:
Basic		2,480,330			2,481,802
Diluted		2,480,330			2,523,316