UNIVERSAL SECURITY INSTRUMENTS INC (Form: 10-Q, Received: 02/12/2009 15:37:25)

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

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
	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

(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 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, the number of shares outstanding of the registrant’s common stock was 2,425,142.

TABLE OF CONTENTS

		Page
Part I - Financial Information

Item 1.	Consolidated Financial Statements (unaudited):

	Consolidated Balance Sheets at December 31, 2008 and March 31, 2008	3

	Consolidated Statements of Earnings for the Three Months Ended December 31, 2008 and 2007	4

	Consolidated Statements of Earnings for the Nine Months Ended December 31, 2008 and 2007	5

	Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2008 and 2007	6

	Notes to Consolidated Financial Statements	7

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

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	17

Item 4.	Controls and Procedures	17

Part II - Other Information

Item 1.	Legal Proceedings	18

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19

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

Item 5.	Other Information	19

Item 6.	Exhibits	20

	Signatures	21

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31, 2008		March 31, 2008
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	180,755	$	3,863,784
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
Receivable from Hong Kong Joint Venture		116,938		115,656
		1,514,293		543,761

Amount due from factor		3,591,315		5,600,408
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
Prepaid expenses		156,947		206,197
Assets held in receivership		219,402		2,850,731
TOTAL CURRENT ASSETS		15,040,826		18,422,369
DEFERRED TAX ASSET		2,200,690		1,914,136
INVESTMENT IN HONG KONG JOINT VENTURE		10,688,904		9,986,579
PROPERTY AND EQUIPMENT – NET		130,530		130,347
OTHER ASSETS		16,252		15,486
TOTAL ASSETS	$	28,077,202	$	30,468,917

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Amount due to factor	$	101,911	$	0
Accounts payable		823,968		777,342
Hong Kong Joint Venture accounts payable		1,924,668		1,687,950
Accrued liabilities:
Litigation reserve		401,592		401,592
Payroll and employee benefits		324,830		158,057
Commissions and other		166,998		105,431
Liabilities held in receivership		219,402		7,823,450
TOTAL CURRENT LIABILITIES		3,963,369		10,953,822

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

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
Additional paid-in capital		13,316,830		13,453,378
Retained earnings		10,677,231		5,890,023
Other comprehensive income		-		55,655
TOTAL SHAREHOLDERS’ EQUITY		24,018,509		19,423,935
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	28,077,202	$	30,468,917

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,
	2008			2007

Net sales	$	5,595,049		$	7,776,986
Cost of goods sold – acquired from Joint Venture		4,222,264			4,762,666
Cost of goods sold – other		35,000			803,224

GROSS PROFIT		1,337,785			2,211,096

Research and development expense		107,632			94,144
Selling, general and administrative expense		1,177,776			1,569,765

Operating income		52,377			547,187

Other income (expense):
Interest income		-			18,370
Interest expense		(6,967	)		-

INCOME BEFORE EQUITY IN EARNINGS OF JOINT VENTURE		45,410			565.557

Equity in earnings of Joint Venture		458,745			688,017

Income from continuing operations before income taxes		504,155			1,253,574
Provision for income tax expense		211,642			87,757

INCOME FROM CONTINUING OPERATIONS		292,513			1,165,817

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

NET INCOME (LOSS)	$	292,513		$	(1,635,789	)

Income (loss) per share:
Basic – from continuing operations	$	0.12		$	.47
Basic – from discontinued operations	$	0.00		$	(1.13	)
Basic – net income (loss)	$	0.12		$	(0.66	)
Diluted – from continuing operations	$	0.12		$	0.47
Diluted – from discontinued operations	$	0.00		$	(1.13	)
Diluted – net income (loss)	$	0.12		$	(0.66	)
Shares used in computing net income per share:
Basic		2,467,028			2,489,132
Diluted		2,467,028			2,489,132

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,
	2008			2007
OPERATING ACTIVITIES
Net income (loss)	$	4,787,208		$	(526,647	)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Operations of discontinued subsidiary		(3,428,897	)		1,219,658
Depreciation and amortization		33,936			31,239
Earnings of the Joint Venture		(1,351,707	)		(1,878,733	)
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	)
(Increase) decrease in deferred taxes and other assets		(290,076	)		122,004

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

INVESTING ACTIVITIES:
Purchase of property and equipment		(34,119	)		(23,801	)
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	)

FINANCING ACTIVITIES:
Purchase and retirement of common stock		(136,979	)		-
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

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

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

(DECREASE) INCREASE IN CASH		(3,683,029	)		4,037,939

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

CASH AT END OF PERIOD	$	180,755		$	4,278,484

Supplemental information:
Interest paid	$	33,267		$	298,226
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 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 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 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 were placed under the direction of a court appointed receiver and the operations of Icon were suspended. As a result of 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 of Icon are not consolidated with the financial statements of the Company. Accordingly, the accounts and 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.

At December 31, 2008, the assets of Icon held by the receiver consisted of cash of US$219,402, and its liabilities include post-receivership accounts payable 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” administrated by the receiver. To the extent any portion of the pre-receivership account payable is ultimately disallowed, that portion will increase the gain from discontinued operations.

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

Liabilitie s
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.

Income Taxes

A provision for federal and state income taxes on continuing operations of $410,437 and $625,633 has been provided for the nine month periods ended December 31, 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 month periods ended December 31, 2008 and 2007, respectively. Under FAS 123, the tax benefit of this deduction has been treated as a credit to additional paid in capital and will 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, this liability with imputed interest is $95,324.

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 months ended December 31, 2008 and 2007:

	2008		2007
Net sales	$	29,270,914	$	23,722,803
Gross profit		7,925,541		6,078,838
Net income		3,592,801		2,991,477
Total current assets		17,594,219		15,962,261
Total assets		28,312,610		25,793,201
Total current liabilities		5,900,157		5,803,207

During the nine months ended December 31, 2008 and 2007, respectively, the Company purchased $18,787,069 and $15,157,285 of products from the Joint Venture. For the quarters ended December 31, 2008 and 2007, the Company adjusted its equity in earnings of the Joint Venture to respectively reflect a reduction of $471,840 and an increase of $127,900 for inter-company profit in inventory as required by US GAAP.

Net Income Per Common Share

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

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

	Three Months Ended December 31,				Nine Months Ended December 31,
	2008		2007		2008		2007
Weighted average number of common shares outstanding for basic EPS		2,467,028		2,489,132		2,480,330		2,481,802
Shares issued upon the assumed exercise of outstanding stock options		0		0		0		41,514
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

Total outstanding options to purchase 72,422 shares of common stock as of December 31, 2008 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 months ended December 31, 2008 was reduced by $7,736. 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 th e 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 month period ended December 31, 2008 and 2007, no stock options were granted.

Stock Compensation Expense. We have elected to continue straight-line amortization of stock-based compensation expense over 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 months ended December 31, 2008 and 2007, we recorded $7,736 and $16,369 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, there was no unrecognized compensation cost related to share-based compensation arrangements that we expect to vest. The aggregate intrinsic value of currently exercisable options was $0 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.

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.

Fair Value Measurements : In September 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurement (SFAS 157) . This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS 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 : In February 2008, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities , including an amendment of FASB Statements No. 115 (SFAS No. 159). SFAS No. 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”). A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting period. This accounting standard is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2008. The effect, if any, of adopting SFAS No. 159 on the Company’s financial position and results of operations has not been finalized.

In May 2008, the FASB issued 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 is not expected to have a material impact on our consolidated financial position and results of operation.

Reclassifications

Certain prior year amounts have been reclassified in order to conform with current year presentation.

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, 2008 and 2007 relate to the operational results of the Company only. 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 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.

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

Liabilitie s
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

Results of Operations

Three Months Ended December 31, 2008 and 2007

Sales. Net sales for the three months ended December 31, 2008 were $5,595,049 compared to $7,776,986 for the comparable three months in the prior fiscal year, a decrease of $2,181,937 (28.1%). The primary reason for the decrease in net sales was lower sales volumes of our core product lines, including smoke alarms and carbon monoxide alarms, to the electrical distribution trade 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% and 28.4% of sales for the quarters ended December 31, 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. Our decrease in gross profit margin for the 2008 period was primarily due to the lower electrical distribution trade sales.

Expenses. Research and development, and selling, general and administrative expenses decreased by $378,501 from the comparable three months in the prior year. As a percentage of net sales, these expenses increased to 23.0% for the three month period ended December 31, 2008, from 21.4% for the 2007 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, was $6,967 for the quarter ended December 31, 2008, compared to net interest income of $18,370 for the quarter ended December 31, 2007. Net interest expense in the current quarterly period resulted from higher borrowings by us in support of increased inventory balances.

Income Taxes. During the quarter ended December 31, 2008, the Company had a net income tax expense of $211,642. For the corresponding 2007 period, the Company has 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 in the prior year’s quarter 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 $292,513 for the quarter ended December 31, 2008, compared to a net loss of $1,635,789 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%). The primary reason for the decrease in net sales was lower sales volumes of our core product lines, including smoke alarms and carbon monoxide alarms, to the electrical distribution trade 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 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% for the current period ended December 31, 2008. 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. Our decrease in gross profit margin for the 2008 period was primarily due to the lower electrical distribution trade sales.

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 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. Based on specified percentages of our accounts receivable and inventory and letter of credit commitments, we had $6,883,000 available under the Factoring Agreement at December 31, 2008. There is $101,911 borrowed under this agreement as of December 31, 2008. 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, the prime rate was 4.0%. Borrowings are collateralized by all of our accounts receivable and inventory.

Our factored accounts receivable as of the end of our last fiscal year were $5,600,408, and were $3,591,315 as of December 31, 2008. Our prepaid expenses as of the end of our last fiscal year were $206,197, and were $156,947 as of December 31, 2008. The decrease in prepaid expenses is due to the timing of premium payments to various insurance carriers.

Operating activities used cash of $2,670,667 for the nine months ended December 31, 2008. This was primarily due to the operations of the discontinued subsidiary and an increase of $3,971,376 in inventories and prepaid expenses, and earnings of the Joint Venture of $1,351,707. For the same period last year, operating activities provided cash of $3,122,546, primarily as a result of increases in receivables, inventory and prepaid expenses, and the operations of the discontinued subsidiary.

Investing activities provided cash of $3,205,986 during the nine 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.

Financing activities used cash of $4,218,348 during the nine months ended December 31, 2008, principally as a result of the payment of guaranteed debt and other activities of discontinued operations. In the comparable nine months in the prior year, financing activities provided cash of $2,851,574, primarily related to borrowings to fund the activities of the discontinued operations.

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 in the ordinary course of our business over the next twelve months and over the long term.

Joint Venture

Net Sales. Net sales of the Joint Venture for the three and nine months ended December 31, 2008 were $9,603,152 and $29,270,914, respectively, compared to $7,949,391 and $23,722,803, respectively, for the comparable period in the prior fiscal year. The 20.8% and 23.4% respective increases in net sales by the Joint Venture for the three and nine month periods were 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 sales of smoke alarm products by the Joint Venture to non-related customers in the Australian and European market. The Joint Venture’s management believes that the increases in net sales to the European market were due to increased market share in those markets.

Gross Margins. Gross margins of the Joint Venture for the three month period ended December 31, 2008 increased to 28.9% from 24.8% 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 increase in the sales of products to customers in the Australian and European markets.

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

Interest Income and Expense. Interest expense, net of interest income, was $7,163 and $12,924 respectively, for the three and nine month periods ended December 31, 2008, compared to net interest expense of $4,519 and $20,088, respectively, for the prior year’s periods. The reduction in net interest expense resulted from a decrease 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 months ended December 31, 2008, working capital increased by $2,740,191 from $8,953,871 on March 31, 2008 to $11,694,062 on December 31, 2008.

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. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates. These judgments are based on our historical experience, terms of existing contracts, current economic trends in the industry, information provided by our customers, and information available from outside sources, as appropriate. Our critical accounting policies include:

Our revenue recognition policies are in compliance with Staff Accounting Bulletin No. 10, “ 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: 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.

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.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

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 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, the USPTO rejected all of the claims asserted against the Company based on the references. Kidde responded to the rejection to which further action by the USPTO is pending. Kidde also filed for and the Court granted a stay of the litigation pending the conclusion of the reexamination. 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.

On June 25, 2008, Maple Chase Company which was acquired in January 2008 by United Technologies Corporation (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 the remaining claims. The 2008 case asserts infringement of the claims emerging out of reexamination and is in its preliminary stages where discovery is about to commence. 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 Maple Chase and its 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:

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
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
Total		44,575	$	3.27		44,575		55,425

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).

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .

On September 8, 2008, the Company held its Annual Meeting of Stockholders. The only matter submitted to the stockholders for a vote was the election of one director in the Class of 2011. The nominee was Harvey B. Grossblatt. At the Meeting, at least 1,908,379 shares were voted in favor 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.

ITEM 5.

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.
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 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)
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, 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 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2006, File No. 1-31747)
10.3		Amended and Restated Factoring Agreement between the Registrant and The CIT Group Commercial Services Inc. (“CIT”), dated September 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 26, 2007, File No. 1-31747)
10.4		Amended and Restated Inventory Security Agreement between the Registrant and CIT, dated September 22, 2007 (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 26, 2007, 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*
10.9		Second Amended and Restated Employment Agreement dated July 18, 2006 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, 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 12, 2009*

*Filed herewith

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 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

Exhibit 10.8

THIS LEASE , made this 4th day of November , 2008, by and between St. John Properties, Inc., as agent for owner, (herein called “Landlord”), and Universal Security Instruments, Inc., a Maryland corporation (herein called “Tenant”).

WITNESSETH, that in consideration of the rental hereinafter agreed upon and the performance of all the conditions and covenants hereinafter set forth on the part of Tenant to be performed, Landlord does hereby lease unto said Tenant, and the latter does lease from the former an agreed upon 12,000 square feet at the following address: 11407 Cronhill Drive, Suites A-D, Owings Mills, Maryland 21117, (herein called the “Premises”) for the term of ten (10) years, beginning on the first (1 st ) day of March, 2009 (the “Commencement Date”), and ending on the twenty-eight (28 th ) day of February, 2019 (the “Expiration Date”, and the period between the Commencement Date and the Expiration Date called the “Term”) for the annual rental of $99,000.00, (herein called “Annual Rent”), subject to Annual Rent Increases (as defined in Section 2 herein), payable in advance on the first day of each and every month during the Term, (and renewal term(s), if any) in equal monthly installments of $8,250.00.

Said installments of Annual Rent shall be paid to St. John Properties, Inc., 2560 Lord Baltimore Drive, Baltimore, Maryland 21244 or at such other place or to such appointee of Landlord as Landlord may from time to time designate in writing.

TENANT COVENANTS AND AGREES WITH LANDLORD AS FOLLOWS:

1. Tenant shall pay said rent and each installment of Annual Rent thereof and Additional Rent (as defined in section 4 herein) as and when due without setoff or deduction.

RENTAL ESCALATION

2. Beginning with the first anniversary of the Commencement Date and each annual anniversary thereafter throughout the remainder of the Lease and renewal term(s), if any, the Annual Rent shall be increased by an amount equal to three percent (3%) of the previous year’s Annual Rent (the “Annual Rent Increases”), which sum shall be payable in equal monthly installments in advance as hereinafter set forth.

USE

3. Tenant shall use the Premises solely for the following purposes: office and associated warehouse uses and for no other purposes whatsoever. Tenant will not use or occupy or permit the Premises to be used or occupied for any purpose or in any manner prohibited by federal, state or local laws and ordinances. Tenant will conduct its business in such a manner as not to create a nuisance. Tenant will not do anything that is currently prohibited by Landlord's property insurance policy or that will materially increase the existing rate of such insurance (unless Tenant is willing to separately pay for such material increase) or that will cause a cancellation of Landlord's insurance.

ADDITIONAL RENT

4. Tenant shall use the Premises solely for the following purposes: office and associated warehouse uses and for no other purposes whatsoever. Tenant will not use or occupy or permit the Premises to be used or occupied for any purpose or in any manner prohibited by federal, state or local laws and ordinances. Tenant will conduct its business in such a manner as not to create a nuisance. Tenant will not do anything that is currently prohibited by Landlord's property insurance policy or that will materially increase the existing rate of such insurance (unless Tenant is willing to separately pay for such material increase) or that will cause a cancellation of Landlord's insurance.

A. UTILITIES

Tenant shall apply for and pay all costs of electricity, gas, telephone and other utilities used or consumed on the Premises, together with all taxes, levies or other charges on such utilities. Tenant agrees to pay Landlord, as Additional Rent, Tenant’s pro rata share, (as the same is defined in this subsection 4A of the water and sewer service charges, chargeable to the building or group of buildings in which the Premises is located, together with all parking and other common areas adjacent thereto (herein collectively the “Property”). However, if in Landlord’s reasonable judgment the water and sewer/water well and septic charges for the Premises are substantially higher than normal due to Tenant’s water usage, then Tenant agrees to install a water meter upon Landlord’s written request and thereafter pay all water charges for the Premises based on such meter reading. “Tenant’s Pro-Rata Share of Water and Sewer Service Charges” shall mean the same percentage that the gross square foot area of the Premises bears to the gross square foot area of all leasable floor area within the Property that is occupied during the calendar year billing period. Landlord shall notify Tenant of any change in Tenant’s Pro Rata Share of Water and Sewer Charges.

B. TAXES

Tenant shall pay to Landlord, as Additional Rent, Tenant’s Pro Rata Share of Taxes (as the same is defined in this subsection 4B) in excess of those assessed against the Property during the fiscal year commencing July 1, 2008, and ending June 30, 2009, whether the taxes are payable to the State of Maryland and/or Baltimore County. If this Lease shall be in effect for less than a full fiscal year, Tenant’s Pro Rata Share of the increased taxes shall be pro rated based upon the number of months that this Lease is in effect. Said taxes shall include Metropolitan District Charges, sewer service charges, and any and all benefits or assessments which may be levied on the Property hereby leased but shall not include excess profit taxes, franchise taxes or similar taxes on Landlord’s business, inheritance taxes, gift taxes, transfer taxes, recordation taxes, capital levies, and the United States Income Tax, or any State or other income tax upon the income or rent payable hereunder. “Tenant’s Pro Rata Share of Taxes” shall mean the same percentage that the gross square foot area of the Premises bears to the gross square footage of leasable floor area in the Property. Tenant’s Pro Rata Share of Taxes is equal to nine and fourteen hundredths percent (9.14%) as of Lease execution. Landlord shall notify Tenant of any change in Tenant’s Pro Rata Share of Taxes.

C. COMMON AREA EXPENSES

Tenant shall pay to Landlord as Additional Rent, Tenant’s pro rata share of the following “ Common Area Expenses ” (estimated at forty cents ($0.40) per square foot for 2008 and subject to change), to the exclusion of all other expenses for the maintenance of the Common Areas:

Snow Removal

Grounds Maintenance (included but not limited to: lot cleaning, lawn care and maintenance, and landscaping care, maintenance and replacement)

Semi-Annual Window Washing

Common Area Electric (when applicable)

Fire Sprinkler Monitoring (when applicable)

Security Guard and Access Control Services (when Landlord, in its reasonable judgment deems necessary).

“Tenant’s Pro Rata Share of Common Area Expenses” shall mean the same percentage that the gross square foot area of the Premises bears to the gross square foot area of all leasable floor area within the Property. Tenant’s Pro Rata Share of Common Area Expenses as of Lease execution is equal to nine and fourteen hundredths percent (9.14%). Landlord shall notify Tenant of any change in Tenant’s Pro Rata Share of Common Area Expenses.

“Common Areas” shall be deemed to include loading facilities, elevators, and other facilities as may be constructed and intended for common use, and of the common driveways, footways, lawn, landscaping, storm water management facilities and parking areas on the Property, subject to such rules and regulations as Landlord may, from time to time, prescribe governing such Common Areas.

D. TRASH REMOVAL

In the event Landlord provides trash removal services for tenants within the Property, Tenant shall pay to Landlord, as Additional Rent Tenant’s pro rata share of the cost of the trash removal services. “Tenant’s Pro Rata Share of Trash Removal Services” shall mean the same percentage that the gross square foot area of the Premises bears to the gross square foot area of all leasable floor area within the Property that is occupied during the calendar year billing period. Landlord shall notify Tenant of any change in Tenant’s Pro Rata Share of Trash Removal Services.

E. PAYMENT OF ADDITIONAL RENT & LANDLORD’S ANNUAL STATEMENT

Landlord shall notify Tenant from time to time of the amounts which Landlord estimates will be payable by Tenant for Tenant’s Pro Rata Share of Water and Sewer Charges, Taxes, Common Area Expenses and Trash Removal Services (collectively, “Tenant’s Pro Rata Share”), and Tenant shall pay such amounts in equal monthly installments, as Additional Rent, in advance on or before the first day of each month during the Term. Within one hundred and fifty (150) days following the end of each calendar year, or fiscal year (with regard to taxes) Landlord shall submit to Tenant a statement (the “Statement”) summarizing Landlord’s costs for the Water and Sewer Charges, Taxes, Common Area Expenses and Trash Removal Services to be paid by Tenant with respect to such year, the amount paid by Tenant, and the amount of the resulting balance due or overpayment. If a balance is due to Landlord, Tenant will pay balance to Landlord within thirty (30) days of invoice. If Tenant overpaid its Tenant’s Pro Rata Share, Landlord will pay or credit to Tenant’s account the overpayment to Tenant within thirty (30) days of Landlords submission of the Statement. Each Statement shall be final and conclusive if no objection is raised within ninety (90) days after submission of each such statement. Tenant shall have the right to audit and/or inspect Landlord’s records (not more than once in any lease year) with respect to Tenant’s Pro Rata Share and all other Additional Rents payable by Tenant under this Lease for the immediately prior lease year. Tenant shall give Landlord not less than thirty (30) days written notice of its intention to conduct any such audit. If such audit discloses that the amount paid by Tenant as Additional Rent for the lease years under consideration has been overpaid by Tenant, then Landlord shall refund the overcharge to Tenant within thirty (30) days.

Notwithstanding the forgoing provisions of the above section, Landlord shall have the right, upon thirty (30) days written notice, to require Tenant to pay Tenant’s Pro Rata Share of Water and Sewer Charges, Taxes, Common Area Expenses and Trash Removal Services in quarterly or semi-annual payments rather than on a monthly basis as provided herein.

MUNICIPAL REGULATING

5. A. Tenant shall observe, comply with and execute at its expense, all laws, orders, rules, requirements, and regulations of the United States, State, City or County of the said State, in which the Premises is located, and of any and all governmental authorities or agencies and of any board of fire underwriters or other similar organization, respecting the Premises and the manner in which the Premises are or should be used by Tenant. Notwithstanding anything contained in this Lease, Landlord warrants and represents that as of the Commencement Date, the Premises complies with all laws, orders, rules, requirements, and regulations of the United States, State, City or County of the said State, in which the Premises is located, and of any and all governmental authorities or agencies and of any board of fire underwriters or other similar organization.

Landlord and Tenant acknowledge that under current laws, regulations and ordinances enforced at the time of Lease Execution the Tenant is not required to install in-rack sprinklers so long as the racking is less than twenty feet (20') in height. Accordingly, so long as Tenant installs racking that is less than twenty feet (20') in height, the Tenant shall not be required to install in-rack sprinklers unless the laws, regulations and ordinances are hereafter changed or amended to lower the height at which in-rack sprinklers are required to be installed and such height is below the then existing actual height of the racking installed in the Premises; provided, that in such event the Tenant shall have the right to reduce the height of the racking system to a height that would not require the installation of in-rack sprinklers rather than install in-rack sprinklers.

ASSIGNMENT AND SUBLET

6. A. Tenant shall not assign this Lease, in whole or in part, or sublet the Premises, or any part or portion thereof, or grant any license or concession for any part of the Premises, without the prior written consent of Landlord. If such assignment or subletting is permitted, Tenant shall not be relieved from any liability whatsoever under this Lease. Landlord shall be entitled to all additional considerations over and above those stated in this Lease, which are obtained in or for the sublease and/or assignment. No option rights can be assigned or transferred by Tenant to an assignee or subtenant. Any sublet or assignment of this Lease will be assessed with processing fees to be paid for by Tenant as Additional Rent. Such processing fees shall not exceed $500.00.

B. Notwithstanding the foregoing, Tenant shall be permitted, without the consent of Landlord, but upon written notice to Landlord, to assign the Lease or sublet all or a portion of the Premises: (a) to a direct or indirect subsidiary, parent, or a subsidiary of a parent of Tenant; or (b) to a successor to Tenant by merger, consolidation or acquisition of all or substantially all of the assets or stock of Tenant. The following shall not be deemed an assignment or sublease under this Lease (a) the sale of shares of Tenant if the Tenant is a corporation whose shares are traded on a recognized domestic or foreign public stock exchange and such trading is not for the purpose of acquiring effective control of Tenant, or (b) the transfers of such stock from private to public ownership if Tenant is a private corporation whose stock becomes publicly held.

INSURANCE

7. A. TENANT’S INSURANCE

Throughout the Term of this Lease, Tenant shall obtain and maintain:

1. Business Personal Property insurance covering Special Causes of Loss. Such Business Personal Property insurance shall not be in an amount less than that required to replace all of the Tenant’s trade fixtures, decorations, furnishings, equipment and personal property and in an amount required to avoid the application of any coinsurance provision. Such Business Personal Property insurance shall contain a Replacement Cost valuation provision.

2. Commercial General Liability insurance (written on an occurrence basis) including Contractual Liability coverage insuring the obligations assumed by Tenant under this Lease, Premises and Operations coverage, Personal Injury Liability coverage, Independent Contractor’s Liability coverage. Such Commercial General Liability insurance shall be in minimum amounts typically carried by prudent businesses engaged in similar operations, but in no event shall be in an amount less than Two Million Dollars ($2,000,000) combined single limit per occurrence with a Three Million Dollar ($3,000,000) annual aggregate. If Tenant conducts operations at locations and/or projects other than the Premises, such annual aggregate limit will be expressed on a “per location” and/or “per project” basis, as may be the case. Tenant agrees to notify Landlord of any erosion in its Commercial General Liability annual aggregate limit within ten (10) days of being advised of such erosion by its insurer or insurance agent.

All such insurance shall: (i) be issued by a company that has a rating equal to or exceeding A: XI from A.M. Best Company; (ii) name Landlord and the holder of any Mortgage if requested by mortgagee as Additional Insured, as applicable (for General Liability insurance, this will be accomplished by use of policy form CG 2011 [November, 1985 edition date] or its equivalent); (iii) contain an endorsement prohibiting cancellation, failure to renew, reduction of amount of insurance or reduction in the scope of coverage without the insurer first giving Landlord thirty (30) days’ prior written notice (by certified or registered mail, return receipt requested) of such proposed action (no less than ten [10] days’ notice of cancellation or failure to renew for non-payment of premium).

No such Commercial General Liability insurance shall contain a self-insured retention provision except as otherwise approved in writing by Landlord, which approval shall not be unreasonably withheld , conditioned or delayed. Landlord reserves the right from time to time but no more than once a year to require Tenant to obtain higher minimum amounts or different types of insurance if it becomes customary for other landlords of similar buildings as that which contains the Premises to require similar-sized tenants in similar industries to carry insurance of such higher minimum amounts or of different types. At the commencement of this Lease, Tenant shall deliver a certificate of all required insurance and will continue throughout the term of this Lease to do so not less than ten (10) days prior to the expiration of any required policy of insurance. Neither the issuance of any insurance policy required under this Lease nor the minimum limits specified herein shall be deemed to limit or restrict in any way Tenant’s liability arising under or out of this Lease.

All insurance obtained by Tenant and Landlord shall provide that the insurer thereunder waives all right of recovery by way of subrogation against the other, its partners, employees, agents, representatives in connection with any loss or damage covered by such policy. To the fullest extent permitted by law, Tenant shall indemnify and hold harmless Landlord, its partners, employees, agents, representatives and any other party required to be indemnified and/or held harmless under the terms of any written contract or agreement with Landlord pertaining to this Lease and/or to the Premises, from and against all claims, damages, losses, costs and/or expenses, including, but not limited to attorneys’ fees, arising out of or resulting from Tenant’s negligent acts or omissions, occupancy of the Premises or obligations under this Lease. Such indemnification and/or hold harmless shall not be invalidated by the partial negligence of one or more of the indemnities. If the laws of the governing jurisdiction do not permit such an indemnification and/or hold harmless, then Tenant’s obligations to indemnify and hold harmless the indemnities will be to the fullest extent permitted and all other parts of this Lease and this paragraph will apply.

B. LANDLORD’S INSURANCE

Throughout the Term of this Lease, Landlord shall obtain and maintain:

1. Real Property insurance against Special Causes of Loss and subject to Replacement Cost valuation covering the Building and all of Landlord’s property therein in an amount required by its insurance company to avoid the application of any coinsurance provision.

2. Commercial General Liability insurance (written on an occurrence basis) including Contractual Liability coverage insuring the obligations assumed by Landlord under this Lease, Premises and Operations coverage, Personal Injury Liability coverage, Independent Contractor’s Liability coverage. Such Commercial General Liability insurance shall be in amounts not less than Two Million Dollars ($2,000,000) combined single limit per occurrence with a Four Million Dollar ($4,000,000) annual aggregate.

3. All insurance obtained by Landlord shall provide that the insurer thereunder waives all right of recovery by way of subrogation against Tenant, its partners, employees, agents, representatives and any other party required to be the recipient of such a waiver under the terms of any written contract or agreement with Tenant pertaining to this Lease and/or to the Common Areas of the Property, in connection with any loss or damage covered by such policy. To the fullest extent permitted by law, Landlord shall indemnify and hold harmless Tenant, its partners, employees, agents, representatives and any other party required to be indemnified and/or held harmless under the terms of any written contract or agreement with Tenant pertaining to this Lease and/or to the Common Areas, from and against all claims, damages, losses, costs and/or expenses, including, but not limited to attorneys’ fees, arising out of or resulting from Landlord’s acts or omissions, use and maintenance of the Common Areas or obligations under this Lease. Such indemnification and/or hold harmless shall not be invalidated by the partial negligence of one or more of the indemnities. If the laws of the governing jurisdiction do not permit such an indemnification and/or hold harmless, then Landlord’s obligations to indemnify and hold harmless the indemnities will be to the fullest extent permitted and all other parts of this Lease and this paragraph will apply.

ALTERATIONS

8. A. Tenant shall not make structural alterations or other alterations except decorative changes (i.e.: painting, hanging art or installing personal property) to the Premises in addition to original improvements existing in the Premises at the time of occupancy without the prior written consent of Landlord, which consent will not be unreasonably withheld, conditioned or delayed.

B. In the event Tenant shall desire to make any such alterations, plans for the same shall first be submitted to Landlord for approval, and upon approval, the same shall be performed by Tenant at its own expense. Tenant agrees that all such work shall be done in a good and workmanlike manner, that the structural integrity of the building shall not be impaired, that no liens shall attach to the building by reason thereof, and that all alterations shall be in accordance with all applicable codes. Tenant agrees to obtain at Tenant’s expense all permits pertaining to the alterations. Tenant also agrees to obtain, prior to commencing to make such alterations, and to keep in full force and effect at all time while such alterations are being made, all at Tenant’s sole cost and expense, such policies of insurance pertaining to such alterations and/or to the making thereof as Landlord reasonably may request or require Tenant to obtain, including, but not limited to, public liability and property damage insurance, and to furnish Landlord evidence satisfactory to Landlord of the existence of such insurance prior to Tenant’s beginning to make such alterations. Tenant shall also provide to Landlord evidence of lien waivers for each and every contractor Tenant hires.

C. Any such alterations shall become the property of Landlord as soon as they are affixed to the Premises and all rights, title and interest therein of Tenant shall immediately cease, unless otherwise agreed to by Landlord in writing. Landlord shall have the sole right to collect any insurance for any damage of any kind caused by any alterations or improvements placed upon the Premises by Tenant. If the making of any such alterations, or the obtaining of any permits therefore shall directly or indirectly result in a franchise, minor privilege or any other tax or increase in tax, assessment or increase in assessment, such franchise, privilege, tax or assessment shall be paid, immediately upon its levy and subsequent levy, by Tenant.

D. Unless Landlord shall consent in writing that all or part of any alterations installed by Tenant shall remain, the Premises shall be restored to their original condition by Tenant, reasonable wear and tear, damage from casualty and condemnation excepted, at its own expense, before the expiration of its tenancy.

E. Costs of alterations or modifications (in addition to the improvements as described herein in Section 34) Tenant requests Landlord to make on Tenant’s behalf during the term of this Lease shall be due and payable as Additional Rent.

MAINTENANCE AND SERVICES

9. A. TENANT’S RESPONSIBILITY. Tenant shall, during the Term, keep the Premises and appurtenances (including, but not limited to, interior and exterior windows, interior and exterior doors, interior plumbing, heating, ventilating and air conditioning (HVAC), interior electrical in good order and condition and will make all necessary repairs or replacement thereof. Landlord does, however, give a ninety (90) day warranty on all of the above mentioned items. This warranty does not include the required annual maintenance contract on the HVAC unit(s) as described in Section 9(B) below. Any repair made by Landlord at Tenant’s request to the Premises shall be invoiced to Tenant and shall become due and payable as Additional Rent within thirty (30) days of invoice. Tenant will be responsible for all exterminating services, except termites, required in the Premises. If Tenant does not make necessary repairs within thirty (30) days after receiving written notice from Landlord of the need to make a repair, Landlord may proceed to make said repair and the cost of said repair will become part of and in addition to the next due monthly installment of Additional Rent. Provided Tenant is not in default of the Lease and that Tenant maintains an annual HVAC maintenance agreement with Landlord, Landlord shall warrant the HVAC systems that service the Premises installed by Landlord against all repairs and replacements over $500.00 per unit per lease year.

B. HVAC ANNUAL MAINTENANCE CONTRACT. Tenant agrees to furnish to Landlord, at the expense of Tenant, prior to occupancy, a copy of an executed and paid for annual maintenance contract on all heating and air conditioning (HVAC) equipment with a reputable company acceptable to Landlord and said contract will be kept in effect during the Term of the Lease at the expense of Tenant. Should Tenant not provide a satisfactory HVAC Maintenance contract to Landlord prior to occupancy, Tenant shall be provided a contract through St. John Properties, Inc. Billings for this contract shall become due and payable as Additional Rent within thirty (30) days of invoice.

C. LANDLORD’S RESPONSIBILITY. Landlord shall make all necessary structural repairs to the exterior masonry walls , foundation, interior support columns, subfloor and roof of the Premises, after being notified in writing of the need for such repairs, provided the necessity for such repairs was not caused by the negligence or misuse of Tenant, its employees, agents or customers.

D. SURRENDER. Tenant shall, at the expiration of the Term or at the sooner termination thereof by forfeiture otherwise, deliver up the Premises in the same good order and condition as it was at the beginning of the tenancy, reasonable wear and tear excepted , damage by casualty and condemnation excepted.

DEFAULT

10. In the event Tenant shall fail to pay said installments of Annual Rent, Additional Rent or any other sum required by the terms of this Lease, additional written agreements or addenda of this Lease to be paid by Tenant, and such failure shall continue for five (5) days after Landlord has given written notice thereof to Tenant, Landlord shall have along with any and all other legal remedies the immediate right to make distress therefore, and upon such distress, in Landlord’s discretion, this tenancy shall terminate. In the event Tenant shall fail to comply with any of the provisions, covenants or conditions of this Lease, on its part to be kept and performed, and such default shall continue for a period of thirty (30) days after Landlord has given written notice to Tenant, then, upon the happening of any such event, and in addition to any and all other remedies that may thereby accrue to Landlord, Landlord may do the following:

A. Landlord’s Election to Retake Possession Without Termination of Lease

Landlord may retake possession of the Premises and shall have the right, but not the obligation, without being deemed to have accepted a surrender thereof, and without terminating this Lease, to relet the same for the remainder of the Term upon terms and conditions satisfactory to Landlord; and if the rent received from such reletting does not at least equal the Annual Rent and other sums payable by Tenant hereunder, Tenant shall pay and satisfy the deficiency between the amount of Annual Rent and other sums so provided in this Lease and the Annual Rent received through reletting the Premises; and, in addition, Tenant shall pay reasonable expenses in connection with any such reletting, including, but not limited to, the cost of renovating, altering, and decorating for any occupancy, leasing commissions paid to any real estate broker or agent, and attorneys’ fees incurred.

B. Landlord’s Election to Terminate Lease

Landlord may terminate the Lease and forthwith repossess the Premises and be entitled to recover as damages a sum of money equal to the total of the following amounts:

any unpaid rent or any other outstanding monetary obligation of Tenant to Landlord under the Lease as of the termination date;

the balance of the rent and other sums payable by Tenant for the remainder of the Term to be determined as of the date of Landlord’s re-entry;

damages for the wrongful withholding of the Premises by Tenant

all reasonable legal expenses, including attorneys’ fees, expert and witness fees, court costs and other costs incurred in exercising its rights under the Lease;

all reasonable costs incurred in recovering the Premises, restoring the Premises to good order and condition, and all commissions incurred by Landlord in reletting the Premises; and

any other reasonable amount necessary to compensate Landlord for all detriment caused by Tenant’s default.

DAMAGE

11. In the case of the total destruction of the Premises by fire, other casualties, the elements or other cause, or of such damage thereto as shall render the same totally unfit for occupancy by Tenant for more than sixty (60) days, this Lease, upon surrender and delivery to Landlord of the Premises, together with the payment of the monthly installments of Annual Rent and Additional Rent to the date of such occurrence, shall terminate and be at an end , and both parties shall be released from all obligations under this Lease. If the Premises are rendered partly untenantable by any cause mentioned in the preceding sentence, Landlord shall, at its own expense, restore the Premises with all reasonable diligence, and the monthly installments of Annual Rent and Additional Rent shall be abated proportionately for the period of said partial untenantability and until the Premises shall have been fully restored by Landlord.

BANKRUPTCY

12. In the event of the appointment of a receiver or trustee for Tenant by any court, Federal and State, in any legal proceedings under any provisions of the Bankruptcy Act, if the appointment of such receiver or such trustee is not vacated within sixty (60) days, or if said Tenant be adjudicated bankrupt or insolvent, or shall make an assignment for the benefit of its creditors, then and in any of said events, Landlord may, at its option, terminate this tenancy by thirty (30) days written notice, and re-enter upon the Premises.

POSSESSION/BENEFICIAL OCCUPANCY

13. Landlord covenants and agrees that possession of the Premises shall be given to Tenant as soon as the Premises are ready for occupancy. If possession, cannot be given to Tenant on or before the Commencement Date, Landlord agrees to abate the rent proportionately until possession is given to said Tenant and Tenant agrees to accept such prorated abatement as liquidated damages for the failure to obtain possession. If possession of the Premises is not given to the Tenant by May 1, 2009, then Tenant shall have the right to terminate this Lease by providing Landlord with ten (10) days’ written notice.

If Tenant occupies any portion of the Premises prior to tender of possession thereof by Landlord, such occupancy shall be deemed to be beneficial occupancy and a proportionate share of the Annual Rent and Additional Rent shall be due and payable as to that portion of the Premises so occupied, immediately upon Tenant’s occupancy. Such occupancy by Tenant and installments of Annual Rent and Additional Rent thereby due shall not depend on official governmental approval of such occupancy, state of completion of building, availability or connection of utilities and services including but not limited to water, sewer, well water, septic system, gas, oil, or electric. No Annual Rent credit shall be given because of lack of utilities or services unless caused by the negligence of Landlord.

Notwithstanding anything to the contrary contained in this Lease, if any utility service to the Premises is interrupted for more than seventy-two (72) consecutive hours as a result of an act or omission of Landlord or its employees, then commencing with the first full business day thereafter, there shall be an equitable abatement of Annual Rent and all Additional Rent.

SIGNS, ETC.

14. Tenant covenants and agrees that:

A. It shall not place or permit any signs, lights, awnings or poles on or about the exterior of the Premises without the prior permission, in writing, of Landlord , such permission to not be unreasonably withheld, conditioned or delayed, and in the event such consent is given, Tenant agrees to pay any minor privileges or other tax associated with Tenant’s signage, lights, awnings, or poles.

B. Landlord, at Landlord’s option, may immediately remove and dispose of any of the unauthorized aforementioned items at the expense of Tenant and said cost shall become part of and in addition to the next due monthly installments of Annual Rent, as Additional Rent. Tenant further covenants and agrees that it will not paint or make any changes of the Premises without the written consent of Landlord. Tenant agrees that it will not do anything on the outside of the Premises to change the uniform architecture, paint or appearance of said building, without the written consent of Landlord.

C. Landlord shall have the right to place a “For Rent” sign on any portion of the Premises for ninety (90) days prior to termination of this Lease and to place a “For Sale” sign thereon at any time.

EXTERIOR OF PREMISES

15. Tenant further covenants and agrees not to put any items on the sidewalk or parking lot in the front, rear, or sides of said building or block said sidewalk, and not to do anything that directly or indirectly takes away any of the rights of ingress or egress from any other tenant of Landlord or do anything which will, in any way, change the uniform and general design of the Property of which the Premises hereby leased shall constitute a part.

WATER DAMAGE

16. Tenant covenants and agrees that Landlord shall not be held responsible for and Landlord is hereby released and relieved from any liability by reason of or resulting from damage or injury to person or property of Tenant or of anyone else, directly or indirectly caused by (a) dampness or water in any part of the Premises or in any part of any other property of Landlord or of others and/or (b) any leak or break in any part of the Premises or in any part of any other property of Landlord or of others or in the pipes of the plumbing or heating works thereof, unless the damage is due to Landlord’s negligent act or omission .

LIABILITY

17. Landlord shall not be liable to Tenant for any loss or injury to Tenant or to any other person or to the property of Tenant or of any other person unless such loss or damage shall be caused by or result from a negligent act or omission solely on the part of Landlord or any of its agents, servants, or employees. Tenant shall, and does hereby, indemnify and hold harmless Landlord and any other parties in interest from and against any and all liabilities, fines, claims, damages and actions, costs and expenses of any kind or nature (including attorneys’ fees) and of anyone whatsoever (i) relating to or arising from Tenant’s use and occupancy of the Premises; (ii) due to or arising out of any mechanic’s lien filed against the building, or any part thereof, for labor performed or for materials furnished or claimed to be furnished to Tenant, or (iii) due to or arising out of any breach, violation or nonperformance of any covenant, condition or agreement in this Lease set forth beyond any applicable notice and cure period and contained on the part of Tenant to be fulfilled, kept, observed or performed.

In the event Landlord provides any Security Guard or Access Control Services as described herein in Section 4c, Landlord is hereby released from any responsibility for any damages either to person or property sustained by Tenant incurred in connection with or arising from acts or omissions of any Security Guard or Access Control Services provided by Landlord.

RIGHT OF ENTRY

18. It is understood and agreed that Landlord, and its agents, servants, and employees, including any builder or contractor employed by Landlord, shall have, and Tenant hereby gives them and each of them, the absolute, and unconditional right, license and permission with reasonable notice, at any and all reasonable times, and for any reasonable purpose whatsoever, to enter through, across or upon the Premises or any part thereof, and, at the option of Landlord, to make such reasonable repairs to or changes in the Premises as Landlord may deem necessary or proper , provided that Landlord shall use reasonable efforts to avoid material interference to the conduct of Tenant’s business operations therein except in the event of an emergency. Tenant agrees that Landlord and its agents and assigns have the unconditional right to show the Premises for lease at any time, with reasonable notice once Tenant notifies Landlord of its intention to vacate the Premises.

EXPIRATION

19. It is agreed that the term of this Lease expires on February 28, 2019, without the necessity of any notice by or to any of the parties hereto. If Tenant shall occupy the Premises after such expiration, it is understood that, in the absence of any written agreement to the contrary, said Tenant shall hold the Premises as a “Tenant from month to month”, subject to all the other terms and conditions of this Lease, at one hundred and fifty percent (150%) the highest monthly installments of Annual Rent reserved in this Lease; provided that Landlord shall, upon such expiration, be entitled to the benefit of all public general or public local laws relating to the speedy recovery of the possession of lands and tenements held over by Tenant that may be now in force or may hereafter be enacted.

Prior to Lease expiration, Tenant agrees to schedule an inspection with Landlord to confirm that the Premises will be in proper order at expiration, including, but not limited to, lighting, mechanical, electrical and plumbing systems.

CONDEMNATION

20. It is agreed that in the event condemnation proceedings are instituted against the Property, or the Premises and possession taken by the condemning authority, then this Lease shall terminate at the date possession is taken and Tenant shall not be entitled to recover any part of the award.

SUBORDINATION

21. It is agreed that Landlord shall have the right to place a mortgage or deed of trust on the Premises and this Lease shall be subordinate to any such mortgage or deed of trust whether presently existing or hereafter placed on the Premises, and Tenant agrees to execute any reasonable documents assisting the effectuating of said subordination. Furthermore, if any person or entity shall succeed to all or part of Landlord’s interest in the Premises, whether by purchase, foreclosure, deed in lieu of foreclosure, power of sale, termination of lease, or otherwise, Tenant shall automatically attorn to such successor in interest, which attornment shall be self operative and effective upon the signing of this Lease, and Tenant shall execute such other agreement in confirmation of such attornment as such successor in interest shall reasonably request. Landlord shall provide Tenant a Subordination Attornment and Non-Disturbance (SNDA) Agreement from its lender(s) in the lender’s standard form.

NOTICE

22. Any written notices required by this Lease shall be deemed sufficiently given, if (i) hand delivered, (ii) sent via first class U.S. mail, (iii) certified mail or (iv) overnight courier service.

Any notice required by this Lease is to be sent to Landlord at:

	2560 Lord Baltimore Drive

	Baltimore, Maryland 21244

Any notice required by this Lease is to be sent to Tenant at:

	11407 Cronhill Drive, Suite A-D

	Owings Mills, Maryland 21117

With a copy to:

Hillel Tendler

Neuberger, Quinn, Gielen, Rubin & Gibber P.A.

One South Street, 27 th Floor

Baltimore, Maryland 21202

Emergency Contact Information:

	Address:



	Contact:

		Title:

	Telephone:

	Fax:

REMEDIES NOT EXCLUSIVE

23. No remedy conferred upon Landlord shall be considered exclusive of any other remedy, but shall be in addition to every other remedy available to Landlord under this Lease or as a matter of law. Every remedy available to Landlord may be exercised concurrently or from time to time, as often as the occasion may arise. Landlord and Tenant hereby waive any and all rights which it may have to request a jury trial in any proceeding at law or in equity in any court of competent jurisdiction.

NON-WAIVER

24. It is agreed that the failure of either party to insist in any one or more instances upon a strict performance of any covenant of this Lease or to exercise any right herein contained shall not be construed as a waiver or relinquishment for the future of such covenant or right, but the same shall remain in full force and effect, unless the contrary is expressed in writing by Landlord. The receipt of the monthly installments of Annual Rent or Additional Rent by Landlord, with knowledge of any breach of this Lease by Tenant or of any default on the part of Tenant hereunder, shall not be deemed to be a waiver of any provisions of this Lease. Neither acceptance of the keys nor any other act or thing done by Landlord or any agent or employee of Landlord shall be deemed to be an acceptance of a surrender of the Premises, excepting only an agreement in writing by Landlord accepting or agreeing to accept such surrender.

SECURITY DEPOSIT AND FINANCIAL STATEMENTS

25. A security deposit of $8,250.00 is required to accompany this Lease, when submitted for approval by Landlord, subject to all the conditions of the security deposit agreement attached. If this Lease is not approved by Landlord within thirty (30) days of its submission to Landlord, the security deposit will be refunded in full within thirty (30) days of Landlord’s rejection of this Lease.

FINAL AGREEMENT

26. This Lease contains the final and entire agreement between the parties hereto, and neither they nor their agents shall be bound by any terms, conditions or representations not herein written.

LEGAL EXPENSE

27. In the event, to enforce the terms of this Lease, either party files legal action against the other, and is successful in said action, the losing party agrees to pay all reasonable expenses to the prevailing party, including the attorneys’ fee incident to said legal action including any appeals. In the event that Landlord is successful in any legal action filed against Tenant, Landlord’s expenses incident to said legal action shall be due as Additional Rent within thirty (30) days of invoice.

LAND

28. It is agreed that the Premises is the building area occupied by Tenant and only the land under that area.

RELOCATION

29. Intentionally Deleted.

ENVIRONMENTAL REQUIREMENTS

30. Tenant hereby covenants and agrees that if at any time it is determined that there are materials placed on the Premises by Tenant which, under any environmental requirements require special handling in collection, storage, treatment, or disposal, Tenant shall, within thirty (30) days after written notice thereof, take or cause to be taken, at its sole expense, such actions as may be necessary to comply with all environmental requirements. If Tenant shall fail to take such action, Landlord may make advances or payments towards performance or satisfaction of the same but shall be under no obligation to do so; and all sums so advanced or paid, including all sums advanced or paid in connection with any judicial or administrative investigation or proceeding relating thereto, including, without limitation, reasonable attorneys’ fees, fines, or other penalty payments, shall be at once repayable by Tenant as Additional Rent and shall bear interest at the rate of four percent (4%) per annum above the Prime Rate from time to time as published by The Wall Street Journal , from the date the same shall become due and payable until the date paid. Failure of Tenant to comply with all environmental requirements shall constitute and be a default under this Lease.

Tenant will remain totally liable hereunder regardless of any other provisions which may limit recourse.

Landlord hereby represents and warrants that to the best of Landlord’s knowledge, as of the Commencement Date, the Property and the Premises comply with all federal, state and local environmental requirements.

SEVERABILITY

31. In the event any one or more of the provisions contained in this Lease shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

LATE CHARGE

32. In the event Tenant shall fail to pay when due, the monthly installments of Annual Rent, Additional Rent or any other sum required by the terms of this Lease to be paid by Tenant, then, upon the happening of any such event, and in addition to any and all other remedies that may thereby accrue to Landlord, Tenant agrees to pay to Landlord a late charge of five percent (5%) of the monthly account balance. The late charge on the Annual Rent accrues after ten (10) days of the due date, payable as Additional Rent and the late charge on other amounts due Landlord accrue thirty (30) days from invoice, payable as Additional Rent.

In the event the monthly installment of Annual Rent is received fifteen (15) days after due date, Landlord shall have option to require the rental payment be made with a certified or cashier’s check.

QUIET ENJOYMENT

33. Tenant, upon paying the monthly installments of Annual Rent, Additional Rent and other charges herein provided and observing and keeping all of its covenants, agreements, and conditions in this Lease, shall quietly have and enjoy the Premises during the Term of this Lease without hindrance or molestation by anyone claiming by or through Landlord: subject, however, to all exceptions, reservations and conditions of this Lease.

LANDLORD’S WORK

34. The Premises shall contain only the following items by Landlord at the expense of Landlord: $41,285.00 to perform demolition of existing office space as necessary, remove carpet glue from concrete floor, furnish and install one (1) set of pre-cast steps, one (1) personnel door, three (3) over-head block doors and bumpers, repair, clean and or replace mini-blinds and expand the building’s sprinkler system to sprinkler Suites A-C.

The Premises shall contain the followings items installed by Landlord at the sole expense of Tenant in the amount of $117,858.00 payable as Additional Rent, all other work to furnish and install improvements to the Premises as illustrated on attached “Exhibit A” (floor plan) and as quantified on “Exhibit B” (estimate) both made a part hereof. Tenant shall pay $29,464.50 upon lease execution, $29,464.50 on or before November 20, 2008, $29,464.50 on or before December 14, 2008 and $29,464.50 upon Landlord’s substantial completion of work, but prior to Tenant’s occupancy.

Tenant shall be solely responsible for all voice, data and security wiring, equipment and installation.

WINDOW COVERINGS

35. Tenant shall not install any window covering other than a one-inch horizontal mini-blind of an off-white color unless approved in writing by Landlord.

RULES AND REGULATIONS

36. Tenant shall at all times comply with the Rules and Regulations attached hereto and made a part hereof. Landlord shall make a reasonable effort to enforce the Rules and Regulations equitably against all tenants of the Property.

ESTOPPEL CERTIFICATE

37. Tenant shall, at any time during the Term or any renewal thereof, upon request of Landlord, execute, acknowledge, and deliver to Landlord or its designee, a statement in writing, certifying that this Lease is unmodified and in full force and effect if such is the fact that the same is in full force and effect.

EXCULPATION CLAUSE

38. No principal, partner, member, officer, director, trustee or affiliate of Landlord (collectively, “Landlord Affiliates”) shall have any personal liability under any provision of this Lease.

EARLY TERMINATION

39. Tenant shall have the one time right to terminate this Lease on February 29, 2014; by giving Landlord three hundred and sixty five (365) days prior written notice of Tenant’s intent to terminate this Lease and a payment at the time of notice in the amount of $42,000.00. In the event Tenant does not exercise its right to terminate as prescribed herein, the right is hereby extinguished and of no further force and effect.

RIGHT OF FIRST OFFER

40. Landlord shall grant Tenant the Right of First Offer (“ROFO”) on the contiguous 6,000 square feet, Suites E and F, (“Contiguous ROFO Space”) in the building in which the Premises is located. Landlord shall give Tenant five (5) business days (the “ROFO Period”) prior written notice of its intention to lease the Contiguous ROFO Space and the price and other terms and conditions on which Landlord is willing to lease the space. Tenant shall have until the end of the ROFO Period to elect to lease the Contiguous ROFO Space at the same price, conditions and terms as specified in the written notice. In the event Tenant elects not to lease the contiguous ROFO space, this ROFO is extinguished and of no further force or effect.

AS WITNESS THE HANDS AND SEALS OF THE PARTIES HERETO THE DAY AND YEAR FIRST ABOVE WRITTEN:

WITNESS:	TENANT :

	Universal Security Instruments, Inc.
	(a Maryland corporation)

___________________________________	By:	/s/
	Printed Name:
	Title:

WITNESS:	LANDLORD :

	St. John Properties, Inc.,
	as agent for owner

___________________________________	By:	/s/
	Printed Name:			Richard Williamson
	Title:		Senior Vice President

SECURITY DEPOSIT AGREEMENT

This is NOT a receipt.

Date: November 4, 2008

Received from Universal Security Instruments, Inc., a Maryland corporation, the amount of $8,250.00, as security deposit for the Premises located at 11407 Cronhill Drive, Suites A-D, Owings Mills, Maryland 21117.

Landlord agrees that, subject to the conditions listed below, this security deposit will be returned in full within thirty (30) days of vacancy.

Tenant agrees that this security deposit may not be applied by Tenant as rent and that the full monthly rent will be paid on or before the first day of every month, including the last month of occupancy. Tenant further agrees that a mortgagee of the property demised by the Lease to which this Security Deposit Agreement is appended and/or a mortgagee thereof in possession of said property and/or a purchaser of said property at a foreclosure sale shall not have any liability to Tenant for this security deposit.

SECURITY DEPOSIT RELEASE PREREQUISITES

Full term of Lease has expired.

No damage to property beyond ordinary wear and tear , casualty and condemnation.

Entire Premises broom clean and in order.

No unpaid late charges or delinquent rents, or other delinquent sums payable by Tenant.

All keys returned to Landlord.

All debris and rubbish and discards placed in proper rubbish containers.

Forwarding address left with Landlord.

AS WITNESS THE HANDS AND SEALS OF THE PARTIES HERETO THE DAY AND YEAR FIRST ABOVE WRITTEN:

WITNESS:	TENANT :

	Universal Security Instruments, Inc.
	(a Maryland corporation)

__________________________________	By:	/s/
	Printed Name:
	Title:

WITNESS:	LANDLORD :

	St. John Properties, Inc.,
	as agent for owner


__________________________________	By:	/s/
	Printed Name:			Richard Williamson
	Title:		Senior Vice President

RULES AND REGULATIONS

The Common Facilities, and the sidewalks, driveways, and other public portion of the Property shall not be obstructed or encumbered by Tenant or used for any purpose other than ingress or egress to and from the Premises, and Tenant shall not permit any of its employees, agents, licensees or invitees to congregate or loiter in any of the Property. Tenant shall not invite to, or permit to visit the Premises, persons in such numbers or under such conditions as may interfere with the use and enjoyment by others of the Property. Landlord reserves the right to control and operate, and to restrict and regulate the use of, the Property and the public facilities, as well as facilities furnished for the common use of tenants, in such manner as it deems best for the benefit of tenants generally.

2)	No animals (except Seeing Eye dogs), fish or birds of any kind shall be brought into, or kept in or about the Premises within the building.

3)	Tenant shall not make or cause to make noise, including, but not limited to, music, the playing of musical instruments, recordings, radio or television, which, in the judgment of Landlord, might disturb other tenants in the building or Property shall be made or permitted by any tenant.

4)	Tenant shall not use the Premises or allow it to be used for lodging or sleeping or for any immoral or illegal purpose.

5)	Tenant shall not cause or permit any odors of cooking or other processes, or any unusual or objectionable odors, to emanate from the Premises which would annoy other tenants or create a public or private nuisance. Smoking is not allowed in the Premises or within the building.

6)	Plumbing facilities shall not be used for any purpose other than those for which they were constructed. No sweepings, rubbish, ashes, newspapers, objects or other substances of any kind shall be thrown into the plumbing facilities.

7)	Tenant agrees to keep the Premises in a neat, good and sanitary condition and to place garbage, trash, rubbish and all other disposables only where Landlord directs.

Landlord reserves the right to rescind, alter, waive or add, any rule or Regulation at any time prescribed for the building when, in the reasonable judgment of Landlord, Landlord deems it necessary or desirable for the reputation, safety, character, security, care, appearance or interests of the Property, or the preservation of good order therein, or the operation or maintenance of the Property, or the equipment thereof, or the comfort of tenants of others in the Property. No rescission, alteration, waiver or addition of any rule or regulation in respect of one tenant shall operate as a rescission, alteration or waiver in respect of any other tenant.

9)	Tenant shall have the non-exclusive right to park in parking spaces in front of and behind Tenant’s Premises. This area shall be defined by two imaginary lines extending out from Tenant’s demising walls.

10)	Tenant shall not place storage trailers or other storage containers of any type outside the Premises.

11)	Tenant shall not park on a permanent or semi-permanent basis, any trailer behind dock doors or in any other location outside the Premises for the purpose of storage.

12)	Tenant shall place any and all trash containers in the rear parking lot with a minimum of 10 feet distance from the building and within the two imaginary lines extending out from Tenant’s rear demising walls.

Non-compliance with any of the above rules and regulations may, in Landlord’s sole judgment, result in a monetary fine not to exceed $100 per day. Landlord will notify Tenant of such violations and Tenant will have five (5) days to rectify, after which, daily fine will be applied, due and payable as Additional Rent within thirty (30) days of invoice.

Exhibit 31.1

CERTIFICATION

I, Harvey B. Grossblatt, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Universal Security Instruments, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

(c)

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent function):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: February 12, 2009	/s/ Harvey B. Grossblatt
	Harvey B. Grossblatt
	Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, James B. Huff, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Universal Security Instruments, Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: February 12, 2009	/s/ James B. Huff
	James B. Huff
	Chief Financial Officer

Exhibit 32.1

SECTION 1350 CERTIFICATIONS

In connection with the Quarterly Report of Universal Security Instruments, Inc. (the “Company”) on Form 10-Q for the period ending December 31, 2008 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 the Report fairly presents, in all material respects, the financial condition and result of operations of the Company for the periods reflected therein.

Date: February 12, 2009	/s/ Harvey B. Grossblatt
	Harvey B. Grossblatt
	Chief Executive Officer

	/s/ James B. Huff
	James B. Huff
	Chief Financial Officer

Exhibit 99.1

For Immediate Release

Contact: Harvey Grossblatt, President

Universal Security Instruments, Inc.

410-363-3000, Ext. 224

Don Hunt, Jeff Lambert

Lambert, Edwards & Associates, Inc.

616-233-0500

Universal Security Instruments Reports Third-Quarter Results

OWINGS MILLS, MD, February 12, 2009 - Universal Security Instruments, Inc. (AMEX-UUU) today announced results for its third quarter ended December 31, 2008.

The Owings Mills, MD based designer and marketer of safety and security equipment reported a net income of $292,513, or $0.12 per basic and diluted share, on net sales of $5,595,049 compared to a net loss of $1,635,789 for the same period last year, or $0.66 per basic and diluted share, on net sales of $7,776,986 for the same period last year. Included in last year’s results was a loss of $2,801,606 from discontinued operations.

For the nine months ended December 31, 2008, sales were $20,169,229 versus $27,152,181 for the same period last year. USI reported net income of $4,787,207, or $1.93 per basic and diluted share, compared to a loss of $526,647, or $0.21 per basic and diluted share. Included in the current nine-month results is a gain of $3,381,254 from discontinued operations, and included in the comparable period of last year was a loss of $3,702,373 from discontinued operations.

The Company reported that it had purchased 62,725 shares of its common stock at an average cost of $3.42 per share and has approval to purchase an additional 37,275 under its current authorized buy-back.

“During this most difficult housing and retail environment, Universal remained focused on controlling expenses and increasing shareholder value, and was able to accomplish both in its third quarter raising the Company’s book value to $9.83 per share,” said CEO, Harvey Grossblatt.

UNIVERSAL SECURITY INSTRUMENTS, INC. is a U.S.-based manufacturer (through its Hong Kong Joint Venture) and distributor of safety and security devices. Founded in 1969, the Company has a 39 year heritage of developing innovative and easy-to-install products, including smoke, fire and carbon monoxide alarms. For me information on Universal Security Instruments, visit our website at www.universalsecurity.com.

"Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Certain matters discussed in this news release may constitute forward-looking statements within the meaning of the federal securities laws that inherently include certain risks and uncertainties. Actual results could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, among other items, our and our Hong Kong Joint Venture's respective ability to maintain operating profitability, currency fluctuations, the impact of current and future laws and governmental regulations affecting us and our Hong Kong Joint Venture and other factors which may be identified from time to time in our Securities and Exchange Commission filings and other public announcements. We do not undertake and specifically disclaim any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements. We will revise our outlook from time to time and frequently will not disclose such revisions publicly.

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Universal/Page 2

UNIVERSAL SECURITY INSTRUMENTS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended December 31,
	2008		2007
Sales	$	5,595,049	$	7,776,986

Net income from continuing operations		292,513		1,165,817
Income per share from continuing operations:
Basic		0.12		0.47
Diluted		0.12		0.47

Loss from discontinued operations		0.00		(2,801,606	)
Loss per share from discontinued operations:
Basic		0.00		(1.13	)
Diluted		0.00		(1.13	)

Net income (loss):		292,513		(1,635,789	)
Net income (loss) per share – basic		0.12		(0.66	)
Net income (loss)per share – diluted		0.12		(0.66	)
Weighted average number of common shares outstanding:
Basic		2,467,028		2,489,132
Diluted		2,467,028		2,489,132

CONSOLIDATED STATEMENTS OF INCOME

	Nine Months Ended December 31,
	2008		2007
Sales	$	20,169,229	$	27,152,181

Net income from continuing operations		1,405,953		3,175,726
Income per share from continuing operations:
Basic		0.57		1.28
Diluted		0.57		1.26

Gain (loss) from discontinued operations		3,381,254		(3,702,373	)
Gain (loss) per share from discontinued operations:
Basic		1.36		(1.49	)
Diluted		1.36		(1.47	)

Net income (loss):		4,787,207		(526,647	)
Net income (loss) per share – basic		1.93		(0.21	)
Net income (loss) per share – diluted		1.93		(0.21	)
Weighted average number of common shares outstanding:
Basic		2,480,330		2,481,802
Diluted		2,480,330		2,523,316

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Universal/Page 3

CONSOLIDATED BALANCE SHEETS

	December 31, 2008		March 31, 2008

ASSETS

Cash	$	180,755	$	3,863,784
Accounts receivable and amount due from factor		5,105,608		6,144,169
Inventory		9,378,114		5,357,488
Prepaid expenses		156,947		206,197
Assets held in receivership		219,402		2,850,731

TOTAL CURRENT ASSETS		15,040,826		18,422,369

INVESTMENT IN HONG KONG JOINT VENTURE		10,688,904		9,986,579
PROPERTY, PLANT AND EQUIPMENT – NET		130,530		130,347
OTHER ASSETS AND DEFERRED TAX ASSET		2,216,942		1,929,622

TOTAL ASSETS	$	28,077,202	$	30,468,917

LIABILITIES AND SHAREHOLDERS’ EQUITY

Amount due to factor	$	101,911	$	-
Accounts payable and accrued expenses		2,748,636		2,465,292
Liabilities held in receivership		219,402		7,823,450
Accrued liabilities		893,420		665,080

TOTAL CURRENT LIABILITIES		3,963,369		10,953,822

LONG TERM OBLIGATION		95,324		91,160

SHAREHOLDERS’ EQUITY:
Common stock, $.01 par value per share; authorized 20,000,000 shares; issued and outstanding 2,443,292 and 2,487,867 at December 31, 2008 and March 31, 2008		24,448		24,879
Additional paid-in capital		13,316,830		13,453,378
Retained earnings		10,677,231		5,890,023
Other comprehensive income		-		55,655

TOTAL SHAREHOLDERS’ EQUITY		24,018,509		19,423,935

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	28,077,202	$	30,468,917